Delaware Group Income Funds (the “Trust”) is organized as a Delaware statutory trust and offers four Series: Delaware Corporate Bond Fund, Delaware Delchester Fund, Delaware Extended Duration Bond Fund and Delaware High-Yield Opportunities Fund. These financial statements and the related notes pertain to Delaware Delchester Fund (the “Fund”). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to a limited group of investors. As of January 31, 2007, Class R has not commenced operations.
The investment objective of the Fund is to seek total return and, as a secondary objective, high current income.
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund.
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
On July 13, 2006, FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in Fund net asset value calculations as late as the Fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its semiannual report on January 31, 2008. Although the Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund’s financial statements.
1. Significant Accounting Policies (continued)
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income. The Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a Fund of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
Effective December 1, 2006, DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, 12b-1 plan expense, certain insurance costs and non-routine expenses or costs, do not exceed 0.87% of average daily net assets of the Fund through November 30, 2007. Prior to December 1, 2006, DMC had contractually agreed to waive its fees in order to prevent such expenses from exceeding 0.91% of the average daily net assets of the Fund.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee computed at the annual rate of 0.04% of such Fund’s average daily net assets for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares, and 0.60% of the average daily net assets of Class R shares. DDLP has contracted to limit distribution and service fees through November 30, 2007 in order to prevent distribution and service fees of Class R shares from exceeding 0.50% of average daily net assets. Institutional Class shares pay no distribution and service expenses.
The Board of Trustees has adopted a formula for calculating 12b-1 plan fees for the Fund’s Class A shares that went into effect on June 1, 1992. The total 12b-1 fees to be paid by Class A shareholders of the Fund will be the sum of 0.10% of the average daily net assets representing shares that were acquired prior to June 1, 1992 and 0.30% of the average daily net assets representing shares that were acquired on or after June 1, 1992. All Class A shareholders will bear 12b-1 fees at the same rate, the blended rate based upon the allocation of the 0.10% and 0.30% rates described above.
At January 31, 2007, the Fund had liabilities payable to affiliates as follows:
| Investment management fee payable to DMC | | $144,872 |
| Dividend disbursing, transfer agent, | | |
| accounting and administration fees and other | | |
| expenses payable to DSC | | 61,638 |
| Distribution fees payable to DDLP | | 95,177 |
| Other expenses payable to DMC and affiliates* | | 4,159 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is
reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees
for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the six months ended January 31, 2007, the Fund was charged $7,149 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the six months ended January 31, 2007, DDLP earned $12,243 for commissions on sales of the Fund’s Class A shares. For the six months ended January 31, 2007, DDLP received gross contingent deferred sales charge commissions of $11,502 and $431 on redemption of the Fund’s Class B and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares.
Trustees’ fees and benefits include expenses accrued by the Fund for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees of the Fund unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Fund was $36,574. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund.
(continues) 15
Notes to financial statements
Delaware Delchester Fund
3. Investments
For the six months ended January 31, 2007, the Fund made purchases of $250,590,061 and sales of $223,499,004 of investment securities other than short-term investments.
At January 31, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At January 31, 2007, the cost of investments was $368,817,111. At January 31, 2007, the net unrealized appreciation was $8,434,445, of which $13,683,878 related to unrealized appreciation of investments and $5,249,433 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended January 31, 2007 and the year ended July 31, 2006 was as follows:
| | | Six Months | | Year |
| | | Ended | | Ended |
| | | 1/31/07* | | 7/31/06 |
| Ordinary income | | $11,440,085 | | $22,831,013 |
| |
*Tax information for the period ended January 31, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. |
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of January 31, 2007, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | $ | 944,593,959 | |
| Undistributed ordinary income | | 1,106 | |
| Realized gains (losses) 8/1/06-1/31/07 | | 2,995,812 | |
| Post-October losses | | (247,020 | ) |
| Capital loss carryforwards as of 7/31/06 | | (638,362,509 | ) |
| Unrealized appreciation of investments | | 8,434,445 | |
| Net assets | $ | 317,415,793 | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of market discount and premium on debt instruments.
Post-October losses represent losses realized on investment transactions from November 1, 2006 through January 31, 2007 that, in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on paydowns of mortgage- and asset-backed securities and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended January 31, 2007, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end.
| Undistributed net investment income | $ | (82,808 | ) |
| Accumulated net realized gain (loss) | | 82,808 | |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at July 31, 2006 will expire as follows: $122,795,424 expires in 2008, $284,053,994 expires in 2009, $211,481,773 expires in 2010 and $20,031,318 expires in 2011.
For the six months ended January 31, 2007, the Fund had capital gains of $2,995,812 which may reduce the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| | Six Months | | Year | |
| | Ended | | Ended | |
| | 1/31/07 | | 7/31/06 | |
| Shares sold: | | | | |
| Class A | 9,496,073 | | 19,221,892 | |
| Class B | 596,308 | | 1,023,016 | |
| Class C | 1,181,942 | | 2,266,941 | |
| Institutional Class | 3,524,758 | | 1,561,744 | |
| |
| Shares issued upon reinvestment of | | | | |
| dividends and distributions: | | | | |
| Class A | 1,644,543 | | 3,156,106 | |
| Class B | 141,135 | | 390,108 | |
| Class C | 95,675 | | 199,497 | |
| Institutional Class | 235,846 | | 377,850 | |
| | 16,916,280 | | 28,197,154 | |
| Shares repurchased: | | | | |
| Class A | (7,518,174 | ) | (34,377,137 | ) |
| Class B | (2,284,411 | ) | (6,578,407 | ) |
| Class C | (336,971 | ) | (3,473,709 | ) |
| Institutional Class | (880,744 | ) | (2,230,435 | ) |
| | (11,020,300 | ) | (46,659,688 | ) |
| Net increase (decrease) | 5,895,980 | | (18,462,534 | ) |
For the six months ended January 31, 2007 and the year ended July 31, 2006, 1,302,463 Class B shares were converted to 1,302,463 Class A shares valued at $4,373,402 and 2,331,339 Class B shares were converted to 2,334,775 Class A shares valued at $7,633,584, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
16
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (the “Participants”), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of January 31, 2007, or at any time during the period then ended.
8. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with JPMorgan Chase. Initial security loans made pursuant to the Lending Agreement are required to be secured by U.S. government obligations and/or cash collateral not less than 102% of the value of the securities issued in the United States. With respect to each loan, if the aggregate value of the collateral held on any business day is less than the aggregate value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral not less than the applicable collateral requirements. Cash collateral received is invested in fixed-income securities, with a weighted average maturity not to exceed 90 days, rated in one of the top two tiers by Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc. or repurchase agreements collateralized by such securities. However, in the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends on the securities loaned and is subject to change in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. The security lending agent and the borrower retain a portion of the earnings from the collateral investments. The Fund records security lending income net of such allocation.
At January 31, 2007, the value of the securities on loan was $60,474,268, for which cash collateral was received and invested in accordance with the Lending Agreement. Such investments are presented on the Statement of Net Assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Ratings Group and/or Ba or lower by Moody’s Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid assets. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
10. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
17
About the organization
This semiannual report is for the information of Delaware Delchester Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Delchester Fund and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of trustees Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA Thomas L. Bennett
Private Investor
Rosemont, PA John A. Fry
President
Franklin & Marshall College
Lancaster, PA Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA Ann R. Leven
Consultant
ARL Associates
New York, NY Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ | Affiliated officers David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA David P. O’Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA John J. O’Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA Richard Salus
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA | Contact information Investment manager
Delaware Management Company, a series
of Delaware Management Business Trust
Philadelphia, PA National distributor
Delaware Distributors, L.P.
Philadelphia, PA Shareholder servicing, dividend
disbursing, and transfer agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094 For shareholders
800 523-1918 For securities dealers and financial
institutions representatives only
800 362-7500 Web site
www.delawareinvestments.com |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund’s Web site at http://www.delawareinvestments.com; and (iii) on the Commission’s Web site at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.
18
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| (1488) | Printed in the USA |
| SA-024 [1/07] CGI 3/07 | MF-07-02-058 PO11665 |
| | |
| | Semiannual Report | Delaware |
| | | High-Yield Opportunities |
| | | Fund |
| | | January 31, 2007 |
| | |
Fixed income mutual fund
 |  |
Table of contents
| | > Disclosure of Fund expenses | | 1 |
| > Sector allocation and credit quality breakdown | | 2 |
| > Statement of net assets | | 3 |
| > Statement of operations | | 8 |
| > Statements of changes in net assets | | 9 |
| > Financial highlights | | 10 |
| > Notes to financial statements | | 15 |
| > About the organization | | 19 |
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.
© 2007 Delaware Distributors, L.P.
Disclosure of Fund expenses
For the period August 1, 2006 to January 31, 2007
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period August 1, 2006 to January 31, 2007.
Actual Expenses
The first section of the table shown, “Actual Fund Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
Delaware High-Yield Opportunities Fund
Expense Analysis of an Investment of $1,000
| | | | | | | | Expenses |
| | Beginning | | Ending | | | | Paid During |
| | Account | | Account | | Annualized | | Period |
| | Value | | Value | | Expense | | 8/1/06 to |
| | 8/1/06 | | 1/31/07 | | Ratios | | 1/31/07* |
| Actual Fund Return |
| Class A | $ | 1,000.00 | | $ | 1,087.70 | | | 1.14 | % | | $6.00 | |
| Class B | | 1,000.00 | | | 1,081.50 | | | 1.84 | % | | 9.65 | |
| Class C | | 1,000.00 | | | 1,083.90 | | | 1.84 | % | | 9.66 | |
| Class R | | 1,000.00 | | | 1,084.00 | | | 1.34 | % | | 7.04 | |
| Institutional Class | | 1,000.00 | | | 1,089.30 | | | 0.84 | % | | 4.42 | |
| Hypothetical 5% Return (5% return before expenses) |
| Class A | $ | 1,000.00 | | $ | 1,019.46 | | | 1.14 | % | | $5.80 | |
| Class B | | 1,000.00 | | | 1,015.93 | | | 1.84 | % | | 9.35 | |
| Class C | | 1,000.00 | | | 1,015.93 | | | 1.84 | % | | 9.35 | |
| Class R | | 1,000.00 | | | 1,018.45 | | | 1.34 | % | | 6.82 | |
| Institutional Class | | 1,000.00 | | | 1,020.97 | | | 0.84 | % | | 4.28 | |
| *“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
1
Sector allocation and credit quality breakdown
Delaware High-Yield Opportunities Fund
As of January 31, 2007
Sector designations may be different than the sector designations presented in other Fund materials.
| | Percentage |
| Sector | of Net Assets |
| Collateralized Bond Obligations | 0.00 | % |
| Commercial Mortgage-Backed Securities | 0.50 | % |
| Convertible Bonds | 0.00 | % |
| Corporate Bonds | 90.32 | % |
| Basic Industry | 10.98 | % |
| Brokerage | 1.79 | % |
| Capital Goods | 5.61 | % |
| Consumer Cyclical | 7.31 | % |
| Consumer Non-Cyclical | 5.59 | % |
| Energy | 7.51 | % |
| Media | 9.39 | % |
| Real Estate | 1.20 | % |
| Services Cyclical | 17.14 | % |
| Services Non-Cyclical | 7.70 | % |
| Technology & Electronics | 4.18 | % |
| Telecommunications | 8.76 | % |
| Utilities | 3.16 | % |
| Emerging Markets Bonds | 0.25 | % |
| Senior Secured Loans | 2.39 | % |
| Common Stock | 0.93 | % |
| Warrants | 0.00 | % |
| Repurchase Agreements | 5.10 | % |
| Total Value of Securities | 99.49 | % |
| Receivables and Other Assets Net of Liabilities | 0.51 | % |
| Total Net Assets | 100.00 | % |
| |
| Credit Quality Breakdown | | |
| (as a % of fixed income investments) | | |
| AAA | 5.61 | % |
| BBB | 1.00 | % |
| BB | 16.54 | % |
| B | 58.08 | % |
| CCC | 15.34 | % |
| D | 0.41 | % |
| NR | 3.02 | % |
| Total | 100.00 | % |
2
Statement of net assets
Delaware High-Yield Opportunities Fund
January 31, 2007 (Unaudited)
| | | Principal | | |
| | | Amount (U.S.$) | | Value (U.S.$) |
| Collateralized Bond Obligations – 0.00% | | | |
| =@•Merrill Lynch CBO VII Series | | | | | | |
| 1997-C3A A 5.741% 3/23/08 | | $ | 140,578 | | $ | 5,763 |
| Total Collateralized Bond Obligations | | | | | | |
| (cost $81,184) | | | | | | 5,763 |
| |
| Commercial Mortgage-Backed Securities – 0.50% | | | |
| #First Union National Bank | | | | | | |
| Commercial Mortgage | | | | | | |
| Series 2001-C2 L 144A | | | | | | |
| 6.46% 1/12/43 | | | 800,000 | | | 803,873 |
| Total Commercial Mortgage-Backed | | | | | | |
| Securities (cost $811,969) | | | | | | 803,873 |
| |
| Convertible Bonds – 0.00% | | | | | | |
| Mirant (Escrow) 2.50% 6/15/21 | | | | | | |
| exercise price $67.95, | | | | | | |
| expiration date 6/15/21 | | | 450,000 | | | 0 |
| Total Convertible Bonds (cost $0) | | | | | | 0 |
| |
| Corporate Bonds – 90.32% | | | | | | |
| Basic Industry – 10.98% | | | | | | |
| AK Steel 7.875% 2/15/09 | | | 825,000 | | | 829,125 |
| Bowater | | | | | | |
| 9.00% 8/1/09 | | | 650,000 | | | 689,000 |
| 9.50% 10/15/12 | | | 875,000 | | | 925,313 |
| Donohue Forest Products | | | | | | |
| 7.625% 5/15/07 | | | 550,000 | | | 552,750 |
| Georgia-Pacific 8.875% 5/15/31 | | | 1,300,000 | | | 1,381,250 |
| #Georgia-Pacific 144A | | | | | | |
| 7.00% 1/15/15 | | | 775,000 | | | 775,000 |
| #Hexion US Finance 144A | | | | | | |
| 9.75% 11/15/14 | | | 975,000 | | | 1,023,750 |
| Lyondell Chemical | | | | | | |
| 8.00% 9/15/14 | | | 725,000 | | | 757,625 |
| 8.25% 9/15/16 | | | 625,000 | | | 665,625 |
| 10.50% 6/1/13 | | | 75,000 | | | 83,156 |
| #Momentive Performance Materials | | | | | | |
| 144A 9.75% 12/1/14 | | | 775,000 | | | 798,250 |
| #Nell AF Sarl 144A 8.375% 8/15/15 | | | 825,000 | | | 855,938 |
| NewPage 10.00% 5/1/12 | | | 835,000 | | | 914,325 |
| Norske Skog Canada | | | | | | |
| 8.625% 6/15/11 | | | 1,425,000 | | | 1,471,312 |
| ‡#Port Townsend Paper 144A | | | | | | |
| 11.00% 4/15/11 | | | 950,000 | | | 764,750 |
| Potlatch 13.00% 12/1/09 | | | 850,000 | | | 977,797 |
| #Sappi Papier Holding 144A | | | | | | |
| 7.50% 6/15/32 | | | 800,000 | | | 760,870 |
| ‡Solutia 6.72% 10/15/37 | | | 770,000 | | | 739,200 |
| Tembec Industries 8.625% 6/30/09 | | | 1,715,000 | | | 1,440,599 |
| #Tube City IMS 144A 9.75% 2/1/15 | | | 650,000 | | | 669,500 |
| Witco 6.875% 2/1/26 | | | 560,000 | | | 484,400 |
| | | | | | | 17,559,535 |
| Brokerage – 1.79% | | | | | | |
| E Trade Financial 8.00% 6/15/11 | | | 675,000 | | | 707,906 |
| LaBranche | | | | | | |
| 9.50% 5/15/09 | | | 600,000 | | | 633,000 |
| 11.00% 5/15/12 | | | 1,400,000 | | | 1,515,500 |
| | | | | | | 2,856,406 |
| Capital Goods – 5.61% | | | | | | |
| #Ahern Rentals 144A | | | | | | |
| 9.25% 8/15/13 | | | 575,000 | | | 601,594 |
| Armor Holdings 8.25% 8/15/13 | | | 710,000 | | | 745,500 |
| Baldor Electric 8.625% 2/15/17 | | | 275,000 | | | 285,313 |
| #Berry Plastics Holding 144A | | | | | | |
| 8.875% 9/15/14 | | | 730,000 | | | 757,375 |
| CPG International 10.50% 7/1/13 | | | 500,000 | | | 523,750 |
| #Esco 144A 8.625% 12/15/13 | | | 475,000 | | | 491,625 |
| Graham Packaging | | | | | | |
| 9.875% 10/15/14 | | | 1,425,000 | | | 1,474,874 |
| Interface 10.375% 2/1/10 | | | 975,000 | | | 1,082,250 |
| Intertape Polymer 8.50% 8/1/14 | | | 970,000 | | | 892,400 |
| ¶NTK Holdings 10.75% 3/1/14 | | | 625,000 | | | 462,500 |
| #RBS Global & Rexnord 144A | | | | | | |
| 9.50% 8/1/14 | | | 375,000 | | | 390,000 |
| 11.75% 8/1/16 | | | 550,000 | | | 584,375 |
| Trimas 9.875% 6/15/12 | | | 675,000 | | | 680,063 |
| | | | | | | 8,971,619 |
| Consumer Cyclical – 7.31% | | | | | | |
| Accuride 8.50% 2/1/15 | | | 600,000 | | | 588,000 |
| Carrols 9.00% 1/15/13 | | | 735,000 | | | 760,725 |
| Denny’s 10.00% 10/1/12 | | | 700,000 | | | 748,125 |
| Ford Motor 4.25% 12/15/36 | | | 650,000 | | | 741,000 |
| Ford Motor Credit | | | | | | |
| 7.375% 10/28/09 | | | 700,000 | | | 704,865 |
| •8.11% 1/13/12 | | | 375,000 | | | 376,998 |
| 9.875% 8/10/11 | | | 725,000 | | | 776,956 |
| General Motors 8.375% 7/15/33 | | | 1,650,000 | | | 1,561,312 |
| General Motors Acceptance Corporation | | | | | | |
| 6.875% 9/15/11 | | | 625,000 | | | 634,913 |
| 8.00% 11/1/31 | | | 260,000 | | | 293,498 |
| #Goodyear Tire & Rubber 144A | | | | | | |
| 8.625% 12/1/11 | | | 500,000 | | | 528,750 |
| Landry’s Restaurants | | | | | | |
| 7.50% 12/15/14 | | | 575,000 | | | 569,250 |
| #Michaels Stores 144A | | | | | | |
| 11.375% 11/1/16 | | | 855,000 | | | 927,675 |
| Neiman Marcus 9.00% 10/15/15 | | | 485,000 | | | 533,500 |
| NPC International 9.50% 5/1/14 | | | 850,000 | | | 879,750 |
| O’Charleys 9.00% 11/1/13 | | | 575,000 | | | 606,625 |
| #Vitro 144A | | | | | | |
| 8.625% 2/1/12 | | | 190,000 | | | 192,850 |
| 9.125% 2/1/17 | | | 255,000 | | | 258,825 |
| | | | | | | 11,683,617 |
(continues) 3
Statement of net assets
Delaware High-Yield Opportunities Fund
| | Principal | | |
| | Amount (U.S.$) | | Value (U.S.$) |
| Corporate Bonds (continued) |
| Consumer Non-Cyclical – 5.59% | | | | | |
| Constellation Brands | | | | | |
| 8.125% 1/15/12 | $ | 1,075,000 | | $ | 1,123,375 |
| #Cooper 144A 7.125% 2/15/15 | | 500,000 | | | 507,500 |
| Cott Beverages 8.00% 12/15/11 | | 850,000 | | | 873,375 |
| #Elan Finance 144A | | | | | |
| 8.875% 12/1/13 | | 875,000 | | | 870,625 |
| Ingles Markets 8.875% 12/1/11 | | 925,000 | | | 970,094 |
| National Beef Packing 10.50% 8/1/11 | | 1,025,000 | | | 1,086,500 |
| Pilgrim’s Pride | | | | | |
| 8.375% 5/1/17 | | 1,230,000 | | | 1,217,700 |
| 9.625% 9/15/11 | | 775,000 | | | 813,750 |
| Swift 12.50% 1/1/10 | | 750,000 | | | 785,625 |
| True Temper Sports 8.375% 9/15/11 | | 810,000 | | | 684,450 |
| | | | | | 8,932,994 |
| Energy – 7.51% | | | | | |
| Bluewater Finance 10.25% 2/15/12 | | 500,000 | | | 526,250 |
| Chesapeake Energy 6.625% 1/15/16 | | 200,000 | | | 195,500 |
| Compton Petroleum Finance | | | | | |
| 7.625% 12/1/13 | | 1,300,000 | | | 1,248,000 |
| El Paso Natural Gas 7.625% 8/1/10 | | 1,470,000 | | | 1,536,150 |
| #El Paso Performance-Linked Trust | | | | | |
| 144A 7.75% 7/15/11 | | 400,000 | | | 418,000 |
| El Paso Production 7.75% 6/1/13 | | 350,000 | | | 364,000 |
| #Hilcorp Energy I 144A | | | | | |
| 7.75% 11/1/15 | | 200,000 | | | 198,500 |
| 9.00% 6/1/16 | | 625,000 | | | 665,625 |
| 10.50% 9/1/10 | | 725,000 | | | 780,281 |
| Inergy Finance | | | | | |
| 6.875% 12/15/14 | | 425,000 | | | 413,313 |
| 8.25% 3/1/16 | | 200,000 | | | 207,500 |
| Mariner Energy 7.50% 4/15/13 | | 525,000 | | | 511,875 |
| #OPTI Canada 144A | | | | | |
| 8.25% 12/15/14 | | 575,000 | | | 603,750 |
| PetroHawk Energy | | | | | |
| 9.125% 7/15/13 | | 1,175,000 | | | 1,222,000 |
| #Regency Energy Partners 144A | | | | | |
| 8.375% 12/15/13 | | 1,300,000 | | | 1,309,750 |
| •Secunda International | | | | | |
| 13.36% 9/1/12 | | 570,000 | | | 595,650 |
| #Stallion Oilfield Services 144A | | | | | |
| 9.75% 2/1/15 | | 800,000 | | | 808,000 |
| Whiting Petroleum 7.25% 5/1/13 | | 410,000 | | | 408,975 |
| | | | | | 12,013,119 |
| Media – 9.39% | | | | | |
| µAdelphia Communications | | | | | |
| 8.125% 4/1/07 | | 800,000 | | | 822,000 |
| Affinion 11.61% 3/1/12 | | 575,000 | | | 580,031 |
| CCH I Holdings 13.50% 1/15/14 | | 1,150,000 | | | 1,144,250 |
| µCentury Communications | | | | | |
| 9.50% 4/1/07 | | 1,325,000 | | | 1,672,813 |
| Charter Communications Holdings | | | | | |
| 13.50% 1/15/11 | | 1,950,000 | | | 1,949,999 |
| #CMP Susquehanna 144A | | | | | |
| 9.875% 5/15/14 | | 500,000 | | | 515,000 |
| Dex Media West 9.875% 8/15/13 | | 625,000 | | | 682,813 |
| #Idearc 144A 8.00% 11/15/16 | | 500,000 | | | 510,625 |
| Insight Communications | | | | | |
| 12.25% 2/15/11 | | 450,000 | | | 470,813 |
| Insight Midwest 9.75% 10/1/09 | | 675,000 | | | 688,500 |
| Lodgenet Entertainment | | | | | |
| 9.50% 6/15/13 | | 1,450,000 | | | 1,562,375 |
| Mediacom Capital 9.50% 1/15/13 | | 2,525,000 | | | 2,607,062 |
| #Quebecor World 144A | | | | | |
| 9.75% 1/15/15 | | 740,000 | | | 776,075 |
| Vertis 10.875% 6/15/09 | | 215,000 | | | 219,300 |
| WMG Acquisition 7.375% 4/15/14 | | 825,000 | | | 816,750 |
| | | | | | 15,018,406 |
| Real Estate – 1.20% | | | | | |
| American Real Estate Partners | | | | | |
| 8.125% 6/1/12 | | 675,000 | | | 696,938 |
| BF Saul REIT 7.50% 3/1/14 | | 845,000 | | | 866,124 |
| Rouse 7.20% 9/15/12 | | 345,000 | | | 357,765 |
| | | | | | 1,920,827 |
| Services Cyclical – 17.14% | | | | | |
| Adesa 7.625% 6/15/12 | | 875,000 | | | 905,625 |
| American Airlines 7.377% 5/23/19 | | 537,879 | | | 532,500 |
| American Commercial Lines | | | | | |
| 9.50% 2/15/15 | | 450,000 | | | 521,438 |
| #Aramark 144A 8.50% 2/1/15 | | 800,000 | | | 823,000 |
| Boyd Gaming 8.75% 4/15/12 | | 1,085,000 | | | 1,140,606 |
| Brickman Group 11.75% 12/15/09 | | 290,000 | | | 307,763 |
| #Buffalo Thunder Development | | | | | |
| Authority 144A | | | | | |
| 9.375% 12/15/14 | | 625,000 | | | 638,281 |
| Corrections Corporation of America | | | | | |
| 7.50% 5/1/11 | | 875,000 | | | 902,344 |
| FTI Consulting 7.625% 6/15/13 | | 1,075,000 | | | 1,105,906 |
| #Galaxy Entertainment Finance 144A | | | | | |
| 9.875% 12/15/12 | | 1,580,000 | | | 1,718,249 |
| Gaylord Entertainment | | | | | |
| 8.00% 11/15/13 | | 675,000 | | | 695,250 |
| Harrah’s Operating 6.50% 6/1/16 | | 1,200,000 | | | 1,094,501 |
| Hertz 8.875% 1/1/14 | | 800,000 | | | 854,000 |
| ¶H-Lines Finance 11.00% 4/1/13 | | 1,162,000 | | | 1,083,565 |
| Horizon Lines 9.00% 11/1/12 | | 550,000 | | | 581,625 |
| Kansas City Southern de Mexico | | | | | |
| 9.375% 5/1/12 | | 975,000 | | | 1,045,688 |
| 12.50% 6/15/12 | | 300,000 | | | 325,500 |
| #Kansas City Southern de Mexico 144A | | | | | |
| 7.625% 12/1/13 | | 775,000 | | | 778,875 |
| Kansas City Southern Railway | | | | | |
| 9.50% 10/1/08 | | 450,000 | | | 473,625 |
| Majestic Star Casino | | | | | |
| 9.50% 10/15/10 | | 1,000,000 | | | 1,050,000 |
4
| | Principal | | | |
| | | Amount (U.S.$) | | Value (U.S.$) |
| Corporate Bonds (continued) |
| Services Cyclical (continued) | | | | | |
| Mandalay Resort Group | | | | | |
| 9.375% 2/15/10 | $ | 1,025,000 | | $ | 1,098,031 |
| 9.50% 8/1/08 | | 725,000 | | | 765,781 |
| MGM MIRAGE 7.625% 1/15/17 | | 425,000 | | | 429,781 |
| #Mobile Services Group 144A | | | | | |
| 9.75% 8/1/14 | | 525,000 | | | 555,188 |
| OMI 7.625% 12/1/13 | | 1,170,000 | | | 1,193,400 |
| #Penhall International 144A | | | | | |
| 12.00% 8/1/14 | | 475,000 | | | 521,313 |
| #Pokagon Gaming Authority 144A | | | | | |
| 10.375% 6/15/14 | | 1,025,000 | | | 1,130,063 |
| #Rental Services 144A | | | | | |
| 9.50% 12/1/14 | | 1,175,000 | | | 1,233,749 |
| Seabulk International | | | | | |
| 9.50% 8/15/13 | | 465,000 | | | 505,688 |
| #Snoqualmie Entertainment Authority 144A | | | | | |
| 9.125% 2/1/15 | | 300,000 | | | 305,250 |
| Stena 9.625% 12/1/12 | | 750,000 | | | 810,938 |
| ¶Town Sports International | | | | | |
| 11.00% 2/1/14 | | 550,000 | | | 489,500 |
| #Wimar Opco Finance 144A | | | | | |
| 9.625% 12/15/14 | | 325,000 | | | 324,594 |
| Wheeling Island Gaming | | | | | |
| 10.125% 12/15/09 | | 1,445,000 | | | 1,475,705 |
| | | | | | 27,417,322 |
| Services Non-Cyclical – 7.70% | | | | | |
| #Aleris International 144A | | | | | |
| 10.00% 12/15/16 | | 1,300,000 | | | 1,352,000 |
| Allied Waste North America | | | | | |
| 9.25% 9/1/12 | | 150,000 | | | 159,563 |
| Casella Waste Systems | | | | | |
| 9.75% 2/1/13 | | 1,450,000 | | | 1,529,750 |
| CRC Health 10.75% 2/1/16 | | 1,000,000 | | | 1,097,500 |
| Geo Subordinate 11.00% 5/15/12 | | 800,000 | | | 774,000 |
| HCA 6.50% 2/15/16 | | 1,800,000 | | | 1,525,500 |
| #HealthSouth 144A 10.75% 6/15/16 | | 1,800,000 | | | 1,986,749 |
| US Oncology 10.75% 8/15/14 | | 1,250,000 | | | 1,393,750 |
| ¶Vanguard Health 11.25% 10/1/15 | | 2,015,000 | | | 1,627,113 |
| WCA Waste 9.25% 6/15/14 | | 830,000 | | | 867,350 |
| | | | | | 12,313,275 |
| Technology & Electronics – 4.18% | | | | | |
| #Freescale Semiconductor 144A | | | | | |
| 10.125% 12/15/16 | | 2,275,000 | | | 2,275,000 |
| MagnaChip Semiconductor | | | | | |
| 8.00% 12/15/14 | | 1,950,000 | | | 1,228,500 |
| #NXP Funding 144A | | | | | |
| 9.50% 10/15/15 | | 500,000 | | | 519,375 |
| #Open Solutions 144A 9.75% 2/1/15 | | 750,000 | | | 768,750 |
| Solectron Global Finance | | | | | |
| 8.00% 3/15/16 | | 440,000 | | | 442,200 |
| Sungard Data Systems | | | | | |
| 10.25% 8/15/15 | | 825,000 | | | 891,000 |
| #UGS Capital II PIK 144A | | | | | |
| 10.348% 6/1/11 | | 550,876 | | | 563,271 |
| | | | | | | 6,688,096 |
| Telecommunications – 8.76% | | | | | |
| ‡Allegiance Telecom 11.75% 2/15/08 | | 255,000 | | | 116,025 |
| American Tower 7.125% 10/15/12 | | 1,035,000 | | | 1,075,106 |
| #Broadview Networks 144A | | | | | |
| 11.375% 9/1/12 | | 660,000 | | | 693,000 |
| Cincinnati Bell 8.375% 1/15/14 | | 325,000 | | | 334,750 |
| #Cricket Communications 144A | | | | | |
| 9.375% 11/1/14 | | 875,000 | | | 923,125 |
| #Digicel Limited 144A 9.25% 9/1/12 | | 700,000 | | | 752,500 |
| •#Hellas Telecommunications II 144A | | | | | |
| 11.115% 1/15/15 | | 825,000 | | | 847,688 |
| Hughes Network Systems | | | | | |
| 9.50% 4/15/14 | | 1,850,000 | | | 1,965,624 |
| ¶Inmarsat Finance | | | | | |
| 10.375% 11/15/12 | | 1,550,000 | | | 1,445,375 |
| Level 3 Communications | | | | | |
| 11.50% 3/1/10 | | 800,000 | | | 866,000 |
| #Level 3 Financing 144A | | | | | |
| 9.25% 11/1/14 | | 400,000 | | | 411,000 |
| #MetroPCS Wireless 144A | | | | | |
| 9.25% 11/1/14 | | 375,000 | | | 391,875 |
| Qwest | | | | | |
| 7.50% 10/1/14 | | 950,000 | | | 1,012,938 |
| •8.61% 6/15/13 | | 475,000 | | | 520,125 |
| Rural Cellular | | | | | |
| 9.875% 2/1/10 | | 600,000 | | | 639,000 |
| •11.121% 11/1/12 | | 415,000 | | | 435,750 |
| Triton PCS | | | | | |
| 8.50% 6/1/13 | | 475,000 | | | 486,875 |
| 9.375% 2/1/11 | | 730,000 | | | 755,550 |
| •US LEC 13.87% 10/1/09 | | 325,000 | | | 345,719 |
| | | | | | 14,018,025 |
| Utilities – 3.16% | | | | | |
| ‡#Calpine 144A 8.496% 7/15/07 | | 606,050 | | | 657,564 |
| Elwood Energy 8.159% 7/5/26 | | 727,651 | | | 771,243 |
| Midwest Generation | | | | | |
| 8.30% 7/2/09 | | 581,524 | | | 597,516 |
| 8.75% 5/1/34 | | 645,000 | | | 699,825 |
| Mirant Americas Generation | | | | | |
| 8.30% 5/1/11 | | 950,000 | | | 973,750 |
| Mirant North America | | | | | |
| 7.375% 12/31/13 | | 225,000 | | | 230,625 |
| Orion Power Holdings | | | | | |
| 12.00% 5/1/10 | | 725,000 | | | 835,563 |
| #Tenaska Alabama Partners 144A | | | | | |
| 7.00% 6/30/21 | | 288,356 | | | 290,273 |
| | | | | | 5,056,359 |
| Total Corporate Bonds | | | | | |
| (cost $140,881,234) | | | | | 144,449,600 |
(continues) 5
Statement of net assets
Delaware High-Yield Opportunities Fund
| | Principal | | | |
| | Amount (U.S.$) | | Value (U.S.$) |
| Emerging Markets Bonds – 0.25% | | | | | |
| #True Move 144A | | | | | |
| 10.75% 12/16/13 | $ | 400,000 | | $ | 396,000 |
| Total Emerging Markets Bonds | | | | | |
| (cost $395,196) | | | | | 396,000 |
| |
| «Senior Secured Loans – 2.39% | | | | | |
| Ford Motor 8.36% 11/29/13 | | 800,000 | | | 812,000 |
| General Motors 7.745% 11/17/13 | | 1,000,000 | | | 1,015,000 |
| HCA 8.086% 11/17/13 | | 400,000 | | | 403,000 |
| Talecris Biotherapeutics | | | | | |
| 11.82% 12/6/14 | | 400,000 | | | 402,500 |
| Wind Acquisition 12.54% 12/7/11 | | 1,150,000 | | | 1,190,250 |
| Total Senior Secured Loans | | | | | |
| (cost $3,751,125) | | | | | 3,822,750 |
| |
| | Number of | | | |
| | Shares | | | |
| Common Stock – 0.93% | | | | | |
| =@ P†Avado Brands | | 906 | | | 0 |
| †Charter Communications Class A | | 27,000 | | | 94,500 |
| †Foster Wheeler | | 11,883 | | | 635,371 |
| †Mirant | | 18,559 | | | 634,347 |
| †Petrojarl ADR | | 1,491 | | | 17,378 |
| †Petroleum Geo-Services ADR | | 4,473 | | | 105,518 |
| Total Common Stock (cost $667,641) | | | | | 1,487,114 |
| |
| Warrants – 0.00% | | | | | |
| †#Solutia 144A, exercise price $7.59, | | | | | |
| expiration date 7/15/09 | | 450 | | | 0 |
| Total Warrants (cost $38,281) | | | | | 0 |
| |
| | Principal | | | |
| | Amount (U.S.$) | | | |
| Repurchase Agreements – 5.10% | | | | | |
| With BNP Paribas 5.21% 2/1/07 | | | | | |
| (dated 1/31/07, to be | | | | | |
| repurchased at $4,048,586, | | | | | |
| collateralized by $1,261,000 | | | | | |
| U.S. Treasury Notes 3.50% | | | | | |
| due 8/15/09, market value | | | | | |
| $1,239,403, $2,746,000 U.S. | | | | | |
| Treasury Notes 6.00% due | | | | | |
| 8/15/09, market value | | | | | |
| $2,891,649) | $ | 4,048,000 | | | 4,048,000 |
| With Cantor Fitzgerald | | | | | |
| 5.19% 2/1/07 (dated | | | | | |
| 1/31/07, to be repurchased at | | | | | |
| $1,175,169, collateralized by | | | | | |
| $1,046,000 U.S. Treasury Bills | | | | | |
| due 5/24/07, market value | | | | | |
| $1,029,973, $173,000 U.S. | | | | | |
| Treasury Bills due 7/12/07, | | | | | |
| market value $168,991) | | 1,175,000 | | | 1,175,000 |
| With UBS Warburg 5.21% 2/1/07 | | | | | |
| (dated 1/31/07, to be | | | | | |
| repurchased at $2,938,425, | | | | | |
| collateralized by $3,054,000 | | | | | |
| U.S. Treasury Notes 3.50% | | | | | |
| due 8/15/09, market value | | | | | |
| $3,001,352) | $ | 2,938,000 | | $ | 2,938,000 |
| Total Repurchase Agreements | | | | | |
| (cost $8,161,000) | | | | | 8,161,000 |
| |
| Total Value of Securities – 99.49% | | | | | |
| (cost $154,787,630) | | | | | 159,126,100 |
| Receivables and Other Assets | | | | | |
| Net of Liabilities – 0.51% | | | | | 808,326 |
| Net Assets Applicable to 35,886,524 Shares | | | |
| Outstanding – 100.00% | | | $ | 159,934,426 |
| Net Asset Value – Delaware High-Yield Opportunities Fund | |
| Class A ($84,847,541 / 19,039,192 Shares) | $4.46 |
| Net Asset Value – Delaware High-Yield Opportunities Fund | |
| Class B ($14,004,916 / 3,144,528 Shares) | $4.45 |
| Net Asset Value – Delaware High-Yield Opportunities Fund | |
| Class C ($21,995,964 / 4,932,913 Shares) | $4.46 |
| Net Asset Value – Delaware High-Yield Opportunities Fund | |
| Class R ($4,838,647 / 1,083,887 Shares) | $4.46 |
| Net Asset Value – Delaware High-Yield Opportunities Fund | |
| Institutional Class ($34,247,358 / 7,686,004 Shares) | $4.46 |
| Components of Net Assets at January 31, 2007: | | | |
| Shares of beneficial interest | | | |
| (unlimited authorization - no par) | $ | 159,886,938 | |
| Distributions in excess of net investment income | | (597 | ) |
| Accumulated net realized loss on investments | | (4,290,385 | ) |
| Net unrealized appreciation of investments | | 4,338,470 | |
| Total net assets | $ | 159,934,426 | |
† Non-income producing security for the period ended January 31, 2007. ‡ Non-income producing security. Security is currently in default. • Variable rate security. The rate shown is the rate as of January 31, 2007. # Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At January 31, 2007, the aggregate amount of Rule 144A securities equaled $40,005,463, which represented 25.01% of the Fund’s net assets. See Note 8 in “Notes to Financial Statements.” P Restricted Security. Investment in a security not registered under the Securities Act of 1933, as amended. This security has certain restrictions on resale which may limit its liquidity. At January 31, 2007, the aggregate amount of the restricted security equaled $0 or 0.00% of the Fund’s net assets. See Note 8 in “Notes to Financial Statements.” |
6
| |
¶Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. =Security is being fair valued in accordance with the Fund’s fair valuation policy. At January 31, 2007, the aggregate amount of fair valued securities equaled $5,763, which represented 0.00% of the Fund’s net assets. See Note 1 in “Notes to Financial Statements.” @Illiquid security. At January 31, 2007, the aggregate amount of illiquid securities equaled $5,763, which represented 0.00% of the Fund’s net assets. See Note 8 in “Notes to Financial Statements.” µSecurity is currently in default. The issue has missed the maturity date. Bankruptcy proceedings are in the process to determine distribution of assets. The date listed is the estimate of when the proceedings will be finalized. «Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (‘LIBOR’) and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. Summary of Abbreviations:
ADR — American Depositary Receipt
CBO — Collateralized Bond Obligation
PIK — Pay-in-Kind
REIT — Real Estate Investment Trust |
| Net Asset Value and Offering Price Per Share – Delaware High-Yield Opportunities Fund |
| Net asset value Class A (A) | $4.46 |
| Sales charge (4.50% of offering price) (B) | 0.21 |
| Offering price | $4.67 |
| (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
| |
| (B) See the current prospectus for purchases of $100,000 or more. |
| |
| See accompanying notes |
7
Statement of operations
Delaware High-Yield Opportunities Fund
Six Months Ended January 31, 2007 (Unaudited)
| Investment Income: | | | | | | |
| Interest | | | | $ | 5,752,849 | |
| | |
| Expenses: | | | | | | |
| Management fees | $ | 437,802 | | | | |
| Distribution expenses – Class A | | 109,278 | | | | |
| Distribution expenses – Class B | | 68,889 | | | | |
| Distribution expenses – Class C | | 94,283 | | | | |
| Distribution expenses – Class R | | 13,114 | | | | |
| Dividend disbursing and transfer agent fees and expenses | | 124,157 | | | | |
| Registration fees | | 31,870 | | | | |
| Accounting and administration expenses | | 26,942 | | | | |
| Trustees’ fees and benefits | | 19,213 | | | | |
| Reports and statements to shareholders | | 12,706 | | | | |
| Legal fees | | 9,393 | | | | |
| Audit and taxes | | 7,829 | | | | |
| Pricing fees | | 3,422 | | | | |
| Insurance fees | | 2,749 | | | | |
| Custodian fees | | 2,427 | | | | |
| Consulting fees | | 1,176 | | | | |
| Dues and services | | 462 | | | | |
| Taxes (other than taxes on income) | | 244 | | | | |
| Trustees’ expenses | | 70 | | | 966,026 | |
| Less expenses absorbed or waived | | | | | (113,079 | ) |
| Less waiver distribution expenses – Class R | | | | | (2,179 | ) |
| Total operating expenses | | | | | 850,768 | |
| Net Investment Income | | | | | 4,902,081 | |
| | |
| Net Realized and Unrealized Gain on Investments: | | | | | | |
| Net realized gain on investments | | | | | 726,863 | |
| Net change in unrealized appreciation/depreciation of investments | | | | | 5,386,397 | |
| Net Realized and Unrealized Gain on Investments | | | | | 6,113,260 | |
| | |
| Net Increase in Net Assets Resulting from Operations | | | | $ | 11,015,341 | |
| | |
| | |
| See accompanying notes | | | | | | |
8
Statements of changes in net assets
Delaware High-Yield Opportunities Fund
| | | Six Months | | Year |
| | | Ended | | Ended |
| | | 1/31/07 | | 7/31/06 |
| | | (Unaudited) | | |
| Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
| Net investment income | | $ | 4,902,081 | | | $ | 8,513,215 | |
| Net realized gain (loss) on investments | | | 726,863 | | | | (47,672 | ) |
| Net change in unrealized appreciation/depreciation of investments | | | 5,386,397 | | | | (2,476,130 | ) |
| Net increase in net assets resulting from operations | | | 11,015,341 | | | | 5,989,413 | |
| |
| Dividends and Distributions to Shareholders from: | | | | | | | | |
| Net investment income: | | | | | | | | |
| Class A | | | (2,753,748 | ) | | | (5,485,597 | ) |
| Class B | | | (477,253 | ) | | | (1,054,790 | ) |
| Class C | | | (647,816 | ) | | | (1,177,168 | ) |
| Class R | | | (161,145 | ) | | | (214,464 | ) |
| Institutional Class | | | (973,300 | ) | | | (844,522 | ) |
| | | | (5,013,262 | ) | | | (8,776,541 | ) |
| Capital Share Transactions: | | | | | | | | |
| Proceeds from shares sold: | | | | | | | | |
| Class A | | | 25,731,620 | | | | 34,354,450 | |
| Class B | | | 1,735,392 | | | | 2,092,236 | |
| Class C | | | 6,627,704 | | | | 5,268,964 | |
| Class R | | | 1,302,996 | | | | 2,306,896 | |
| Institutional Class | | | 22,709,182 | | | | 6,327,418 | |
| |
| Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
| Class A | | | 1,922,273 | | | | 3,905,915 | |
| Class B | | | 211,182 | | | | 449,109 | |
| Class C | | | 353,240 | | | | 623,802 | |
| Class R | | | 160,003 | | | | 210,938 | |
| Institutional Class | | | 808,981 | | | | 644,516 | |
| | | | 61,562,573 | | | | 56,184,244 | |
| Cost of shares repurchased: | | | | | | | | |
| Class A | | | (9,426,670 | ) | | | (56,093,384 | ) |
| Class B | | | (2,146,387 | ) | | | (5,212,040 | ) |
| Class C | | | (2,107,687 | ) | | | (6,694,409 | ) |
| Class R | | | (522,575 | ) | | | (787,376 | ) |
| Institutional Class | | | (4,255,056 | ) | | | (865,281 | ) |
| | | | (18,458,375 | ) | | | (69,652,490 | ) |
| Increase (decrease) in net assets derived from capital share transactions | | | 43,104,198 | | | | (13,468,246 | ) |
| Net Increase (Decrease) in Net Assets | | | 49,106,277 | | | | (16,255,374 | ) |
| |
| Net Assets: | | | | | | | | |
| Beginning of period | | | 110,828,149 | | | | 127,083,523 | |
| End of period (including distributions in excess of net investment income of $597 and $59, | | | | | | | | |
| respectively) | | $ | 159,934,426 | | | $ | 110,828,149 | |
| |
| |
| See accompanying notes | | | | | | | | |
9
Financial highlights
Delaware High-Yield Opportunities Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | Six Months | | |
| Ended | | Year Ended |
| | 1/31/071 | | 7/31/06 | | | 7/31/05 | | | 7/31/04 | | | 7/31/03 | | | 7/31/02 | |
| | (Unaudited) | | | | | | | | | | |
| Net asset value, beginning of period | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | | | $ | 3.950 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.163 | | | | 0.319 | | | | 0.292 | | | | 0.335 | | | | 0.377 | | | | 0.344 | |
| Net realized and unrealized gain (loss) on investments | | 0.204 | | | | (0.090 | ) | | | 0.184 | | | | 0.243 | | | | 0.532 | | | | (0.488 | ) |
| Total from investment operations | | 0.367 | | | | 0.229 | | | | 0.476 | | | | 0.578 | | | | 0.909 | | | | (0.144 | ) |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.167 | ) | | | (0.329 | ) | | | (0.326 | ) | | | (0.338 | ) | | | (0.359 | ) | | | (0.386 | ) |
| Total dividends and distributions | | (0.167 | ) | | | (0.329 | ) | | | (0.326 | ) | | | (0.338 | ) | | | (0.359 | ) | | | (0.386 | ) |
| |
| Net asset value, end of period | $ | 4.460 | | | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | |
| |
| Total return3 | | 8.77% | | | | 5.49% | | | | 11.61% | | | | 14.97% | | | | 28.02% | | | | (3.87% | ) |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | $ | 84,847 | | | $ | 63,405 | | | $ | 82,988 | | | $ | 44,428 | | | $ | 29,385 | | | $ | 14,767 | |
| Ratio of expenses to average net assets | | 1.14% | | | | 1.13% | | | | 1.16% | | | | 1.13% | | | | 1.13% | | | | 1.13% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 1.31% | | | | 1.29% | | | | 1.28% | | | | 1.38% | | | | 1.56% | | | | 1.44% | |
| Ratio of net investment income to average net assets | | 7.40% | | | | 7.42% | | | | 6.68% | | | | 8.05% | | | | 10.36% | | | | 9.05% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 7.23% | | | | 7.26% | | | | 6.56% | | | | 7.80% | | | | 9.93% | | | | 8.74% | |
| Portfolio turnover | | 156% | | | | 151% | | | | 229% | | | | 644% | | | | 832% | | | | 609% | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1 Ratios and portfolio turnover have been annualized and total return has not been annualized.
2 The average shares outstanding method has been applied for per share information for the years ended July 31, 2004, 2003, and 2002.
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
10
Delaware High-Yield Opportunities Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | Six Months | | |
| | Ended | | Year Ended |
| | 1/31/071 | | 7/31/06 | | | 7/31/05 | | | 7/31/04 | | | 7/31/03 | | | 7/31/02 | |
| | (Unaudited) | | | | | | | | | | |
| Net asset value, beginning of period | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | | | $ | 3.960 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.148 | | | | 0.289 | | | | 0.262 | | | | 0.305 | | | | 0.352 | | | | 0.317 | |
| Net realized and unrealized gain (loss) on investments | | 0.194 | | | | (0.090 | ) | | | 0.184 | | | | 0.244 | | | | 0.532 | | | | (0.498 | ) |
| Total from investment operations | | 0.342 | | | | 0.199 | | | | 0.446 | | | | 0.549 | | | | 0.884 | | | | (0.181 | ) |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.152 | ) | | | (0.299 | ) | | | (0.296 | ) | | | (0.309 | ) | | | (0.334 | ) | | | (0.359 | ) |
| Total dividends and distributions | | (0.152 | ) | | | (0.299 | ) | | | (0.296 | ) | | | (0.309 | ) | | | (0.334 | ) | | | (0.359 | ) |
| |
| Net asset value, end of period | $ | 4.450 | | | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | |
| |
| Total return3 | | 8.15% | | | | 4.75% | | | | 10.85% | | | | 14.19% | | | | 27.14% | | | | (4.80% | ) |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | $ | 14,005 | | | $ | 13,597 | | | $ | 16,661 | | | $ | 15,015 | | | $ | 15,464 | | | $ | 9,435 | |
| Ratio of expenses to average net assets | | 1.84% | | | | 1.83% | | | | 1.86% | | | | 1.83% | | | | 1.83% | | | | 1.83% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 2.01% | | | | 1.99% | | | | 1.98% | | | | 2.08% | | | | 2.26% | | | | 2.14% | |
| Ratio of net investment income to average net assets | | 6.70% | | | | 6.72% | | | | 5.98% | | | | 7.35% | | | | 9.66% | | | | 8.35% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 6.53% | | | | 6.56% | | | | 5.86% | | | | 7.10% | | | | 9.23% | | | | 8.04% | |
| Portfolio turnover | | 156% | | | | 151% | | | | 229% | | | | 644% | | | | 832% | | | | 609% | |
| |
1 Ratios and portfolio turnover have been annualized and total return has not been annualized.
2 The average shares outstanding method has been applied for per share information for the years ended July 31, 2004, 2003, and 2002.
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
(continues) 11
Financial highlights
Delaware High-Yield Opportunities Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | Six Months | | |
| Ended | | Year Ended |
| | 1/31/071 | | 7/31/06 | | | 7/31/05 | | | 7/31/04 | | | 7/31/03 | | | 7/31/02 | |
| | (Unaudited) | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | | | $ | 3.960 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.148 | | | | 0.289 | | | | 0.262 | | | | 0.305 | | | | 0.352 | | | | 0.317 | |
| Net realized and unrealized gain (loss) on investments | | 0.204 | | | | (0.090 | ) | | | 0.184 | | | | 0.243 | | | | 0.532 | | | | (0.498 | ) |
| Total from investment operations | | 0.352 | | | | 0.199 | | | | 0.446 | | | | 0.548 | | | | 0.884 | | | | (0.181 | ) |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.152 | ) | | | (0.299 | ) | | | (0.296 | ) | | | (0.308 | ) | | | (0.334 | ) | | | (0.359 | ) |
| Total dividends and distributions | | (0.152 | ) | | | (0.299 | ) | | | (0.296 | ) | | | (0.308 | ) | | | (0.334 | ) | | | (0.359 | ) |
| |
| Net asset value, end of period | $ | 4.460 | | | $ | 4.260 | | | $ | 4.360 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.420 | |
| |
| Total return3 | | 8.39% | | | | 4.75% | | | | 10.84% | | | | 14.16% | | | | 27.13% | | | | (4.80% | ) |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | $ | 21,996 | | | $ | 16,285 | | | $ | 17,474 | | | $ | 8,824 | | | $ | 5,916 | | | $ | 2,905 | |
| Ratio of expenses to average net assets | | 1.84% | | | | 1.83% | | | | 1.86% | | | | 1.83% | | | | 1.83% | | | | 1.83% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 2.01% | | | | 1.99% | | | | 1.98% | | | | 2.08% | | | | 2.26% | | | | 2.14% | |
| Ratio of net investment income to average net assets | | 6.70% | | | | 6.72% | | | | 5.98% | | | | 7.35% | | | | 9.66% | | | | 8.35% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 6.53% | | | | 6.56% | | | | 5.86% | | | | 7.10% | | | | 9.23% | | | | 8.04% | |
| Portfolio turnover | | 156% | | | | 151% | | | | 229% | | | | 644% | | | | 832% | | | | 609% | |
| |
1 Ratios and portfolio turnover have been annualized and total return has not been annualized.
2 The average shares outstanding method has been applied for per share information for the years ended July 31, 2004, 2003, and 2002.
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
12
Delaware High-Yield Opportunities Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | | |
| Six Months | | | | 6/2/031 |
| Ended | | Year Ended | | to |
| 1/31/072 | | 7/31/06 | | | 7/31/05 | | | 7/31/04 | | | 7/31/03 |
| (Unaudited) | | | | | | | | |
| Net asset value, beginning of period | $ | 4.270 | | | $ | 4.370 | | | $ | 4.210 | | | $ | 3.970 | | | $ | 3.960 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | | |
| Net investment income3 | | 0.159 | | | | 0.310 | | | | 0.279 | | | | 0.322 | | | | 0.050 | |
| Net realized and unrealized gain (loss) on investments | | 0.194 | | | | (0.090 | ) | | | 0.194 | | | | 0.242 | | | | 0.010 | |
| Total from investment operations | | 0.353 | | | | 0.220 | | | | 0.473 | | | | 0.564 | | | | 0.060 | |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.163 | ) | | | (0.320 | ) | | | (0.313 | ) | | | (0.324 | ) | | | (0.050 | ) |
| Total dividends and distributions | | (0.163 | ) | | | (0.320 | ) | | | (0.313 | ) | | | (0.324 | ) | | | (0.050 | ) |
| |
| Net asset value, end of period | $ | 4.460 | | | $ | 4.270 | | | $ | 4.370 | | | $ | 4.210 | | | $ | 3.970 | |
| |
| Total return4 | | 8.40% | | | | 5.27% | | | | 11.52% | | | | 14.55% | | | | 1.49% | |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | $ | 4,839 | | | $ | 3,704 | | | $ | 2,030 | | | $ | 16 | | | $ | — | |
| Ratio of expenses to average net assets | | 1.34% | | | | 1.33% | | | | 1.46% | | | | 1.43% | | | | 1.43% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 1.61% | | | | 1.59% | | | | 1.58% | | | | 1.68% | | | | 2.25% | |
| Ratio of net investment income to average net assets | | 7.20% | | | | 7.22% | | | | 6.38% | | | | 7.75% | | | | 9.57% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 6.93% | | | | 6.96% | | | | 6.26% | | | | 7.50% | | | | 8.75% | |
| Portfolio turnover | | 156% | | | | 151% | | | | 229% | | | | 644% | | | | 832% | 4 |
| |
1 Date of commencement of operations. Ratios have been annualized and total return has not been annualized.
2 Ratios and portfolio turnover have been annualized and total return has not been annualized.
3 The average shares outstanding method has been applied for per share information for the year ended July 31, 2004 and the period ended July 31, 2003.
4 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect.
5 Portfolio turnover is representative of the Fund for the entire year.
See accompanying notes
(continues) 13
Financial highlights
Delaware High-Yield Opportunities Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
| Six Months | | |
| | Ended | | Year Ended |
| | 1/31/071 | | 7/31/06 | | | 7/31/05 | | | 7/31/04 | | | 7/31/03 | | | 7/31/02 | |
| | (Unaudited) | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | $4.260 | | | $4.360 | | | $4.210 | | | $3.970 | | | $3.420 | | | $3.950 | |
| |
| Income (loss) from investment operations: | | | | | | | | | | | | | | | | | | |
| Net investment income2 | | 0.170 | | | 0.332 | | | 0.306 | | | 0.347 | | | 0.388 | | | 0.355 | |
| Net realized and unrealized gain (loss) on investments | | 0.204 | | | (0.090 | ) | | 0.184 | | | 0.244 | | | 0.532 | | | (0.487 | ) |
| Total from investment operations | | 0.374 | | | 0.242 | | | 0.490 | | | 0.591 | | | 0.920 | | | (0.132 | ) |
| |
| Less dividends and distributions from: | | | | | | | | | | | | | | | | | | |
| Net investment income | | (0.174 | ) | | (0.342 | ) | | (0.340 | ) | | (0.351 | ) | | (0.370 | ) | | (0.398 | ) |
| Total dividends and distributions | | (0.174 | ) | | (0.342 | ) | | (0.340 | ) | | (0.351 | ) | | (0.370 | ) | | (0.398 | ) |
| |
| Net asset value, end of period | | $4.460 | | | $4.260 | | | $4.360 | | | $4.210 | | | $3.970 | | | $3.420 | |
| |
| Total return3 | | 8.93% | | | 5.80% | | | 11.96% | | | 15.33% | | | 28.40% | | | (3.57% | ) |
| |
| Ratios and supplemental data: | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (000 omitted) | | $34,247 | | | $13,837 | | | $7,931 | | | $1,066 | | | $3,316 | | | $2,569 | |
| Ratio of expenses to average net assets | | 0.84% | | | 0.83% | | | 0.86% | | | 0.83% | | | 0.83% | | | 0.83% | |
| Ratio of expenses to average net assets | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 1.01% | | | 0.99% | | | 0.98% | | | 1.08% | | | 1.26% | | | 1.14% | |
| Ratio of net investment income to average net assets | | 7.70% | | | 7.72% | | | 6.98% | | | 8.35% | | | 10.66% | | | 9.35% | |
| Ratio of net investment income to average net assets | | | | | | | | | | | | | | | | | | |
| prior to expense limitation and expenses paid indirectly | | 7.53% | | | 7.56% | | | 6.86% | | | 8.10% | | | 10.23% | | | 9.04% | |
| Portfolio turnover | | 156% | | | 151% | | | 229% | | | 644% | | | 832% | | | 609% | |
| |
1 Ratios and portfolio turnover have been annualized and total return has not been annualized.
2 The average shares outstanding method has been applied for per share information for the years ended July 31, 2004, 2003, and 2002.
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect.
See accompanying notes
14
Notes to financial statements
Delaware High-Yield Opportunities Fund
January 31, 2007 (Unaudited)
Delaware Group Income Funds (the “Trust”) is organized as a Delaware statutory trust and offers four Series: Delaware Corporate Bond Fund, Delaware Delchester Fund, Delaware Extended Duration Bond Fund and Delaware High-Yield Opportunities Fund. These financial statements and the related notes pertain to Delaware High-Yield Opportunities Fund (the “Fund”). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of 1% if redeemed during the first year and 0.50% during the second year, provided that, Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek total return and, as a secondary objective, high current income.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and asked prices will be used. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading, or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.
Federal Income Taxes — The Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
On July 13, 2006, FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in Fund net asset value calculations as late as the Fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Fund will incorporate FIN 48 in its semiannual report on January 31, 2008. Although the Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Fund’s financial statements.
Class Accounting — Investment income and common expenses are allocated to the classes of the Fund on the basis of “settled shares” of each class in relation to the net assets of the Fund. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may invest in a pooled cash account along with members of the Delaware Investments® Family of Funds pursuant to an exemptive order issued by the Securities and Exchange Commission. The aggregate daily balance of the pooled cash account is invested in repurchase agreements secured by obligations of the U.S. government. The respective collateral is held by the Fund’s custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 102% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some
(continues) 15
Notes to financial statements
Delaware High-Yield Opportunities Fund
1. Significant Accounting Policies (continued)
other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of mortgage- and asset-backed securities are classified as interest income. The Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, 12 b-1 plan expenses, certain insurance costs and non-routine expenses or costs, do not exceed 0.83% of average daily net assets of the Fund through November 30, 2007.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Fund pays DSC a monthly fee computed at the annual rate of 0.04% of such Fund’s average daily net assets for accounting and administration services. The Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
Pursuant to the distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares, and 0.60% of the average daily net assets of Class R shares. DDLP has contracted to limit distribution and service fees through November 30, 2007 in order to prevent distribution and service fees of Class R shares from exceeding 0.50% of average daily net assets. Institutional Class shares pay no distribution and service expenses.
At January 31, 2007, the Fund had liabilities payable to affiliates as follows:
| Investment management fee payable to DMC | | $64,864 |
| Dividend disbursing, transfer agent, accounting | | |
| and administration fees and other | | |
| expenses payable to DSC | | 30,821 |
| Distribution fees payable to DDLP | | 52,627 |
| Other expenses payable to DMC and affiliates* | | 4,338 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees. |
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the six months ended January 31, 2007, the Fund was charged $3,167 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the six months ended January 31, 2007, DDLP earned $27,927 for commissions on sales of the Fund’s Class A shares. For the six months ended January 31, 2007, DDLP received gross contingent deferred sales charge commissions of $102, $10,923, and $1,184 on redemption of the Fund’s Class A, Class B, and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares.
Trustees’ fees and benefits include expenses accrued by the Fund for each Trustee’s retainer, per meeting fees and retirement benefits. Independent Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provides for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Trustees of the Fund unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent Trustees so entitled. The retirement benefit payout for the Fund was $15,429. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Fund.
3. Investments
For the six months ended January 31, 2007, the Fund made purchases of $135,271,146 and sales of $97,910,431 of investment securities other than short-term investments.
At January 31, 2007, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At January 31, 2007, the cost of investments was $155,369,950. At January 31, 2007, the net unrealized appreciation was $3,756,150, of which $5,276,628 related to unrealized appreciation of investments and $1,520,478 related to unrealized depreciation of investments.
16
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the six months ended January 31, 2007 and the year ended July 31, 2006 was as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 1/31/07* | | 7/31/06 |
| | | | |
| Ordinary income | $5,013,262 | | $8,776,541 |
*Tax information for the period ended January 31, 2007 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. |
5. Components of Net Assets on a Tax Basis
The components of net assets are estimated since final tax characteristics cannot be determined until fiscal year end. As of January 31, 2007, the estimated components of net assets on a tax basis were as follows:
| Shares of beneficial interest | | $159,886,938 | |
| Other temporary differences | | (597 | ) |
| Realized gains (losses) 8/1/06 - 1/31/07 | | 1,326,089 | |
| Post-October losses | | (637,596 | ) |
| Capital loss carryforwards as of 7/31/06 | | (4,396,558 | ) |
| Unrealized appreciation of investments | | 3,756,150 | |
| Net assets | | $159,934,426 | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of market discount and premium on debt instruments.
Post-October losses represent losses realized on investment transactions from November 1, 2006 through January 31, 2007 that, in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on paydowns of mortgage- and asset-backed securities and market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended January 31, 2007, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end.
| Distributions in excess of net investment income | $ | 110,643 | |
| Accumulated net realized gain (loss) | | (110,643 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at July 31, 2006 will expire as follows: $3,971,857 expires in 2010 and $424,701 expires in 2014. For the six months ended January 31, 2007, the Fund had capital gains of $1,326,089 which may reduce the capital loss carryforwards.
6. Capital Shares
Transactions in capital shares were as follows:
| | Six Months | | Year |
| | Ended | | Ended |
| | 1/31/07 | | 7/31/06 |
| Shares sold: | | | | | |
| Class A | 5,887,248 | | | 8,017,272 | |
| Class B | 397,772 | | | 486,900 | |
| Class C | 1,516,828 | | | 1,225,582 | |
| Class R | 299,411 | | | 536,316 | |
| Institutional Class | 5,225,234 | | | 1,478,455 | |
| |
| Shares issued upon reinvestment of | | | | | |
| dividends and distributions: | | | | | |
| Class A | 440,315 | | | 912,687 | |
| Class B | 48,433 | | | 104,992 | |
| Class C | 80,839 | | | 145,725 | |
| Class R | 36,576 | | | 49,237 | |
| Institutional Class | 184,590 | | | 150,666 | |
| 14,117,246 | | | 13,107,832 | |
| Shares repurchased: | | | | | |
| Class A | (2,162,597 | ) | | (13,077,892 | ) |
| Class B | (492,978 | ) | | (1,220,940 | ) |
| Class C | (483,447 | ) | | (1,556,900 | ) |
| Class R | (119,356 | ) | | (183,002 | ) |
| Institutional Class | (970,222 | ) | | (201,040 | ) |
| | (4,228,600 | ) | | (16,239,774 | ) |
| Net increase (decrease) | 9,888,646 | | | (3,131,942 | ) |
For the six months ended January 31, 2007 and the year ended July 31, 2006, 102,568 Class B shares were converted to 102,568 Class A shares valued at $448,362 and 87,453 Class B shares were converted to 87,415 Class A shares valued at $373,970, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (the “Participants”), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Fund had no amounts outstanding as of January 31, 2007, or at any time during the period then ended.
(continues) 17
Notes to financial statements
Delaware High-Yield Opportunities Fund
8. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Ratings Group and/or Ba or lower by Moody’s Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.
The Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid assets. Rule 144A and illiquid securities have been identified on the Statement of Net Assets.
9. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
18
About the organization
This semiannual report is for the information of Delaware High-Yield Opportunities Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware High-Yield Opportunities Fund and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
| Board of trustees Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA Thomas L. Bennett
Private Investor Rosemont, PA John A. Fry
President
Franklin & Marshall College
Lancaster, PA Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA Ann R. Leven
Consultant
ARL Associates,
New York, NY Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ | Affiliated officers David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA David P. O’Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA John J. O’Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA Richard Salus
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA | Contact information Investment manager
Delaware Management Company, a series
of Delaware Management Business Trust
Philadelphia, PA National distributor
Delaware Distributors, L.P.
Philadelphia, PA Shareholder servicing, dividend
disbursing, and transfer agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094 For shareholders
800 523-1918 For securities dealers and financial
institutions representatives only
800 362-7500 Web site
www.delawareinvestments.com |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund’s Web site at http://www.delawareinvestments.com; and (iii) on the Commission’s Web site at http://www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.
19
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Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions.
| (1485) | Printed in the USA |
| SA-137 [1/07] CGI 3/07 | MF-07-02-059 PO11666 |
2
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or
3
statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
(b) Management has made changes that have materially affected, or are reasonably likely to materially affect, registrant’s internal controls over financial reporting. To seek to increase the controls’ effectiveness, these changes provide for enhanced review of contracts relating to complex transactions and the applicability of generally accepted accounting principles to such transactions, including enhanced consultation with registrant’s independent public accountants in connection with such reviews.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant:
| PATRICK P. COYNE | |
| By: | Patrick P. Coyne |
| Title: | Chief Executive Officer |
| Date: | April 9, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| PATRICK P. COYNE | |
| By: | Patrick P. Coyne |
| Title: | Chief Executive Officer |
| Date: | April 9, 2007 |
| |
| |
| RICHARD SALUS | |
| By: | Richard Salus |
| Title: | Chief Financial Officer |
| Date: | April 9, 2007 |
5
