Item 1. Reports to Stockholders
Annual report
Fixed income mutual funds
Delaware Corporate Bond Fund
Delaware Extended Duration Bond Fund
July 31, 2019
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Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary. You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800 523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary. |
Carefully consider the Funds’ investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds’ prospectus and their summary prospectuses, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawarefunds.com/edelivery.
Experience Delaware Funds®by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. As active managers we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund at delawarefunds.com/literature.
Manage your account online
| · | | Check your account balance and transactions |
| · | | View statements and tax forms |
| · | | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following registered investment advisers: Macquarie Investment Management Business Trust (MIMBT), Delaware Capital Management Advisers, Inc., Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Europe Limited, and Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.
The Funds are distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Funds are governed by US laws and regulations.
Table of contents
Unless otherwise noted, views expressed herein are current as of July 31, 2019, and subject to change for events occurring after such date.
The Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2019 Macquarie Management Holdings, Inc.
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| Portfolio management review | | | | |
| Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund | | | August 13, 2019 | |
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| Performance preview (for the year ended July 31, 2019) | | | | | |
Delaware Corporate Bond Fund (Institutional Class shares) | | 1-year return | | | +10.93% | |
Delaware Corporate Bond Fund (Class A shares) | | 1-year return | | | +10.65% | |
Bloomberg Barclays US Corporate Investment Grade Index (benchmark) | | 1-year return | | | +10.42% | |
Past performance does not guarantee future results.
For complete, annualized performance for Delaware Corporate Bond Fund, please see the table on page 6.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.
The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.
Please see page 9 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
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Delaware Extended Duration Bond Fund (Institutional Class shares) | | 1-year return | | | +13.46%* | |
Delaware Extended Duration Bond Fund (Class A shares) | | 1-year return | | | +13.17% | |
Bloomberg Barclays Long US Corporate Index (benchmark) | | 1-year return | | | +14.65% | |
Past performance does not guarantee future results.
For complete, annualized performance for Delaware Extended Duration Bond Fund, please see the table on page 11.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.
The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.
Please see page 14 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
*Total return for the report period presented in the table differs from the return in “Financial highlights.” The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in “Financial highlights” is calculated in the same manner but also takes into account certain adjustments that are necessary under US generally accepted accounting principles (US GAAP) required in the annual report.
Market review
Investors’ continued quest for yield, the global economic slowdown, trade tensions, and the US Federal Reserve’s capitulation on interest rates in January 2019 drove financial markets during the Funds’ fiscal year ended July 31, 2019. As the fiscal year unfolded, markets also benefited from the December 2017 tax reforms.
It seemed clear that financial markets were fairly deep into the economic and credit cycle that had propelled both equities and bonds for the past several years from the Funds’ fiscal year’s outset. And as 2019 approached, it seemed likely that earnings growth would be challenged.
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· In late 2018, concerns about tariffs and an interest rate hike sparked a massive selloff that significantly pared calendar 2018 returns. · Investor sentiment changed dramatically in January 2019, when the Fed turned dovish. · Given the slowdown in international growth, along with trade tensions, earnings generally were better for companies with a domestic US focus. · With interest rates at or near zero in most developed markets, the US market was generally attractive to many foreign investors. |
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Portfolio management review
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
In November and December 2018, growing concern about tariffs, the waning boost from tax reform, and an interest rate hike combined to spark a massive risk-off environment that significantly pared calendar 2018 returns.
Investor sentiment changed dramatically in January 2019, however, when the Fed turned dovish, indicating not only that further rate hikes were off the table through 2019, but a reduction would be considered later in the year. By March, the resulting V-shaped recovery more than restored financial markets to previous levels.
Although US economic growth slowed, it continued to outpace other developed countries. Growth of corporate earnings and revenue remained positive, if anemic. At this writing, with more than half of the companies in the S&P 500® Index having reported second-quarter earnings, overall year-over-year earnings rose 4.1% while revenue fell 1.0%. Given the slowdown in international growth, along with persistent trade tensions, earnings were generally better for companies with a domestic focus than for those with high exposure to international demand.
With interest rates at or near zero in most developed markets, the US market has been generally attractive to many foreign investors. For most of 2018, interest rates and hedging costs were favorable. Late in the year, however, hedging costs increased and foreign investment flows reversed out of the investment grade bond market, a major reason for the year-end downdraft. As noted above, early in 2019, the Fed took further rate hikes off the table, which helped spark a return of foreign investors to the US market. Investors generally felt it was safer to look to the long end of the market for incrementally higher yield. The increased demand caused spreads in the US investment grade credit market to compress below historical averages in the first half of 2019. As a result, at fiscal year end, the market was pricing in further rate cuts, totaling 0.75 percentage points by the end of 2019.
Although the US-China trade dispute dominated conversations on corporate earnings calls, we believe the effect was manageable. While the tariffs cut into profits somewhat, the impact was largely offset by the benefits of 2018’s tax cuts. The most significantly affected sectors were chemicals, retailers, and technology. Companies generally mitigated the effect on their businesses by passing costs on to consumers and shifting manufacturing to regions unaffected by the dispute. The trade restrictions placed on Huawei, a Chinese multinational technology company, had a more profound effect on technology and communication companies.
The 2018 tax cuts had a positive impact on corporate credit. Lower corporate tax rates boosted earnings while the easing of tax penalties on foreign cash repatriated to the United States reduced the need for companies to issue new investment grade credit.
A reduction in shareholder-friendly activity also curtailed supply. Additionally, there were fewer megadeals in the first half of 2019 than in the first half of 2018.
At the same time, demand for corporate credit remained strong. Inflows in the second half of 2018 totaled $14.5 billion, climbing sharply in the first half of 2019 to $53.5 billion. Investors’ quest for yield and the Fed’s dovish turn helped drive the investment grade market, providing more than enough to overcome tariff concerns and mildly deteriorating fundamentals.
Source: Bloomberg.
Within the Funds
For the fiscal year ended July 31, 2019, Delaware Corporate Bond Fund outperformed its benchmark, the Bloomberg Barclays US Corporate Investment Grade Index. The Fund’s Institutional Class shares gained 10.93%. The Fund’s Class A shares advanced 10.65% at net asset value and 5.75% at maximum offer price.
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These figures reflect all distributions reinvested. During the same period, the benchmark gained 10.42%. For complete, annualized performance of Delaware Corporate Bond Fund, please see the table on page 6.
During the same period, Delaware Extended Duration Bond Fund underperformed its benchmark, the Bloomberg Barclays Long US Corporate Index. The Fund’s Institutional Class shares gained 13.46%. The Fund’s Class A shares advanced 13.17% at net asset value and 8.01% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the benchmark gained 14.65%. For complete, annualized performance of Delaware Extended Duration Bond Fund, please see the table on page 11.
As gross domestic product (GDP) growth slowed abroad and to a lesser extent in the US, and as the trade disputes posed challenges to companies operating internationally, we began to focus more on domestic-facing US companies that were less likely to confront tariff-related business disruptions. This was one of the themes that informed our decisions on positioning the portfolios of both Funds.
The Funds also benefited from an overweight to BBB-rated bonds, as this exposure enabled the Funds to pick up extra spread with what we believed was an acceptable level of additional risk over A-rated debt. While some investors and the press have speculated about the potential for downgrades in the BBB market, through our bottom-up (bond by bond) fundamental research we sought to reduce the risk that the Funds’ BBB-rated holdings would be downgraded to high yield, focusing on companies that we believed had a cushion that appeared ample to weather a slowdown in the economy or profitability.
Delaware Corporate Bond Fund
Throughout 2018, Delaware Corporate Bond Fund benefited from its exposure to high yield issues,
which amounted to roughly 17% of the Fund’s portfolio at the end of 2018. During the credit rout of November and December, however, high yield securities were beaten up relative to investment grade. Valuations had become expensive and we felt the Fund’s high yield exposure no longer provided enough spread or enough yield relative to the investment grade market, so we reduced the position. We took profits in the first half of 2019 and redeployed the proceeds in the long end of the investment grade market, which appeared cheaper and safer to us following the Fed’s capitulation on interest rates. These moves contributed to Fund performance during the fiscal year, and, at fiscal year end, we had lowered the Fund’s high yield exposure to just 8% of the portfolio.
In making these changes, we trimmed the Fund’s exposure to the subordinated part of banking issuers and basic industry, including chemicals and metals and mining. In turn, we increased the Fund’s exposure to more defensive sectors, such as communications and utilities. The Fund’s overweight to the communications sector added to performance; the Fund also benefited from solid security selection in the sector as wider-trading, longer-dated sectors outperformed.
The energy sector also contributed significantly to performance. Security selection, including exposure to some higher-beta (higher-risk) midstream names and a small amount of high yield, was favorable. Banking likewise contributed to performance as the Fund benefited from its investments in higher-beta portions of the market, including subordinated and hybrid debt. Several high yield issues contributed to performance. The Fund’s repositioning to longer-duration securities added to performance in the sector.
Natural gas, a utility subsector, detracted from performance due to the Fund’s underweight relative to the benchmark. We exited the Fund’s position inSempra Energy Co.in January, concerned that a resolution to the California
3
Portfolio management review
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
wildfire legislation might be detrimental. Instead, the market rallied following passage of the bill. The transportation sector also detracted somewhat as the Fund was underweight both the sector and some of the long spread duration railroads.
Time Warner Cable Inc., one of the Fund’s higher-beta names, contributed significantly to performance. Time Warner was the second-largest US cable company when Charter Communications acquired it in 2016. Following the merger, the company initially maintained its brand name but has since rebranded as Spectrum Cable in most major markets.
Verizon Communications Inc.was another leading contributor during the 12-month period. The performance of its credits had suffered as the company made little progress with its plans to deleverage and take out maturities. During the fiscal year, however, Verizon took material steps toward those goals, sparking a rally in its bonds.
Telefonica Emisiones S.A.U., also a strong contributor, is a multinational communications company based in Madrid that provides mobile, broadband, and television services throughout Europe and the Americas. As we sought to increase the Fund’s exposure to the communications sector, we took advantage of a new credit the company issued.
VOYA Financial Inc., an insurance company focused on the retirement and investment markets, was a leading detractor from Fund performance. VOYA has significant exposure to equity markets via its variable annuity products. Its securities suffered late in 2018 when equity markets turned sharply downward.
Bayer US Finance II LLCdetracted from performance. The US subsidiary of German pharmaceutical giant Bayer AG has been saddled with more than 18,000 lawsuits following its acquisition of Monsanto and its herbicide Roundup. The potential liability weighed heavily on
the company’s securities. We sold the position during the fiscal year.
Campbell Soup Co.also detracted meaningfully. The producer of canned soups and related products brought a new bond early in 2019 that we felt had a decent valuation. Just a few weeks later, however, the company materially reduced its full-year guidance and announced restructuring efforts, including the replacement of its chief executive officer. As a result, the bonds sold off sharply. We exited the Fund’s position during the fiscal year.
The Fund made minimal use of US Treasury futures during the fiscal year, to hedge out unwanted exposures to the Treasury yield curve. This exposure had no material impact on Fund performance.
Delaware Extended Duration Bond Fund
Delaware Extended Duration Bond Fund is designed to provide investors with access to the long end of the US investment grade corporate market. Our management of the Fund is strategically similar to that of Delaware Corporate Bond Fund. Since many companies do not issue longer-duration bonds, we identify additional opportunities as needed to complete the portfolio. The Fund has a lower risk profile than Delaware Corporate Bond Fund, due both to its longer duration and to its lower exposure to high yield securities.
While both Funds operated against the same economic backdrop – characterized by the global slowdown, trade disputes, and a newly dovish Fed – Delaware Extended Duration Bond Fund lagged the performance of its benchmark. This mainly resulted from the Fund’s relative underweight to the communications sector, which is dominated byAT&T Inc. andVerizon Communications Inc. Combined, the two companies comprise more than 5.5% of the benchmark, which are larger positions than the Fund normally takes, to avoid concentration risk – the risk of amplified losses
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that may occur from having a large portion of holdings in a particular market segment relative to the Fund’s overall portfolio.
Banks also detracted from performance, as the Fund held shorter-dated out-of-index securities that underperformed as rates declined. Additionally, the Fund was underweight several higher-beta (higher-risk) names, includingGoldman Sachs Group Inc.andWells Fargo Capital,both of which confronted charges related to unethical treatment of customers. Nonetheless, the market rally in the first half of 2019 cost the Fund material performance as both companies gained sharply.
The utility sector contributed to performance owing to the Fund’s overweight to long spread duration and down-in-capital-structure securities relative to the benchmark. We achieved this by focusing on holding companies, which carry higher spreads, rather than the individual operating companies. The capital goods sector also contributed to performance, primarily due to an underweight toGE Capital Corp.andBoeing Co.We avoided GE due to its well-publicized and long-running financial problems. As for Boeing, even before the grounding of the 737 MAX, we had determined that the company’s credit was tightly traded and would not sufficiently compensate the Fund’s shareholders. Those issues were magnified when problems with the new aircraft developed.
An underweight to the energy sector also contributed to performance. Over the course of the fiscal year, the price of West Texas
Intermediate (WTI) crude oil declined 17%, creating a significant drag on the benchmark and providing the Fund with a relative boost.
Aircraft manufacturerUnited Technologies Corp.aided Fund performance when, following a strategic review, the company merged with Raytheon. The Fund benefited from its overweight position. Insurance conglomerateCigna Corp.also contributed to performance, as new bonds issued to finance its merger with Express Scripts performed well. And despite problems in the communications sector overall, several media companies performed well, includingFox Corp.andViacom Inc., which issued debt to finance merger and acquisition activity. These executed well and credit spreads compressed, providing a boost to Fund performance.
Detracting from Fund performance was tobacco producer and marketerAltria Group Inc., which faced regulatory and secular pressures resulting from a potential ban on menthol cigarettes and regulation of vaping. Pharmaceutical companyMylan Inc.detracted from performance as pressure on its generic drug business and an ongoing strategic review weighed on the bonds. We sold these positions during the fiscal year. Bayer and Campbell Soup, both discussed earlier, were also significant detractors.
During the fiscal year, the Fund made minimal use of US Treasury futures to hedge out unwanted exposures to the Treasury yield curve. This exposure had no material impact on Fund performance.
5
Performance summaries
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| Delaware Corporate Bond Fund | | July 31, 2019 |
The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawarefunds.com/performance.
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| Fund and benchmark performance1,2 | | Average annual total returns through July 31, 2019 |
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| | | 1 year | | | 5 years | | | 10 years | | | Lifetime | |
Class A (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +10.65% | | | | +3.56% | | | | +6.55% | | | | +6.40% | |
Including sales charge | | | +5.75% | | | | +2.60% | | | | +6.06% | | | | +6.16% | |
Class C (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +9.83% | | | | +2.79% | | | | +5.74% | | | | +5.61% | |
Including sales charge | | | +8.83% | | | | +2.79% | | | | +5.74% | | | | +5.61% | |
Class R (Est. June 2, 2003) | | | | | �� | | | | | | | | | | | |
Excluding sales charge | | | +10.36% | | | | +3.30% | | | | +6.28% | | | | +5.60% | |
Including sales charge | | | +10.36% | | | | +3.30% | | | | +6.28% | | | | +5.60% | |
Institutional Class (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +10.93% | | | | +3.82% | | | | +6.82% | | | | +6.67% | |
Including sales charge | | | +10.93% | | | | +3.82% | | | | +6.82% | | | | +6.67% | |
Class R6 (Est. Jan 31, 2019) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | n/a | | | | n/a | | | | n/a | | | | +8.98% | |
Including sales charge | | | n/a | | | | n/a | | | | n/a | | | | +8.98% | |
Bloomberg Barclays US Corporate Investment Grade Index | | | +10.42% | | | | +4.21% | | | | +5.68% | | | | +5.56% | * |
*The benchmark lifetime return is for Institutional Class share comparison only and is calculated using the last business day in the month of the Fund’s Institutional Class inception date.
1Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund and benchmark performance” table. Expenses for each class are listed on the “Fund expense ratios” table on page 8. Performance would have been lower had expense limitations not been in effect.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service (12b-1) fee.
Class A shares are sold with a maximum front-end sales charge of 4.50%, and have an annual 12b-1 fee of 0.25% of average daily net assets. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first
6
12 months. They are also subject to an annual 12b-1 fee of 1.00% of average daily net assets. Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual 12b-1 fee of 0.50% of average daily net assets.
Class R6 shares are available only to certain investors. In addition, Class R6 shares do not pay any service fees, sub-accounting fees, and/or sub-transfer agency fees to any brokers, dealers, or other financial intermediaries. Class R6 shares pay no 12b-1 fee.
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The Fund may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.
If and when the Fund invests in forward foreign currency contracts or uses other investments to
hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.
The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivatives transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
This document may mention bond ratings published by nationally recognized statistical rating organizations (NRSROs) Standard & Poor’s, Moody’s Investors Service, and Fitch, Inc. For securities rated by an NRSRO other than S&P, the rating is converted to the equivalent S&P credit rating. Bonds rated AAA are rated as having the highest quality and are generally considered to have the lowest degree of investment risk. Bonds rated AA are considered to be of high quality, but with a slightly higher degree of risk than bonds rated AAA. Bonds rated A are considered to have many favorable investment qualities, though they are somewhat more susceptible to adverse economic conditions. Bonds rated BBB are believed to be of medium-grade quality and generally riskier over the long term. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics, with BB indicating the least degree of speculation of the three.
Gross domestic product, mentioned on page 3, is a measure of all goods and services produced by a nation in a year.
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Performance summaries
Delaware Corporate Bond Fund
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total annual fund operating expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.57% of the Fund’s average daily net assets for all shares classes other than Class R6 from Aug. 1, 2018 through July 31, 2019,* and 0.48% of the Fund’s Class R6 shares’ average daily net assets from Aug. 1, 2018 through July 31, 2019.* Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements. Please see the “Financial highlights” section in this report for the most recent expense ratios.
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| Fund expense ratios | | Class A | | Class C | | Class R | | Institutional Class | | Class R6 |
Total annual operating expenses (without fee waivers) | | 0.92% | | 1.67% | | 1.17% | | 0.67% | | 0.58% |
Net expenses (including fee waivers, if any) | | 0.82% | | 1.57% | | 1.07% | | 0.57% | | 0.48% |
Type of waiver | | Contractual | | Contractual | | Contractual | | Contractual | | Contractual |
*The aggregate contractual waiver period covering this report is from April 1, 2018 through Jan. 31, 2020.
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Performance of a $10,000 investment1
Average annual total returns from July 31, 2009 through July 31, 2019
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on July 31, 2009, and includes the effect of a 4.50% front-end sales charge (for Class A shares) and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Expenses are listed in the “Fund expense ratios” table on page 8. Please note additional details on pages 6 through 10.
The graph also assumes $10,000 invested in the Bloomberg Barclays US Corporate Investment Grade Index as of July 31, 2009. The Bloomberg Barclays US Corporate Investment Grade Index is composed of US dollar-denominated, investment
grade, SEC-registered corporate bonds issued by industrial, utility, and financial companies. All bonds have at least one year to maturity.
The S&P 500 Index, mentioned on page 2, measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the US stock market.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
9
Performance summaries
Delaware Corporate Bond Fund
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| | | Nasdaq symbols | | CUSIPs | | | |
Class A | | DGCAX | | | 245908785 | | | |
Class C | | DGCCX | | | 245908769 | | | |
Class R | | DGCRX | | | 245908744 | | | |
Institutional Class | | DGCIX | | | 245908751 | | | |
Class R6 | | DGCZX | | | 24610J100 | | | |
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| | | | |
| Performance summaries | | | | |
| Delaware Extended Duration Bond Fund | | | July 31, 2019 | |
The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawarefunds.com/performance.
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Fund and benchmark performance1,2 | | Average annual total returns through July 31, 2019 |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 1 year | | | | | | 5 years | | | | | | 10 years | | | Lifetime | |
Class A (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +13.17% | | | | | | | | +4.84% | | | | | | | | +8.68% | | | | +7.86% | |
Including sales charge | | | +8.01% | | | | | | | | +3.89% | | | | | | | | +8.19% | | | | +7.62% | |
Class C (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +12.34% | | | | | | | | +4.03% | | | | | | | | +7.85% | | | | +7.06% | |
Including sales charge | | | +11.34% | | | | | | | | +4.03% | | | | | | | | +7.85% | | | | +7.06% | |
Class R (Est. Oct. 3, 2005) | | | | | | | | | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +12.87% | | | | | | | | +4.58% | | | | | | | | +8.40% | | | | +7.42% | |
Including sales charge | | | +12.87% | | | | | | | | +4.58% | | | | | | | | +8.40% | | | | +7.42% | |
Institutional Class (Est. Sept. 15, 1998) | | | | | | | | | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +13.46% | * | | | | | | | +5.11% | | | | | | | | +8.96% | | | | +8.12% | |
Including sales charge | | | +13.46% | | | | | | | | +5.11% | | | | | | | | +8.96% | | | | +8.12% | |
Class R6 (Est. May 2, 2016) | | | | | | | | | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +13.56% | | | | | | | | n/a | | | | | | | | n/a | | | | +6.23% | |
Including sales charge | | | +13.56% | | | | | | | | n/a | | | | | | | | n/a | | | | +6.23% | |
Bloomberg Barclays Long US Corporate Index | | | +14.65% | | | | | | | | +6.02% | | | | | | | | +7.89% | | | | +6.82% | ** |
*Total return for the report period presented in the table differs from the return in “Financial highlights.” The total return presented in the above table is calculated based on the net asset value (NAV) at which shareholder transactions were processed. The total return presented in “Financial highlights” is calculated in the same manner but also takes into account certain adjustments that are necessary under US generally accepted accounting principles (US GAAP) required in the annual report.
**The benchmark lifetime return is for Institutional Class share comparison only and is calculated using the last business day in the month of the Fund’s Institutional Class inception date.
1Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund and benchmark performance” table. Expenses for each class are listed on the “Fund
expense ratios” table on page 13. Performance would have been lower had expense limitations not been in effect.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service (12b-1) fee.
Class A shares are sold with a maximum front-end sales charge of 4.50%, and have an annual
11
Performance summaries
Delaware Extended Duration Bond Fund
12b-1 fee of 0.25% of average daily net assets. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual 12b-1 fee of 1.00% of average daily net assets. Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual 12b-1 fee of 0.50% of average daily net assets.
Class R6 shares are available only to certain investors. In addition, Class R6 shares do not pay any service fees, sub-accounting fees, and/or sub-transfer agency fees to any brokers, dealers, or other financial intermediaries. Class R6 shares pay no 12b-1 fee.
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The Fund may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.
If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.
The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivatives transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
This document may mention bond ratings published by nationally recognized statistical rating organizations (NRSROs) Standard & Poor’s, Moody’s Investors Service, and Fitch, Inc. For securities rated by an NRSRO other than S&P, the rating is converted to the equivalent S&P credit rating. Bonds rated AAA are rated as having the highest quality and are generally considered to have the lowest degree of investment risk. Bonds rated AA are considered to be of high quality, but with a slightly higher degree of risk than bonds rated AAA. Bonds rated A are considered to have many favorable investment qualities, though they are somewhat more susceptible to adverse economic conditions. Bonds rated BBB are believed to be of medium-grade quality and generally riskier over the long term. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics, with BB indicating the least degree of speculation of the three.
Gross domestic product, mentioned on page 3, is a measure of all goods and services produced by a nation in a year.
12
2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total annual fund operating expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.57% of the Fund’s average daily net assets for all shares classes other than Class R6 from Aug. 1, 2018 through July 31, 2019,* and 0.49% of the Fund’s Class R6 shares’ average daily net assets from Aug. 1, 2018 through July 31, 2019.* Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements. Please see the “Financial highlights” section in this report for the most recent expense ratios.
| | | | | | | | | | |
| Fund expense ratios | | Class A | | Class C | | Class R | | Institutional Class | | Class R6 |
| | | | | |
| Total annual operating expenses (without fee waivers) | | 0.98% | | 1.73% | | 1.23% | | 0.73% | | 0.65% |
| Net expenses (including fee waivers, if any) | | 0.82% | | 1.57% | | 1.07% | | 0.57% | | 0.49% |
Type of waiver | | Contractual | | Contractual | | Contractual | | Contractual | | Contractual |
*The aggregate contractual waiver period covering this report is from Nov. 28, 2017 through Jan. 31, 2020.
13
Performance summaries
Delaware Extended Duration Bond Fund
Performance of a $10,000 investment1
Average annual total returns from July 31, 2009 through July 31, 2019
1The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on July 31, 2009, and includes the effect of a 4.50% front-end sales charge (for Class A shares) and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Expenses are listed in the “Fund expense ratios” table on page 13. Please note additional details on pages 11 through 15.
The graph also assumes $10,000 invested in the Bloomberg Barclays Long US Corporate Index as of July 31, 2009. The Bloomberg Barclays Long US Corporate Index is composed of US dollar-denominated, investment grade, SEC-registered
corporate bonds issued by industrial, utility, and financial companies. All bonds in the index have at least 10 years to maturity.
The S&P 500 Index, mentioned on page 2, measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the US stock market.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
14
| | | | | | |
| | | Nasdaq symbols | | CUSIPs | | |
Class A | | DEEAX | | 245908835 | | |
Class C | | DEECX | | 245908819 | | |
Class R | | DEERX | | 245908728 | | |
Institutional Class | | DEEIX | | 245908793 | | |
Class R6 | | DEZRX | | 245908629 | | |
15
Disclosure of Fund expenses
For the six-month period from February 1, 2019 to July 31, 2019 (Unaudited)
As a shareholder of a 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 service (12b-1) fees; and other Fund expenses. These following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from Feb. 1, 2019 to July 31, 2019.
Actual expenses
The first section of the tables 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 tables shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds’ 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 each 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 tables 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 each 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 Funds’ expenses shown in the tables reflect fee waivers in effect and assume reinvestment of all dividends and distributions.
16
Delaware Corporate Bond Fund
Expense analysis of an investment of $1,000
| | | | | | | | | | | | | | | | |
| | | Beginning | | | Ending | | | | | | Expenses | |
| | | Account Value | | | Account Value | | | Annualized | | | Paid During Period | |
| | | 2/1/19 | | | 7/31/19 | | | Expense Ratio | | | 2/1/19 to 7/31/19* | |
Actual Fund return† | | | | | | | | | | | | | | | | |
Class A | | | $1,000.00 | | | | $1,088.00 | | | | 0.82% | | | | $4.25 | |
Class C | | | 1,000.00 | | | | 1,084.00 | | | | 1.57% | | | | 8.11 | |
Class R | | | 1,000.00 | | | | 1,086.50 | | | | 1.07% | | | | 5.54 | |
Institutional Class | | | 1,000.00 | | | | 1,089.30 | | | | 0.57% | | | | 2.95 | |
Class R6 | | | 1,000.00 | | | | 1,089.80 | | | | 0.48% | | | | 2.49 | |
Hypothetical 5% return(5% return before expenses) | | | | | | | | | | | | | | | | |
Class A | | | $1,000.00 | | | | $1,020.73 | | | | 0.82% | | | | $4.11 | |
Class C | | | 1,000.00 | | | | 1,017.01 | | | | 1.57% | | | | 7.85 | |
Class R | | | 1,000.00 | | | | 1,019.49 | | | | 1.07% | | | | 5.36 | |
Institutional Class | | | 1,000.00 | | | | 1,021.97 | | | | 0.57% | | | | 2.86 | |
Class R6 | | | 1,000.00 | | | | 1,022.41 | | | | 0.48% | | | | 2.41 | |
| | | | |
Delaware Extended Duration Bond Fund Expense analysis of an investment of $1,000 | | | | | | | | | | | | | | | | |
| | | Beginning | | | Ending | | | | | | Expenses | |
| | | Account Value | | | Account Value | | | Annualized | | | Paid During Period | |
| | | 2/1/19 | | | 7/31/19 | | | Expense Ratio | | | 2/1/19 to 7/31/19* | |
Actual Fund return† | | | | | | | | | | | | | | | | |
Class A | | | $1,000.00 | | | | $1,128.80 | | | | 0.82% | | | | $4.33 | |
Class C | | | 1,000.00 | | | | 1,124.90 | | | | 1.57% | | | | 8.27 | |
Class R | | | 1,000.00 | | | | 1,127.20 | | | | 1.07% | | | | 5.64 | |
Institutional Class | | | 1,000.00 | | | | 1,128.70 | | | | 0.57% | | | | 3.01 | |
Class R6 | | | 1,000.00 | | | | 1,130.80 | | | | 0.49% | | | | 2.59 | |
Hypothetical 5% return(5% return before expenses) | | | | | | | | | | | | | | | | |
Class A | | | $1,000.00 | | | | $1,020.73 | | | | 0.82% | | | | $4.11 | |
Class C | | | 1,000.00 | | | | 1,017.01 | | | | 1.57% | | | | 7.85 | |
Class R | | | 1,000.00 | | | | 1,019.49 | | | | 1.07% | | | | 5.36 | |
Institutional Class | | | 1,000.00 | | | | 1,021.97 | | | | 0.57% | | | | 2.86 | |
Class R6 | | | 1,000.00 | | | | 1,022.36 | | | | 0.49% | | | | 2.46 | |
| *“ | Expenses Paid During Period” are equal to the relevant Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). | |
† Because actual returns reflect only the most recent six-month period, the returns shown may differ significantly from fiscal year returns.
In addition to the Delaware Corporate Bond Fund expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.
17
Security type / sector allocations
| | |
| Delaware Corporate Bond Fund | | As of July 31, 2019 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
| | |
| Security type / sector | | Percentage of net assets |
Convertible Bond | | 0.28% |
Corporate Bonds | | 89.39% |
Banking | | 19.43% |
Basic Industry | | 4.51% |
Brokerage | | 1.92% |
Capital Goods | | 3.66% |
Communications | | 11.48% |
Consumer Cyclical | | 3.70% |
Consumer Non-Cyclical | | 5.78% |
Electric | | 10.33% |
Energy | | 10.30% |
Finance Companies | | 2.79% |
Insurance | | 3.77% |
Real Estate Investment Trusts | | 2.97% |
Technology | | 5.72% |
Transportation | | 1.11% |
Utilities | | 1.92% |
Municipal Bonds | | 1.04% |
Loan Agreements | | 1.23% |
Convertible Preferred Stock | | 0.41% |
Preferred Stock | | 0.36% |
Short-Term Investments | | 4.65% |
Total Value of Securities | | 97.36% |
Receivables and Other Assets Net of Liabilities | | 2.64% |
Total Net Assets | | 100.00% |
18
| | |
| Security type / sector allocations | | |
| Delaware Extended Duration Bond Fund | | As of July 31, 2019 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
| | |
| Security type / sector | | Percentage of net assets |
Convertible Bond | | 0.34% |
Corporate Bonds | | 93.06% |
Banking | | 7.81% |
Basic Industry | | 4.53% |
Brokerage | | 2.23% |
Capital Goods | | 7.65% |
Communications | | 10.97% |
Consumer Cyclical | | 3.00% |
Consumer Non-Cyclical | | 10.14% |
Electric | | 18.02% |
Energy | | 7.79% |
Finance Companies | | 1.42% |
Insurance | | 8.06% |
Natural Gas | | 3.86% |
Technology | | 2.46% |
Transportation | | 3.47% |
Utilities | | 1.65% |
Municipal Bonds | | 3.10% |
Convertible Preferred Stock | | 0.68% |
Preferred Stock | | 0.67% |
Total Value of Securities | | 97.85% |
Receivables and Other Assets Net of Liabilities | | 2.15% |
Total Net Assets | | 100.00% |
19
| | |
| Schedules of investments | | |
Delaware Corporate Bond Fund | | July 31, 2019 |
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Convertible Bond – 0.28% | | | | | | | | |
| |
Cemex 3.72% exercise price $10.88, maturity date 3/15/20 | | | 2,760,000 | | | $ | 2,763,616 | |
| | | | | | | | |
Total Convertible Bond(cost $2,708,835) | | | | | | | 2,763,616 | |
| | | | | | | | |
| | | | | | | | |
| |
Corporate Bonds – 89.39% | | | | | | | | |
| |
Banking – 19.43% | | | | | | | | |
Ally Financial 8.00% 11/1/31 | | | 1,840,000 | | | | 2,468,360 | |
Banco Santander | | | | | | | | |
2.706% 6/27/24 | | | 6,000,000 | | | | 5,985,118 | |
3.306% 6/27/29 | | | 4,400,000 | | | | 4,453,434 | |
Bank of America | | | | | | | | |
3.194% 7/23/30 µ | | | 3,325,000 | | | | 3,356,473 | |
3.458% 3/15/25 µ | | | 3,380,000 | | | | 3,499,166 | |
5.125%µy | | | 4,845,000 | | | | 4,911,619 | |
5.625% 7/1/20 | | | 1,965,000 | | | | 2,023,849 | |
Bank of Montreal 3.30% 2/5/24 | | | 6,630,000 | | | | 6,856,755 | |
BB&T | | | | | | | | |
2.50% 8/1/24 | | | 4,725,000 | | | | 4,718,120 | |
3.875% 3/19/29 | | | 4,435,000 | | | | 4,742,155 | |
BBVA USA | | | | | | | | |
2.875% 6/29/22 | | | 3,360,000 | | | | 3,385,353 | |
3.875% 4/10/25 | | | 3,955,000 | | | | 4,083,346 | |
Citibank | | | | | | | | |
2.844% 5/20/22 µ | | | 2,900,000 | | | | 2,919,797 | |
3.165% 2/19/22 µ | | | 4,460,000 | | | | 4,509,762 | |
Citizens Financial Group 2.85% 7/27/26 | | | 3,100,000 | | | | 3,091,538 | |
Credit Suisse Group | | | | | | | | |
144A 3.869% 1/12/29 #µ | | | 5,200,000 | | | | 5,389,615 | |
144A 7.50%#µy | | | 2,662,000 | | | | 2,830,278 | |
Fifth Third Bancorp 3.95% 3/14/28 | | | 1,860,000 | | | | 2,014,818 | |
Fifth Third Bank 3.85% 3/15/26 | | | 7,115,000 | | | | 7,516,921 | |
Goldman Sachs Group 6.00% 6/15/20 | | | 3,045,000 | | | | 3,140,568 | |
JPMorgan Chase & Co. | | | | | | | | |
4.023% 12/5/24 µ | | | 4,005,000 | | | | 4,242,313 | |
5.00%µy | | | 5,630,000 | | | | 5,701,783 | |
KeyBank 3.40% 5/20/26 | | | 10,360,000 | | | | 10,692,262 | |
Morgan Stanley | | | | | | | | |
3.78% (LIBOR03M + 1.22%) 5/8/24● | | | 3,455,000 | | | | 3,505,171 | |
5.00% 11/24/25 | | | 5,080,000 | | | | 5,622,005 | |
5.50% 1/26/20 | | | 3,105,000 | | | | 3,149,785 | |
PNC Bank 4.05% 7/26/28 | | | 3,035,000 | | | | 3,303,951 | |
PNC Financial Services Group 2.60% 7/23/26 | | | 9,160,000 | | | | 9,146,977 | |
Popular 6.125% 9/14/23 | | | 5,020,000 | | | | 5,409,050 | |
20
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | | | |
| |
Banking(continued) | | | | | | | | |
Regions Financial 3.80% 8/14/23 | | | 3,335,000 | | | $ | 3,497,102 | |
Royal Bank of Scotland Group | | | | | | | | |
4.519% 6/25/24 µ | | | 3,585,000 | | | | 3,721,974 | |
8.625%µy | | | 3,555,000 | | | | 3,790,519 | |
Santander UK 144A 5.00% 11/7/23 # | | | 3,765,000 | | | | 3,972,067 | |
SunTrust Bank 2.80% 5/17/22 | | | 9,715,000 | | | | 9,823,821 | |
SunTrust Banks 4.00% 5/1/25 | | | 2,575,000 | | | | 2,749,013 | |
SVB Financial Group 3.50% 1/29/25 | | | 655,000 | | | | 667,710 | |
UBS 7.625% 8/17/22 | | | 3,430,000 | | | | 3,842,303 | |
UBS Group Funding Switzerland | | | | | | | | |
6.875%µy | | | 2,745,000 | | | | 2,844,781 | |
7.125%µy | | | 860,000 | | | | 899,403 | |
US Bancorp | | | | | | | | |
3.00% 7/30/29 | | | 2,285,000 | | | | 2,300,626 | |
3.375% 2/5/24 | | | 10,425,000 | | | | 10,879,700 | |
USB Capital IX 3.50% (LIBOR03M + 1.02%)y● | | | 3,207,000 | | | | 2,710,941 | |
Wells Fargo Capital X 5.95% 12/15/36 | | | 5,645,000 | | | | 6,756,164 | |
Zions Bancorp 3.35% 3/4/22 | | | 250,000 | | | | 253,756 | |
| | | | | | | | |
| | | | | | | 191,380,222 | |
| | | | | | | | |
Basic Industry – 4.51% | | | | | | | | |
ArcelorMittal | | | | | | | | |
3.60% 7/16/24 | | | 2,220,000 | | | | 2,240,184 | |
4.25% 7/16/29 | | | 2,610,000 | | | | 2,620,635 | |
BHP Billiton Finance USA 144A 6.25% 10/19/75 #µ | | | 9,455,000 | | | | 9,852,299 | |
Equate Petrochemical 144A 3.00% 3/3/22 # | | | 2,840,000 | | | | 2,852,982 | |
Georgia-Pacific 8.00% 1/15/24 | | | 4,345,000 | | | | 5,335,868 | |
Olin 5.625% 8/1/29 | | | 2,075,000 | | | | 2,134,656 | |
RPM International 4.55% 3/1/29 | | | 2,965,000 | | | | 3,151,300 | |
SASOL Financing USA | | | | | | | | |
5.875% 3/27/24 | | | 1,150,000 | | | | 1,233,673 | |
6.50% 9/27/28 | | | 1,165,000 | | | | 1,312,818 | |
Syngenta Finance | | | | | | | | |
144A 3.933% 4/23/21 # | | | 2,560,000 | | | | 2,601,798 | |
144A 4.441% 4/24/23 # | | | 1,100,000 | | | | 1,151,087 | |
144A 5.182% 4/24/28 # | | | 2,260,000 | | | | 2,374,501 | |
Teck Resources 6.25% 7/15/41 | | | 4,925,000 | | | | 5,573,170 | |
Westlake Chemical 4.375% 11/15/47 | | | 2,080,000 | | | | 2,002,558 | |
| | | | | | | | |
| | | | | | | 44,437,529 | |
| | | | | | | | |
Brokerage – 1.92% | | | | | | | | |
E*TRADE Financial 3.80% 8/24/27 | | | 2,395,000 | | | | 2,454,592 | |
Jefferies Group | | | | | | | | |
4.15% 1/23/30 | | | 1,725,000 | | | | 1,711,191 | |
21
Schedules of investments
Delaware Corporate Bond Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | | | |
| |
Brokerage(continued) | | | | | | | | |
Jefferies Group | | | | | | | | |
6.45% 6/8/27 | | | 5,627,000 | | | $ | 6,464,038 | |
6.50% 1/20/43 | | | 1,575,000 | | | | 1,771,808 | |
Lazard Group | | | | | | | | |
3.625% 3/1/27 | | | 2,260,000 | | | | 2,328,410 | |
3.75% 2/13/25 | | | 1,075,000 | | | | 1,118,964 | |
4.375% 3/11/29 | | | 2,890,000 | | | | 3,086,789 | |
| | | | | | | | |
| | | | | | | 18,935,792 | |
| | | | | | | | |
Capital Goods – 3.66% | | | | | | | | |
Anixter 6.00% 12/1/25 | | | 1,570,000 | | | | 1,715,225 | |
Boeing 3.75% 2/1/50 | | | 2,135,000 | | | | 2,153,387 | |
Crown Americas 4.75% 2/1/26 | | | 1,115,000 | | | | 1,149,008 | |
General Electric 5.55% 5/4/20 | | | 395,000 | | | | 403,456 | |
Ingersoll-Rand Luxembourg Finance 3.80% 3/21/29 | | | 4,135,000 | | | | 4,389,023 | |
L3Harris Technologies 144A 4.40% 6/15/28 # | | | 8,105,000 | | | | 8,920,704 | |
nVent Finance 4.55% 4/15/28 | | | 664,000 | | | | 681,157 | |
Parker-Hannifin | | | | | | | | |
3.25% 6/14/29 | | | 4,455,000 | | | | 4,572,174 | |
4.00% 6/14/49 | | | 1,455,000 | | | | 1,522,643 | |
United Technologies 3.65% 8/16/23 | | | 4,300,000 | | | | 4,504,974 | |
Waste Management | | | | | | | | |
2.95% 6/15/24 | | | 2,790,000 | | | | 2,860,993 | |
4.00% 7/15/39 | | | 1,000,000 | | | | 1,092,262 | |
4.15% 7/15/49 | | | 1,835,000 | | | | 2,029,650 | |
| | | | | | | | |
| | | | | | | 35,994,656 | |
| | | | | | | | |
Communications – 11.48% | | | | | | | | |
Altice France 144A 6.25% 5/15/24 # | | | 1,016,000 | | | | 1,052,830 | |
AMC Networks 4.75% 8/1/25 | | | 2,450,000 | | | | 2,502,063 | |
American Tower 3.80% 8/15/29 | | | 4,305,000 | | | | 4,475,352 | |
AT&T | | | | | | | | |
4.35% 3/1/29 | | | 5,940,000 | | | | 6,422,245 | |
4.85% 7/15/45 | | | 6,010,000 | | | | 6,463,662 | |
Bell Canada 4.30% 7/29/49 | | | 7,160,000 | | | | 7,767,218 | |
Charter Communications Operating | | | | | | | | |
4.908% 7/23/25 | | | 3,830,000 | | | | 4,134,146 | |
5.125% 7/1/49 | | | 2,625,000 | | | | 2,684,075 | |
Crown Castle International 5.25% 1/15/23 | | | 2,580,000 | | | | 2,799,136 | |
CSC Holdings 144A 5.375% 2/1/28 # | | | 2,720,000 | | | | 2,842,400 | |
Discovery Communications | | | | | | | | |
4.125% 5/15/29 | | | 5,630,000 | | | | 5,886,129 | |
5.20% 9/20/47 | | | 2,710,000 | | | | 2,879,445 | |
22
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | | | |
| |
Communications(continued) | | | | | | | | |
Fox | | | | | | | | |
144A 4.709% 1/25/29 # | | | 2,960,000 | | | $ | 3,315,453 | |
144A 5.576% 1/25/49 # | | | 4,365,000 | | | | 5,335,046 | |
GTP Acquisition Partners I 144A 2.35% 6/15/20 # | | | 2,130,000 | | | | 2,123,782 | |
Sprint Spectrum | | | | | | | | |
144A 3.36% 9/20/21 # | | | 2,179,688 | | | | 2,194,945 | |
144A 4.738% 3/20/25 # | | | 4,195,000 | | | | 4,420,481 | |
Telefonica Emisiones 5.52% 3/1/49 | | | 5,285,000 | | | | 6,260,333 | |
Time Warner Cable 7.30% 7/1/38 | | | 5,490,000 | | | | 6,811,559 | |
Time Warner Entertainment 8.375% 3/15/23 | | | 4,965,000 | | | | 5,858,653 | |
Verizon Communications | | | | | | | | |
4.50% 8/10/33 | | | 12,025,000 | | | | 13,605,800 | |
4.522% 9/15/48 | | | 3,405,000 | | | | 3,763,690 | |
Viacom 4.375% 3/15/43 | | | 7,515,000 | | | | 7,440,456 | |
Virgin Media Secured Finance 144A 5.50% 5/15/29 # | | | 2,000,000 | | | | 2,054,000 | |
| | | | | | | | |
| | | | | | | 113,092,899 | |
| | | | | | | | |
Consumer Cyclical – 3.70% | | | | | | | | |
Dollar Tree 3.70% 5/15/23 | | | 7,455,000 | | | | 7,700,501 | |
General Motors Financial | | | | | | | | |
4.35% 4/9/25 | | | 7,425,000 | | | | 7,695,271 | |
5.25% 3/1/26 | | | 2,150,000 | | | | 2,318,363 | |
Lowe’s | | | | | | | | |
4.05% 5/3/47 | | | 2,000,000 | | | | 2,010,043 | |
4.55% 4/5/49 | | | 6,835,000 | | | | 7,430,002 | |
Royal Caribbean Cruises 3.70% 3/15/28 | | | 6,170,000 | | | | 6,241,096 | |
SBA Tower Trust 144A 2.898% 10/15/19 #f | | | 3,005,000 | | | | 3,005,377 | |
| | | | | | | | |
| | | | | | | 36,400,653 | |
| | | | | | | | |
Consumer Non-Cyclical – 5.78% | | | | | | | | |
Anheuser-Busch InBev Worldwide | | | | | | | | |
3.65% 2/1/26 | | | 5,630,000 | | | | 5,944,014 | |
4.75% 1/23/29 | | | 3,055,000 | | | | 3,481,286 | |
Bristol-Myers Squibb | | | | | | | | |
144A 2.90% 7/26/24 # | | | 4,940,000 | | | | 5,058,968 | |
144A 4.125% 6/15/39 # | | | 415,000 | | | | 453,391 | |
144A 4.25% 10/26/49 # | | | 4,880,000 | | | | 5,348,399 | |
Cigna 144A 4.125% 11/15/25 # | | | 9,451,000 | | | | 10,045,688 | |
Constellation Brands 3.15% 8/1/29 | | | 5,865,000 | | | | 5,888,370 | |
CVS Health 5.05% 3/25/48 | | | 3,745,000 | | | | 4,076,607 | |
Eli Lilly & Co. 3.375% 3/15/29 | | | 2,320,000 | | | | 2,471,471 | |
Imperial Brands Finance 144A 3.50% 7/26/26 # | | | 4,400,000 | | | | 4,386,469 | |
Mars | | | | | | | | |
144A 3.875% 4/1/39 # | | | 615,000 | | | | 673,771 | |
23
Schedules of investments
Delaware Corporate Bond Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | | | |
| |
Consumer Non-Cyclical(continued) | | | | | | | | |
Mars | | | | | | | | |
144A 3.95% 4/1/49 # | | | 6,310,000 | | | $ | 6,870,306 | |
Universal Health Services 144A 4.75% 8/1/22 # | | | 2,170,000 | | | | 2,202,550 | |
| | | | | | | | |
| | | | | | | 56,901,290 | |
| | | | | | | | |
Electric – 10.33% | | | | | | | | |
AES 4.50% 3/15/23 | | | 2,094,000 | | | | 2,151,585 | |
Ausgrid Finance 144A 3.85% 5/1/23 # | | | 2,000,000 | | | | 2,074,611 | |
Avangrid 3.15% 12/1/24 | | | 3,485,000 | | | | 3,572,802 | |
Cleveland Electric Illuminating 5.50% 8/15/24 | | | 4,605,000 | | | | 5,212,100 | |
ComEd Financing III 6.35% 3/15/33 | | | 4,635,000 | | | | 4,808,405 | |
DPL 144A 4.35% 4/15/29 # | | | 1,215,000 | | | | 1,188,405 | |
Emera 6.75% 6/15/76 µ | | | 4,665,000 | | | | 5,080,278 | |
Entergy Arkansas 4.20% 4/1/49 | | | 5,940,000 | | | | 6,666,657 | |
Entergy Mississippi 3.85% 6/1/49 | | | 860,000 | | | | 917,431 | |
FirstEnergy Transmission 144A 4.55% 4/1/49 # | | | 4,430,000 | | | | 4,964,913 | |
Interstate Power & Light 4.10% 9/26/28 | | | 3,500,000 | | | | 3,800,392 | |
IPALCO Enterprises 3.70% 9/1/24 | | | 2,075,000 | | | | 2,136,158 | |
Louisville Gas & Electric 4.25% 4/1/49 | | | 6,020,000 | | | | 6,856,313 | |
National Rural Utilities Cooperative Finance 5.25% 4/20/46 µ | | | 3,045,000 | | | | 3,196,256 | |
NextEra Energy Capital Holdings | | | | | | | | |
3.15% 4/1/24 | | | 4,935,000 | | | | 5,080,101 | |
5.65% 5/1/79 µ | | | 665,000 | | | | 700,580 | |
NRG Energy | | | | | | | | |
144A 3.75% 6/15/24 # | | | 1,985,000 | | | | 2,034,007 | |
144A 4.45% 6/15/29 # | | | 3,180,000 | | | | 3,285,217 | |
NV Energy 6.25% 11/15/20 | | | 2,975,000 | | | | 3,115,076 | |
PacifiCorp 3.50% 6/15/29 | | | 8,170,000 | | | | 8,799,649 | |
Southern California Edison | | | | | | | | |
4.20% 3/1/29 | | | 3,720,000 | | | | 4,062,520 | |
4.875% 3/1/49 | | | 3,555,000 | | | | 4,119,655 | |
Southwestern Electric Power 4.10% 9/15/28 | | | 8,270,000 | | | | 9,049,469 | |
Tampa Electric 3.625% 6/15/50 | | | 3,455,000 | | | | 3,474,394 | |
Vistra Operations | | | | | | | | |
144A 3.55% 7/15/24 # | | | 3,310,000 | | | | 3,338,428 | |
144A 4.30% 7/15/29 # | | | 2,045,000 | | | | 2,059,641 | |
| | | | | | | | |
| | | | | | | 101,745,043 | |
| | | | | | | | |
Energy – 10.30% | | | | | | | | |
Continental Resources 3.80% 6/1/24 | | | 9,485,000 | | | | 9,726,053 | |
Enbridge Energy Partners | | | | | | | | |
4.375% 10/15/20 | | | 770,000 | | | | 785,975 | |
5.50% 9/15/40 | | | 1,320,000 | | | | 1,526,074 | |
24
��
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | | | |
| |
Energy(continued) | | | | | | | | |
Energy Transfer Operating | | | | | | | | |
5.25% 4/15/29 | | | 185,000 | | | $ | 206,685 | |
6.00% 6/15/48 | | | 1,365,000 | | | | 1,571,099 | |
6.25% 4/15/49 | | | 1,445,000 | | | | 1,719,568 | |
6.625%µy | | | 5,105,000 | | | | 4,857,510 | |
Eni 144A 4.25% 5/9/29 # | | | 5,475,000 | | | | 5,815,692 | |
Enterprise Products Operating | | | | | | | | |
3.125% 7/31/29 | | | 1,975,000 | | | | 1,991,082 | |
4.20% 1/31/50 | | | 5,100,000 | | | | 5,206,867 | |
Husky Energy 4.40% 4/15/29 | | | 5,030,000 | | | | 5,292,028 | |
Marathon Oil 4.40% 7/15/27 | | | 10,600,000 | | | | 11,174,816 | |
MPLX | | | | | | | | |
4.875% 12/1/24 | | | 7,875,000 | | | | 8,583,070 | |
5.50% 2/15/49 | | | 1,865,000 | | | | 2,083,435 | |
Newfield Exploration 5.625% 7/1/24 | | | 1,345,000 | | | | 1,486,000 | |
Noble Energy | | | | | | | | |
3.90% 11/15/24 | | | 2,315,000 | | | | 2,413,996 | |
4.95% 8/15/47 | | | 2,170,000 | | | | 2,307,712 | |
NuStar Logistics 5.625% 4/28/27 | | | 2,585,000 | | | | 2,677,827 | |
ONEOK 7.50% 9/1/23 | | | 4,985,000 | | | | 5,825,159 | |
Petrobras Global Finance 7.25% 3/17/44 | | | 2,560,000 | | | | 3,005,440 | |
Sabine Pass Liquefaction | | | | | | | | |
5.625% 3/1/25 | | | 3,825,000 | | | | 4,256,312 | |
5.75% 5/15/24 | | | 5,964,000 | | | | 6,623,577 | |
Saudi Arabian Oil 144A 4.375% 4/16/49 # | | | 1,495,000 | | | | 1,555,048 | |
Schlumberger Holdings 144A 4.30% 5/1/29 # | | | 5,445,000 | | | | 5,886,628 | |
Targa Resources Partners 5.875% 4/15/26 | | | 2,370,000 | | | | 2,511,489 | |
Transcanada Trust 5.875% 8/15/76 µ | | | 2,245,000 | | | | 2,357,924 | |
| | | | | | | | |
| | | | | | | 101,447,066 | |
| | | | | | | | |
Finance Companies – 2.79% | | | | | | | | |
AerCap Ireland Capital 3.65% 7/21/27 | | | 7,027,000 | | | | 7,049,682 | |
Aviation Capital Group 144A 4.375% 1/30/24 # | | | 2,670,000 | | | | 2,808,215 | |
Avolon Holdings Funding | | | | | | | | |
144A 3.95% 7/1/24 # | | | 3,265,000 | | | | 3,344,862 | |
144A 4.375% 5/1/26 # | | | 2,075,000 | | | | 2,148,600 | |
144A 5.25% 5/15/24 # | | | 2,970,000 | | | | 3,195,482 | |
Depository Trust & Clearing 144A 4.875%#µy | | | 6,000,000 | | | | 6,046,290 | |
International Lease Finance 8.625% 1/15/22 | | | 2,500,000 | | | | 2,842,233 | |
| | | | | | | | |
| | | | | | | 27,435,364 | |
| | | | | | | | |
Insurance – 3.77% | | | | | | | | |
AXA Equitable Holdings 5.00% 4/20/48 | | | 2,370,000 | | | | 2,509,375 | |
Brighthouse Financial 4.70% 6/22/47 | | | 2,525,000 | | | | 2,182,525 | |
25
Schedules of investments
Delaware Corporate Bond Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds (continued) | | | | | | | | |
| |
Insurance (continued) | | | | | | | | |
MetLife 144A 9.25% 4/8/38 # | | | 2,160,000 | | | $ | 3,059,845 | |
PartnerRe Finance 3.70% 7/2/29 | | | 2,985,000 | | | | 3,061,335 | |
Pine Street Trust I 144A 4.572% 2/15/29 # | | | 375,000 | | | | 394,496 | |
Prudential Financial 4.35% 2/25/50 | | | 5,985,000 | | | | 6,815,750 | |
Reinsurance Group of America 3.90% 5/15/29 | | | 6,535,000 | | | | 6,811,315 | |
UnitedHealth Group 3.50% 8/15/39 | | | 7,070,000 | | | | 7,122,705 | |
Voya Financial 4.70% 1/23/48 µ | | | 3,390,000 | | | | 3,129,057 | |
XLIT 4.761% (LIBOR03M + 2.46%)y● | | | 2,042,000 | | | | 2,046,125 | |
| | | | | | | | |
| | | | | | | 37,132,528 | |
| | | | | | | | |
Real Estate Investment Trusts – 2.97% | | | | | | | | |
American Tower Trust #1 144A 3.07% 3/15/23 # | | | 2,726,000 | | | | 2,753,225 | |
Corporate Office Properties 5.25% 2/15/24 | | | 5,730,000 | | | | 6,130,803 | |
Digital Realty Trust 3.60% 7/1/29 | | | 4,920,000 | | | | 5,036,260 | |
Host Hotels & Resorts 3.75% 10/15/23 | | | 2,750,000 | | | | 2,832,502 | |
Life Storage 4.00% 6/15/29 | | | 945,000 | | | | 980,329 | |
LifeStorage 3.50% 7/1/26 | | | 2,745,000 | | | | 2,772,144 | |
WEA Finance 144A 3.50% 6/15/29 # | | | 6,350,000 | | | | 6,473,848 | |
WP Carey 4.60% 4/1/24 | | | 2,120,000 | | | | 2,260,461 | |
| | | | | | | | |
| | | | | | | 29,239,572 | |
| | | | | | | | |
Technology – 5.72% | | | | | | | | |
Broadcom | | | | | | | | |
3.50% 1/15/28 | | | 2,755,000 | | | | 2,595,604 | |
144A 4.25% 4/15/26 # | | | 750,000 | | | | 756,393 | |
Fiserv 3.50% 7/1/29 | | | 7,445,000 | | | | 7,651,373 | |
International Business Machines | | | | | | | | |
3.00% 5/15/24 | | | 2,935,000 | | | | 3,005,871 | |
3.30% 5/15/26 | | | 3,260,000 | | | | 3,389,433 | |
3.50% 5/15/29 | | | 1,935,000 | | | | 2,027,821 | |
Marvell Technology Group 4.875% 6/22/28 | | | 6,280,000 | | | | 6,803,113 | |
Microchip Technology | | | | | | | | |
3.922% 6/1/21 | | | 1,335,000 | | | | 1,358,848 | |
4.333% 6/1/23 | | | 9,520,000 | | | | 9,902,916 | |
Micron Technology | | | | | | | | |
4.185% 2/15/27 | | | 3,090,000 | | | | 3,127,128 | |
4.663% 2/15/30 | | | 3,390,000 | | | | 3,426,524 | |
NXP | | | | | | | | |
144A 4.125% 6/1/21 # | | | 1,935,000 | | | | 1,980,207 | |
144A 4.875% 3/1/24 # | | | 7,660,000 | | | | 8,222,851 | |
SS&C Technologies 144A 5.50% 9/30/27 # | | | 2,035,000 | | | | 2,120,216 | |
| | | | | | | | |
| | | | | | | 56,368,298 | |
| | | | | | | | |
Transportation – 1.11% | | | | | | | | |
FedEx 4.05% 2/15/48 | | | 8,845,000 | | | | 8,572,282 | |
26
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds (continued) | | | | | | | | |
| |
Transportation (continued) | | | | | | | | |
United Airlines 2019-1 Class AA Pass Through Trust 4.15% 8/25/31¨ | | | 2,220,000 | | | $ | 2,385,436 | |
| | | | | | | | |
| | | | | | | 10,957,718 | |
| | | | | | | | |
Utilities – 1.92% | | | | | | | | |
American Water Capital | | | | | | | | |
3.45% 6/1/29 | | | 3,635,000 | | | | 3,819,859 | |
4.15% 6/1/49 | | | 4,010,000 | | | | 4,398,305 | |
Aqua America 4.276% 5/1/49 | | | 3,270,000 | | | | 3,588,243 | |
Boston Gas 144A 3.001% 8/1/29 # | | | 7,030,000 | | | | 7,104,474 | |
| | | | | | | | |
| | | | | | | 18,910,881 | |
| | | | | | | | |
Total Corporate Bonds(cost $847,193,606) | | | | | | | 880,379,511 | |
| | | | | | | | |
| | | | | | | | |
| |
Municipal Bonds – 1.04% | | | | | | | | |
| |
Buckeye, Ohio Tobacco Settlement Financing Authority (Asset-Backed Senior Turbo) Series A-2 5.875% 6/1/47 | | | 2,195,000 | | | | 2,159,331 | |
Los Angeles, California Department of Water & Power Revenue
(Federally Taxable - Direct Payment - Build America Bonds) Series D 6.574% 7/1/45 | | | 5,365,000 | | | | 8,121,054 | |
| | | | | | | | |
Total Municipal Bonds(cost $7,479,351) | | | | | | | 10,280,385 | |
| | | | | | | | |
| | | | | | | | |
| |
Loan Agreements – 1.23% | | | | | | | | |
| |
Altice France Tranche B13 1st Lien 6.325% (LIBOR01M + 4.00%) 8/14/26● | | | 2,481,250 | | | | 2,460,298 | |
Mauser Packaging Solutions Holding Tranche B 1st Lien 5.59% (LIBOR03M + 3.25%) 4/3/24● | | | 2,474,747 | | | | 2,439,688 | |
Stars Group Holdings Tranche B 1st Lien 5.83% (LIBOR03M + 3.50%) 7/10/25● | | | 2,230,245 | | | | 2,244,184 | |
Unitymedia Finance Tranche E 1st Lien 4.354% (LIBOR03M + 2.00%) 6/1/23● | | | 2,500,000 | | | | 2,499,575 | |
USI Tranche B 1st Lien 5.33% (LIBOR03M + 3.00%) 5/16/24● | | | 2,474,811 | | | | 2,444,136 | |
| | | | | | | | |
Total Loan Agreements(cost $12,078,560) | | | | | | | 12,087,881 | |
| | | | | | | | |
| | |
| | | Number of shares | | | | |
| |
Convertible Preferred Stock – 0.41% | | | | | | | | |
| |
A Schulman 6.00% exercise price $52.33y | | | 2,808 | | | | 2,871,180 | |
El Paso Energy Capital Trust I 4.75% exercise price $34.49, maturity date 3/31/28 | | | 22,731 | | | | 1,204,743 | |
| | | | | | | | |
Total Convertible Preferred Stock(cost $4,053,106) | | | | | | | 4,075,923 | |
| | | | | | | | |
27
Schedules of investments
Delaware Corporate Bond Fund
| | | | | | | | |
| | | Number of shares | | | Value (US $) | |
| |
Preferred Stock – 0.36% | | | | | | | | |
| |
GMAC Capital Trust I 8.303% (LIBOR03M + 5.785%)● | | | 50,000 | | | $ | 1,318,000 | |
Morgan Stanley 5.55% µ | | | 1,850,000 | | | | 1,873,736 | |
USB Realty 144A 3.45% (LIBOR03M + 1.147%)#● | | | 400,000 | | | | 344,608 | |
| | | | | | | | |
Total Preferred Stock(cost $3,134,700) | | | | | | | 3,536,344 | |
| | | | | | | | |
| | | | | | | | |
| |
Short-Term Investments – 4.65% | | | | | | | | |
| |
Money Market Mutual Funds – 4.65% | | | | | | | | |
BlackRock FedFund - Institutional Shares (seven-day effective yield 2.23%) | | | 9,160,963 | | | | 9,159,701 | |
Fidelity Investments Money Market Government Portfolio - Class I (seven-day effective yield 2.19%) | | | 9,160,963 | | | | 9,159,668 | |
GS Financial Square Government Fund - Institutional Shares (seven-day effective yield 2.23%) | | | 9,160,963 | | | | 9,159,697 | |
Morgan Stanley Government Portfolio - Institutional Class (seven-day effective yield 2.21%) | | | 9,160,963 | | | | 9,159,684 | |
State Street Institutional US Government Money Market Fund - Investor Class (seven-day effective yield 2.18%) | | | 9,160,963 | | | | 9,159,655 | |
| | | | | | | | |
Total Short-Term Investments(cost $45,798,405) | | | | | | | 45,798,405 | |
| | | | | | | | |
Total Value of Securities – 97.36%
(cost $922,446,563) | | | | | | $ | 958,922,065 | |
| | | | | | | | |
| # | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At July 31, 2019, the aggregate value of Rule 144A securities was $184,285,389, which represents 18.71% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
| ¨ | Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes. |
| ° | Principal amount shown is stated in USD unless noted that the security is denominated in another currency. |
| µ | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at July 31, 2019. Rate will reset at a future date. |
| y | No contractual maturity date. |
| ● | Variable rate investment. Rates reset periodically. Rate shown reflects the rate in effect at July 31, 2019. For securities based on a published reference rate and spread, the reference rate and spread are indicated in their description above. The reference rate descriptions (i.e. LIBOR03M, LIBOR06M, etc.) used in this report are identical for different securities, but the underlying reference rates may differ due to the timing of the reset period. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions, or for mortgage-backed securities, are impacted by the individual |
28
| | mortgages which are paying off over time. These securities do not indicate a reference rate and spread in their description above. |
| f | Step coupon bond. Stated rate in effect at July 31, 2019 through maturity date. |
The following futures contracts were outstanding at July 31, 20191:
Futures Contracts
| | | | | | | | | | | | | | |
| | | Contracts to Buy (Sell) | | | Notional Amount | | Notional Cost (Proceeds) | | Expiration Date | | Value/ Unrealized
Appreciation | | Variation Margin Due from (Due to) Brokers |
86 | | | US Treasury Long Bonds | | | $ 13,381,062 | | $ 12,929,700 | | 9/19/19 | | $ 451,362 | | $ 83,313 |
The use of futures contracts involves elements of market risk and risks in excess of the amounts disclosed in the financial statements. The notional amount presented above represents the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 8 in “Notes to financial statements.”
Summary of abbreviations:
GS – Goldman Sachs
ICE – Intercontinental Exchange
LIBOR – London Interbank Offered Rate
LIBOR01M – ICE LIBOR USD 1 Month
LIBOR03M – ICE LIBOR USD 3 Month
LIBOR06M – ICE LIBOR USD 6 Month
USD – US Dollar
See accompanying notes, which are an integral part of the financial statements.
29
| | |
| Schedule of investments | | |
| Delaware Extended Duration Bond Fund | | July 31, 2019 |
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Convertible Bond – 0.34% | | | | | | | | |
| |
Cemex 3.72% exercise price $10.88, maturity date 3/15/20 | | | 2,176,000 | | | $ | 2,178,851 | |
| | | | | | | | |
Total Convertible Bond(cost $2,135,599) | | | | | | | 2,178,851 | |
| | | | | | | | |
| | | | | | | | |
| |
Corporate Bonds – 93.06% | | | | | | | | |
| |
Banking – 7.81% | | | | | | | | |
Ally Financial 8.00% 11/1/31 | | | 595,000 | | | | 798,193 | |
Bank of America | | | | | | | | |
3.194% 7/23/30 µ | | | 1,585,000 | | | | 1,600,003 | |
3.458% 3/15/25 µ | | | 265,000 | | | | 274,343 | |
4.33% 3/15/50 µ | | | 3,445,000 | | | | 3,916,519 | |
5.125%µy | | | 2,860,000 | | | | 2,899,325 | |
Credit Suisse Group 144A 6.25%#µy | | | 1,147,000 | | | | 1,211,187 | |
Fifth Third Bank 3.85% 3/15/26 | | | 5,000,000 | | | | 5,282,446 | |
JPMorgan Chase & Co. 3.702% 5/6/30 µ | | | 8,210,000 | | | | 8,698,520 | |
KeyBank 6.95% 2/1/28 | | | 2,467,000 | | | | 3,080,426 | |
Morgan Stanley | | | | | | | | |
4.375% 1/22/47 | | | 5,120,000 | | | | 5,767,963 | |
4.457% 4/22/39 µ | | | 1,095,000 | | | | 1,228,507 | |
5.00% 11/24/25 | | | 2,070,000 | | | | 2,290,856 | |
UBS 7.625% 8/17/22 | | | 2,635,000 | | | | 2,951,740 | |
UBS Group Funding Switzerland 6.875%µy | | | 2,600,000 | | | | 2,694,510 | |
US Bancorp 5.125%µy | | | 2,805,000 | | | | 2,869,094 | |
USB Capital IX 3.50% (LIBOR03M + 1.02%)y● | | | 810,000 | | | | 684,709 | |
Wells Fargo Capital X 5.95% 12/15/36 | | | 3,245,000 | | | | 3,883,747 | |
| | | | | | | | |
| | | | | | | 50,132,088 | |
| | | | | | | | |
Basic Industry – 4.53% | | | | | | | | |
BHP Billiton Finance USA 144A 6.25% 10/19/75 #µ | | | 1,248,000 | | | | 1,300,441 | |
Braskem Netherlands Finance 144A 4.50% 1/10/28 # | | | 2,070,000 | | | | 2,097,842 | |
Georgia-Pacific 8.00% 1/15/24 | | | 3,280,000 | | | | 4,027,997 | |
Newmont Goldcorp 144A 5.45% 6/9/44 # | | | 2,155,000 | | | | 2,637,210 | |
Nucor 4.40% 5/1/48 | | | 5,065,000 | | | | 5,556,202 | |
Olin 5.625% 8/1/29 | | | 1,570,000 | | | | 1,615,138 | |
RPM International 4.25% 1/15/48 | | | 3,115,000 | | | | 2,941,445 | |
Teck Resources 6.25% 7/15/41 | | | 3,430,000 | | | | 3,881,416 | |
Westlake Chemical 4.375% 11/15/47 | | | 5,225,000 | | | | 5,030,463 | |
| | | | | | | | |
| | | | | | | 29,088,154 | |
| | | | | | | | |
Brokerage – 2.23% | | | | | | | | |
Jefferies Group | | | | | | | | |
6.45% 6/8/27 | | | 2,640,000 | | | | 3,032,710 | |
6.50% 1/20/43 | | | 1,985,000 | | | | 2,233,040 | |
Lazard Group | | | | | | | | |
3.75% 2/13/25 | | | 655,000 | | | | 681,787 | |
30
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Corporate Bonds(continued) | | | | | | | | |
Brokerage(continued) | | | | | | | | |
Lazard Group 4.50% 9/19/28 | | | 2,675,000 | | | $ | 2,863,194 | |
Legg Mason 5.625% 1/15/44 | | | 5,000,000 | | | | 5,494,972 | |
| | | | | | | | |
| | | | | | | 14,305,703 | |
| | | | | | | | |
Capital Goods – 7.65% | | | | | | | | |
Boeing 3.75% 2/1/50 | | | 1,450,000 | | | | 1,462,488 | |
Ingersoll-Rand Luxembourg Finance 4.50% 3/21/49 | | | 2,065,000 | | | | 2,261,925 | |
Martin Marietta Materials 4.25% 12/15/47 | | | 4,555,000 | | | | 4,301,052 | |
Northrop Grumman 4.03% 10/15/47 | | | 6,910,000 | | | | 7,367,772 | |
Parker-Hannifin 4.00% 6/14/49 | | | 5,365,000 | | | | 5,614,419 | |
Snap-on 4.10% 3/1/48 | | | 5,415,000 | | | | 5,927,710 | |
United Technologies 4.625% 11/16/48 | | | 6,290,000 | | | | 7,450,634 | |
Valmont Industries 5.00% 10/1/44 | | | 8,570,000 | | | | 8,814,970 | |
Waste Management | | | | | | | | |
4.00% 7/15/39 | | | 1,530,000 | | | | 1,671,160 | |
4.15% 7/15/49 | | | 3,780,000 | | | | 4,180,969 | |
| | | | | | | | |
| | | | | | | 49,053,099 | |
| | | | | | | | |
Communications – 10.97% | | | | | | | | |
AT&T | | | | | | | | |
4.35% 3/1/29 | | | 1,890,000 | | | | 2,043,442 | |
4.85% 3/1/39 | | | 2,440,000 | | | | 2,665,332 | |
4.85% 7/15/45 | | | 4,310,000 | | | | 4,635,338 | |
Bell Canada 4.30% 7/29/49 | | | 5,695,000 | | | | 6,177,976 | |
Charter Communications Operating | | | | | | | | |
5.125% 7/1/49 | | | 2,030,000 | | | | 2,075,685 | |
5.375% 4/1/38 | | | 3,170,000 | | | | 3,459,450 | |
Comcast 4.70% 10/15/48 | | | 3,455,000 | | | | 4,059,224 | |
Deutsche Telekom International Finance 8.75% 6/15/30 | | | 1,335,000 | | | | 1,954,034 | |
Diamond Sports Group 144A 5.375% 8/15/26 # | | | 1,650,000 | | | | 1,680,938 | |
Discovery Communications 5.20% 9/20/47 | | | 4,520,000 | | | | 4,802,617 | |
Fox 144A 5.576% 1/25/49 # | | | 4,490,000 | | | | 5,487,825 | |
Telefonica Emisiones 5.52% 3/1/49 | | | 4,115,000 | | | | 4,874,413 | |
Time Warner Cable | | | | | | | | |
6.75% 6/15/39 | | | 2,105,000 | | | | 2,527,938 | |
7.30% 7/1/38 | | | 5,265,000 | | | | 6,532,397 | |
Verizon Communications | | | | | | | | |
4.50% 8/10/33 | | | 7,465,000 | | | | 8,446,345 | |
4.522% 9/15/48 | | | 2,605,000 | | | | 2,879,416 | |
Viacom 4.375% 3/15/43 | | | 4,435,000 | | | | 4,391,008 | |
Virgin Media Secured Finance 144A 5.50% 5/15/29 # | | | 1,625,000 | | | | 1,668,875 | |
| | | | | | | | |
| | | | | | | 70,362,253 | |
| | | | | | | | |
31
Schedules of investments
Delaware Extended Duration Bond Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Corporate Bonds(continued) | | | | | | | | |
Consumer Cyclical – 3.00% | | | | | | | | |
General Motors | | | | | | | | |
5.15% 4/1/38 | | | 2,450,000 | | | $ | 2,466,181 | |
5.95% 4/1/49 | | | 420,000 | | | | 447,724 | |
6.75% 4/1/46 | | | 2,805,000 | | | | 3,203,949 | |
Home Depot 4.50% 12/6/48 | | | 7,105,000 | | | | 8,453,963 | |
Lowe’s 4.05% 5/3/47 | | | 4,630,000 | | | | 4,653,250 | |
| | | | | | | | |
| | | | | | | 19,225,067 | |
| | | | | | | | |
Consumer Non-Cyclical – 10.14% | | | | | | | | |
Amgen 4.563% 6/15/48 | | | 3,955,000 | | | | 4,308,738 | |
Anheuser-Busch InBev Worldwide 4.90% 2/1/46 | | | 9,670,000 | | | | 11,013,976 | |
Bristol-Myers Squibb | | | | | | | | |
144A 4.125% 6/15/39 # | | | 585,000 | | | | 639,117 | |
144A 4.25% 10/26/49 # | | | 3,585,000 | | | | 3,929,100 | |
Cigna 144A 4.90% 12/15/48 # | | | 8,440,000 | | | | 9,283,013 | |
Conagra Brands 5.40% 11/1/48 | | | 4,605,000 | | | | 5,171,000 | |
CVS Health 4.78% 3/25/38 | | | 7,150,000 | | | | 7,585,261 | |
Gilead Sciences | | | | | | | | |
4.15% 3/1/47 | | | 2,630,000 | | | | 2,767,740 | |
4.50% 2/1/45 | | | 4,110,000 | | | | 4,503,105 | |
Mars | | | | | | | | |
144A 3.875% 4/1/39 # | | | 485,000 | | | | 531,348 | |
144A 3.95% 4/1/49 # | | | 6,215,000 | | | | 6,766,870 | |
PepsiCo 3.375% 7/29/49 | | | 5,090,000 | | | | 5,104,678 | |
Pernod Ricard 144A 5.50% 1/15/42 # | | | 2,900,000 | | | | 3,434,448 | |
| | | | | | | | |
| | | | | | | 65,038,394 | |
| | | | | | | | |
Electric – 18.02% | | | | | | | | |
AEP Texas 3.80% 10/1/47 | | | 3,800,000 | | | | 3,924,230 | |
Alabama Power 4.30% 7/15/48 | | | 2,630,000 | | | | 2,974,197 | |
American Transmission Systems 144A 5.00% 9/1/44 # | | | 5,110,000 | | | | 6,088,893 | |
Appalachian Power | | | | | | | | |
4.40% 5/15/44 | | | 1,910,000 | | | | 2,129,101 | |
4.50% 3/1/49 | | | 3,685,000 | | | | 4,261,927 | |
Arizona Public Service | | | | | | | | |
4.20% 8/15/48 | | | 2,720,000 | | | | 2,990,141 | |
4.25% 3/1/49 | | | 2,790,000 | | | | 3,111,134 | |
Baltimore Gas & Electric 3.75% 8/15/47 | | | 2,580,000 | | | | 2,693,104 | |
Berkshire Hathaway Energy 3.80% 7/15/48 | | | 5,185,000 | | | | 5,372,766 | |
Black Hills 4.20% 9/15/46 | | | 4,745,000 | | | | 4,939,784 | |
ComEd Financing III 6.35% 3/15/33 | | | 2,630,000 | | | | 2,728,394 | |
Dayton Power & Light 144A 3.95% 6/15/49 # | | | 4,725,000 | | | | 4,974,946 | |
DTE Electric 3.75% 8/15/47 | | | 3,675,000 | | | | 3,928,263 | |
Duke Energy Ohio 3.70% 6/15/46 | | | 1,000,000 | | | | 1,033,529 | |
32
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Corporate Bonds(continued) | | | | | | | | |
Electric(continued) | | | | | | | | |
Emera 6.75% 6/15/76 µ | | | 3,445,000 | | | $ | 3,751,674 | |
Entergy Arkansas 4.95% 12/15/44 | | | 2,765,000 | | | | 2,930,684 | |
Entergy Louisiana | | | | | | | | |
4.00% 3/15/33 | | | 1,885,000 | | | | 2,095,660 | |
4.95% 1/15/45 | | | 125,000 | | | | 132,427 | |
Entergy Mississippi 3.85% 6/1/49 | | | 450,000 | | | | 480,051 | |
FirstEnergy Transmission 144A 4.55% 4/1/49 # | | | 710,000 | | | | 795,731 | |
Louisville Gas & Electric 4.25% 4/1/49 | | | 4,520,000 | | | | 5,147,930 | |
National Rural Utilities Cooperative Finance 5.25% 4/20/46 µ | | | 810,000 | | | | 850,236 | |
NextEra Energy Capital Holdings 5.65% 5/1/79 µ | | | 2,840,000 | | | | 2,991,951 | |
Oglethorpe Power 5.05% 10/1/48 | | | 2,580,000 | | | | 3,101,544 | |
Oklahoma Gas & Electric 3.85% 8/15/47 | | | 4,500,000 | | | | 4,599,713 | |
PPL Capital Funding 4.00% 9/15/47 | | | 3,630,000 | | | | 3,607,957 | |
Public Service Co. of New Hampshire 3.60% 7/1/49 | | | 2,145,000 | | | | 2,216,965 | |
Southern California Edison | | | | | | | | |
4.125% 3/1/48 | | | 3,245,000 | | | | 3,377,697 | |
4.875% 3/1/49 | | | 1,130,000 | | | | 1,309,483 | |
Southwestern Public Service | | | | | | | | |
3.70% 8/15/47 | | | 3,165,000 | | | | 3,263,606 | |
4.40% 11/15/48 | | | 5,115,000 | | | | 5,809,620 | |
Tampa Electric 3.625% 6/15/50 | | | 3,842,000 | | | | 3,863,566 | |
Tucson Electric Power 4.85% 12/1/48 | | | 4,150,000 | | | | 4,942,634 | |
Union Electric 4.00% 4/1/48 | | | 5,315,000 | | | | 5,830,602 | |
Virginia Electric & Power 4.60% 12/1/48 | | | 2,815,000 | | | | 3,346,644 | |
| | | | | | | | |
| | | | | | | 115,596,784 | |
| | | | | | | | |
Energy – 7.79% | | | | | | | | |
Enbridge Energy Partners 5.50% 9/15/40 | | | 1,392,000 | | | | 1,609,314 | |
Energy Transfer Operating | | | | | | | | |
6.00% 6/15/48 | | | 1,730,000 | | | | 1,991,209 | |
6.25% 4/15/49 | | | 3,940,000 | | | | 4,688,650 | |
Eni 144A 5.70% 10/1/40 # | | | 3,450,000 | | | | 4,008,407 | |
Enterprise Products Operating | | | | | | | | |
4.20% 1/31/50 | | | 1,555,000 | | | | 1,587,584 | |
4.80% 2/1/49 | | | 4,360,000 | | | | 4,875,208 | |
Marathon Oil 4.40% 7/15/27 | | | 3,035,000 | | | | 3,199,582 | |
MPLX | | | | | | | | |
4.80% 2/15/29 | | | 2,085,000 | | | | 2,280,611 | |
5.50% 2/15/49 | | | 4,685,000 | | | | 5,233,722 | |
Newfield Exploration 5.625% 7/1/24 | | | 1,275,000 | | | | 1,408,662 | |
Noble Energy
4.95% 8/15/47 | | | 4,800,000 | | | | 5,104,616 | |
33
Schedules of investments
Delaware Extended Duration Bond Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Corporate Bonds(continued) | | | | | | | | |
Energy(continued) | | | | | | | | |
Noble Energy 5.05% 11/15/44 | | | 1,785,000 | | | $ | 1,895,889 | |
Petrobras Global Finance 7.25% 3/17/44 | | | 1,595,000 | | | | 1,872,530 | |
Sabine Pass Liquefaction | | | | | | | | |
5.625% 3/1/25 | | | 3,010,000 | | | | 3,349,412 | |
5.75% 5/15/24 | | | 1,655,000 | | | | 1,838,032 | |
5.875% 6/30/26 | | | 2,060,000 | | | | 2,346,751 | |
Saudi Arabian Oil 144A 4.375% 4/16/49 # | | | 1,160,000 | | | | 1,206,593 | |
Transcanada Trust 5.875% 8/15/76 µ | | | 1,400,000 | | | | 1,470,420 | |
| | | | | | | | |
| | | | | | | 49,967,192 | |
| | | | | | | | |
Finance Companies – 1.42% | | | | | | | | |
Depository Trust & Clearing 144A 4.875%#µy | | | 3,000,000 | | | | 3,023,145 | |
Mastercard 3.65% 6/1/49 | | | 5,725,000 | | | | 6,106,818 | |
| | | | | | | | |
| | | | | | | 9,129,963 | |
| | | | | | | | |
Insurance – 8.06% | | | | | | | | |
Alleghany 4.90% 9/15/44 | | | 3,525,000 | | | | 3,898,900 | |
AXA Equitable Holdings 5.00% 4/20/48 | | | 2,085,000 | | | | 2,207,615 | |
Berkshire Hathaway Finance | | | | | | | | |
4.20% 8/15/48 | | | 5,385,000 | | | | 6,067,306 | |
4.25% 1/15/49 | | | 1,150,000 | | | | 1,301,794 | |
Brighthouse Financial 4.70% 6/22/47 | | | 6,215,000 | | | | 5,372,037 | |
High Street Funding Trust II 144A 4.682% 2/15/48 # | | | 6,505,000 | | | | 7,087,721 | |
MetLife 4.60% 5/13/46 | | | 3,725,000 | | | | 4,378,987 | |
Nationwide Mutual Insurance 144A 4.95% 4/22/44 # | | | 2,010,000 | | | | 2,221,860 | |
Pacific Life Insurance 144A 4.30% 10/24/67 #µ | | | 6,270,000 | | | | 6,139,396 | |
Prudential Financial 4.35% 2/25/50 | | | 5,245,000 | | | | 5,973,034 | |
UnitedHealth Group 3.50% 8/15/39 | | | 1,615,000 | | | | 1,627,039 | |
Voya Financial 4.70% 1/23/48 µ | | | 2,010,000 | | | | 1,855,282 | |
XLIT | | | | | | | | |
4.761% (LIBOR03M + 2.458%)y• | | | 1,260,000 | | | | 1,262,545 | |
5.50% 3/31/45 | | | 1,895,000 | | | | 2,287,029 | |
| | | | | | | | |
| | | | | | | 51,680,545 | |
| | | | | | | | |
Natural Gas – 3.86% | | | | | | | | |
Brooklyn Union Gas 144A 4.273% 3/15/48 # | | | 7,945,000 | | | | 8,775,129 | |
Piedmont Natural Gas 3.64% 11/1/46 | | | 6,300,000 | | | | 6,269,507 | |
Southern California Gas 4.30% 1/15/49 | | | 4,500,000 | | | | 5,046,921 | |
Southwest Gas | | | | | | | | |
3.80% 9/29/46 | | | 2,150,000 | | | | 2,141,746 | |
4.15% 6/1/49 | | | 2,430,000 | | | | 2,523,143 | |
| | | | | | | | |
| | | | | | | 24,756,446 | |
| | | | | | | | |
Technology – 2.46% | | | | | | | | |
Fiserv 4.40% 7/1/49 | | | 3,295,000 | | | | 3,538,605 | |
34
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Corporate Bonds(continued) | | | | | | | | |
Technology (continued) | | | | | | | | |
International Business Machines 4.25% 5/15/49 | | | 2,990,000 | | | $ | 3,238,419 | |
Micron Technology 4.663% 2/15/30 | | | 1,870,000 | | | | 1,890,148 | |
NXP 144A 4.30% 6/18/29 # | | | 1,120,000 | | | | 1,160,933 | |
Oracle 4.00% 11/15/47 | | | 4,000,000 | | | | 4,293,740 | |
SS&C Technologies 144A 5.50% 9/30/27 # | | | 1,590,000 | | | | 1,656,581 | |
| | | | | | | | |
| | | | | | | 15,778,426 | |
| | | | | | | | |
Transportation – 3.47% | | | | | | | | |
Burlington Northern Santa Fe 4.05% 6/15/48 | | | 5,000,000 | | | | 5,471,448 | |
FedEx 4.05% 2/15/48 | | | 8,700,000 | | | | 8,431,753 | |
Norfolk Southern 4.15% 2/28/48 | | | 4,795,000 | | | | 5,202,073 | |
Union Pacific 3.55% 8/15/39 | | | 3,155,000 | | | | 3,183,516 | |
| | | | | | | | |
| | | | | | | 22,288,790 | |
| | | | | | | | |
Utilities – 1.65% | | | | | | | | |
American Water Capital 4.15% 6/1/49 | | | 4,405,000 | | | | 4,831,554 | |
Aqua America 4.276% 5/1/49 | | | 5,275,000 | | | | 5,788,374 | |
| | | | | | | | |
| | | | | | | 10,619,928 | |
| | | | | | | | |
Total Corporate Bonds(cost $555,086,581) | | | | | | | 597,022,832 | |
| | | | | | | | |
| | | | | | | | |
Municipal Bonds – 3.10% | | | | | | | | |
Chicago, Illinois O’Hare International Airport Third Lien Revenue | | | | | | | | |
(Build America Bonds - Direct Payment) Series B 6.395% 1/1/40 | | | 3,800,000 | | | | 5,394,404 | |
Long Island, New York Power Authority Electric System Revenue | | | | | | | | |
(Federally Taxable - Issuer Subsidy - Build America Bonds) Series B 5.85% 5/1/41 | | | 3,600,000 | | | | 4,666,716 | |
Los Angeles, California Department of Water & Power Revenue | | | | | | | | |
(Federally Taxable - Direct Payment - Build America Bonds) Series D 6.574% 7/1/45 | | | 2,225,000 | | | | 3,368,005 | |
Metropolitan Transportation Authority, New York Revenue | | | | | | | | |
(Build America Bonds) Series A-2 6.089% 11/15/40 | | | 3,205,000 | | | | 4,349,794 | |
Oregon Department of Transportation Highway User Tax Revenue | | | | | | | | |
(Federally Taxable Build America Bonds) Subordinate Series A 5.834% 11/15/34 | | | 1,605,000 | | | | 2,117,412 | |
| | | | | | | | |
Total Municipal Bonds(cost $14,456,093) | | | | | | | 19,896,331 | |
| | | | | | | | |
35
Schedules of investments
Delaware Extended Duration Bond Fund
| | | | | | | | |
| | | Number of shares | | | Value (US $) | |
| |
Convertible Preferred Stock – 0.68% | | | | | | | | |
| |
A Schulman 6.00% exercise price $52.33y | | | 1,597 | | | $ | 1,632,933 | |
Bank of America 7.25% exercise price $50.00y | | | 1,360 | | | | 1,927,718 | |
El Paso Energy Capital Trust I 4.75% exercise price $34.49, maturity date 3/31/28 | | | 14,912 | | | | 790,336 | |
| | | | | | | | |
Total Convertible Preferred Stock
(cost $4,194,316) | | | | | | | 4,350,987 | |
| | | | | | | | |
| | |
| | | | | | | | |
| |
Preferred Stock – 0.67% | | | | | | | | |
| |
Bank of America 6.50% µ | | | 1,500,000 | | | | 1,670,198 | |
Morgan Stanley 5.55% µ | | | 2,280,000 | | | | 2,309,252 | |
USB Realty 144A 3.45% (LIBOR03M + 1.147%)#● | | | 400,000 | | | | 344,608 | |
| | | | | | | | |
Total Preferred Stock(cost $4,254,700) | | | | | | | 4,324,058 | |
| | | | | | | | |
| | |
Total Value of Securities – 97.85%
(cost $580,127,289) | | | | | | $ | 627,773,059 | |
| | | | | | | | |
| # | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. |
| | At July 31, 2019, the aggregate value of Rule 144A securities was $88,152,157, which represents 13.74% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
| ° | Principal amount shown is stated in USD unless noted that the security is denominated in another currency. |
| µ | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at July 31, 2019. Rate will reset at a future date. |
| y | No contractual maturity date. |
| ● | Variable rate investment. Rates reset periodically. Rate shown reflects the rate in effect at July 31, 2019. For securities based on a published reference rate and spread, the reference rate and spread are indicated in their description above. The reference rate descriptions (i.e. LIBOR03M, LIBOR06M, etc.) used in this report are identical for different securities, but the underlying reference rates may differ due to the timing of the reset period. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions, or for mortgage-backed securities, are impacted by the individual mortgages which are paying off over time. These securities do not indicate a reference rate and spread in their description above. |
36
The following futures contracts were outstanding at July 31, 20191:
Futures Contracts
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Variation | |
| | | | | | | | | | | | | | | | Margin | |
| | | | | | | | Notional | | | | | Value/ | | | Due from | |
| | | | | Notional | | | Cost | | | Expiration | | Unrealized | | | (Due to) | |
Contracts to Buy (Sell) | | Amount | | | (Proceeds) | | | Date | | Appreciation | | | Brokers | |
128 | | US Treasury Long Bonds | | $ | 19,916,000 | | | $ | 19,244,205 | | | 9/19/19 | | $ | 671,795 | | | $ | 124,000 | |
The use of futures contracts involves elements of market risk and risks in excess of the amounts disclosed in the financial statements. The notional amount presented above represents the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 8 in “Notes to financial statements.”
Summary of abbreviations:
ICE – Intercontinental Exchange
LIBOR – London Interbank Offered Rate
LIBOR03M – ICE LIBOR USD 3 Month
LIBOR06M – ICE LIBOR USD 6 Month
USD – US Dollar
See accompanying notes, which are an integral part of the financial statements.
37
| | | | |
| Statements of assets and liabilities | | | | |
| | | July 31, 2019 | |
| | | | | | | | |
| | | Delaware | | | Delaware | |
| | | Corporate | | | Extended Duration | |
| | | Bond Fund | | | Bond Fund | |
| | |
Assets: | | | | | | | | |
Investments, at value1 | | $ | 958,922,065 | | | $ | 627,773,059 | |
Cash | | | 22,960 | | | | — | |
Cash collateral due from broker | | | 227,040 | | | | 337,920 | |
Receivable for fund shares sold | | | 17,028,344 | | | | 613,094 | |
Dividends and interest receivable | | | 9,026,330 | | | | 6,943,591 | |
Receivable for securities sold | | | 5,454,864 | | | | 19,107,698 | |
Variation margin due from broker on futures contracts | | | 83,313 | | | | 124,000 | |
| | | | | | | | |
Total assets | | | 990,764,916 | | | | 654,899,362 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Cash due to custodian | | | — | | | | 3,615,718 | |
Payable for securities purchased | | | 3,039,339 | | | | 7,589,336 | |
Payable for fund shares redeemed | | | 1,399,499 | | | | 1,128,635 | |
Distribution payable | | | 793,178 | | | | 573,411 | |
Investment management fees payable to affiliates | | | 306,128 | | | | 206,336 | |
Other accrued expenses | | | 231,039 | | | | 181,048 | |
Distribution fees payable to affiliates | | | 101,873 | | | | 43,638 | |
Dividend disbursing and transfer agent fees and expenses payable to affiliates | | | 7,456 | | | | 5,378 | |
Accounting and administration expenses payable to affiliates | | | 3,207 | | | | 2,408 | |
Trustees’ fees and expenses payable to affiliates | | | 2,793 | | | | 2,147 | |
Legal fees payable to affiliates | | | 973 | | | | 748 | |
Reports and statements to shareholders expenses payable to affiliates | | | 515 | | | | 338 | |
| | | | | | | | |
Total liabilities | | | 5,886,000 | | | | 13,349,141 | |
| | | | | | | | |
Total Net Assets | | $ | 984,878,916 | | | $ | 641,550,221 | |
| | | | | | | | |
| | |
Net Assets Consist of: | | | | | | | | |
Paid-in capital | | $ | 1,009,203,353 | | | $ | 602,512,463 | |
Total distributable earnings (loss) | | | (24,324,437 | ) | | | 39,037,758 | |
| | | | | | | | |
Total Net Assets | | $ | 984,878,916 | | | $ | 641,550,221 | |
| | | | | | | | |
38
| | | | | | | | |
| | | Delaware | | | Delaware | |
| | | Corporate | | | Extended Duration | |
| | | Bond Fund | | | Bond Fund | |
| | |
Net Asset Value | | | | | | | | |
Class A: | | | | | | | | |
Net assets | | $ | 168,910,063 | | | $ | 125,212,959 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 28,280,090 | | | | 18,316,479 | |
Net asset value per share | | $ | 5.97 | | | $ | 6.84 | |
Sales charge | | | 4.50 | % | | | 4.50 | % |
Offering price per share, equal to net asset value per share / (1 – sales charge) | | $ | 6.25 | | | $ | 7.16 | |
| | |
Class C: | | | | | | | | |
Net assets | | $ | 68,276,463 | | | $ | 14,748,312 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 11,430,669 | | | | 2,158,612 | |
Net asset value per share | | $ | 5.97 | | | $ | 6.83 | |
| | |
Class R: | | | | | | | | |
Net assets | | $ | 17,516,789 | | | $ | 11,983,860 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 2,930,172 | | | | 1,750,341 | |
Net asset value per share | | $ | 5.98 | | | $ | 6.85 | |
| | |
Institutional Class: | | | | | | | | |
Net assets | | $ | 730,173,424 | | | $ | 444,635,044 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 122,246,049 | | | | 65,151,513 | |
Net asset value per share | | $ | 5.97 | | | $ | 6.82 | |
| | |
Class R6: | | | | | | | | |
Net assets | | $ | 2,177 | | | $ | 44,970,046 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 365 | * | | | 6,584,535 | |
Net asset value per share | | $ | 5.97 | | | $ | 6.83 | |
| | | | | | | | |
| 1 Investments, at cost | | $ | 922,446,563 | | | $ | 580,127,289 | |
* Net asset value per share does not recalculate exactly, due to rounding.
See accompanying notes, which are an integral part of the financial statements.
39
Statements of operations
Year ended July 31, 2019
| | | | | | | | |
| | | Delaware | | | Delaware | |
| | | Corporate | | | Extended Duration | |
| | | Bond Fund | | | Bond Fund | |
| | |
Investment Income: | | | | | | | | |
Interest | | $ | 39,372,616 | | | $ | 28,752,709 | |
Dividends | | | 661,950 | | | | 273,869 | |
| | | | | | | | |
| | | 40,034,566 | | | | 29,026,578 | |
| | | | | | | | |
| | |
Expenses: | | | | | | | | |
Management fees | | | 4,344,933 | | | | 3,404,877 | |
Distribution expenses — Class A | | | 424,226 | | | | 320,936 | |
Distribution expenses — Class C | �� | | 754,641 | | | | 150,163 | |
Distribution expenses — Class R | | | 90,456 | | | | 66,230 | |
Dividend disbursing and transfer agent fees and expenses | | | 974,258 | | | | 626,911 | |
Accounting and administration expenses | | | 199,092 | | | | 153,141 | |
Registration fees | | | 113,944 | | | | 85,467 | |
Reports and statements to shareholders expenses | | | 92,069 | | | | 73,128 | |
Legal fees | | | 89,806 | | | | 59,658 | |
Audit and tax fees | | | 52,967 | | | | 52,638 | |
Trustees’ fees and expenses | | | 48,926 | | | | 35,263 | |
Custodian fees | | | 33,240 | | | | 31,085 | |
Other expenses | | | 57,102 | | | | 42,783 | |
| | | | | | | | |
| | | 7,275,660 | | | | 5,102,280 | |
Less expenses waived | | | (942,144 | ) | | | (1,001,487 | ) |
Less expenses paid indirectly | | | (4,384 | ) | | | (2,250 | ) |
| | | | | | | | |
Total operating expenses | | | 6,329,132 | | | | 4,098,543 | |
| | | | | | | | |
Net Investment Income | | | 33,705,434 | | | | 24,928,035 | |
| | | | | | | | |
| | |
Net Realized and Unrealized Gain (Loss): | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investments* | | | 1,254,082 | | | | (5,737,894 | ) |
Futures contracts | | | 465,615 | | | | 839,709 | |
| | | | | | | | |
Net realized gain (loss) | | | 1,719,697 | | | | (4,898,185 | ) |
| | | | | | | | |
Net change in unrealized appreciation (depreciation) of: | | | | | | | | |
Investments | | | 44,747,084 | | | | 57,350,267 | |
Futures contracts | | | 287,329 | | | | 671,795 | |
| | | | | | | | |
Net change in unrealized appreciation (depreciation) | | | 45,034,413 | | | | 58,022,062 | |
| | | | | | | | |
Net Realized and Unrealized Gain | | | 46,754,110 | | | | 53,123,877 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 80,459,544 | | | $ | 78,051,912 | |
| | | | | | | | |
*Includes $1,022,669 and $387,909 for Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund, respectively, related to the General Motors term loan litigation. See Note 12 in “Notes to financial statements.”
See accompanying notes, which are an integral part of the financial statements.
40
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Statements of changes in net assets
Delaware Corporate Bond Fund
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
Net investment income | | $ | 33,705,434 | | | $ | 37,942,207 | |
Net realized gain (loss) | | | 1,719,697 | | | | (11,020,242 | ) |
Net change in unrealized appreciation (depreciation) | | | 45,034,413 | | | | (42,178,285 | ) |
| | | | | | | | |
Net increase (decrease) in net assets resulting from operations | | | 80,459,544 | | | | (15,256,320 | ) |
| | | | | | | | |
| | |
Dividends and Distributions to Shareholders from: | | | | | | | | |
Distributable earnings*: | | | | | | | | |
Class A | | | (6,639,981 | ) | | | (8,104,963 | ) |
Class C | | | (2,395,036 | ) | | | (3,172,984 | ) |
Class R | | | (662,925 | ) | | | (818,568 | ) |
Institutional Class | | | (26,021,706 | ) | | | (29,609,714 | ) |
Class R6 | | | (42 | ) | | | — | |
| | | | | | | | |
| | | (35,719,690 | ) | | | (41,706,229 | ) |
| | | | | | | | |
| | |
Capital Share Transactions: | | | | | | | | |
Proceeds from shares sold: | | | | | | | | |
Class A | | | 28,554,252 | | | | 33,704,901 | |
Class C | | | 6,560,970 | | | | 4,492,764 | |
Class R | | | 4,595,777 | | | | 9,166,197 | |
Institutional Class | | | 396,782,771 | | | | 482,977,869 | |
Class R6 | | | 2,000 | | | | — | |
| | |
Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 6,083,250 | | | | 7,560,371 | |
Class C | | | 2,069,758 | | | | 2,820,800 | |
Class R | | | 657,856 | | | | 818,333 | |
Institutional Class | | | 14,723,721 | | | | 16,199,993 | |
Class R6 | | | 40 | | | | — | |
| | | | | | | | |
| | | 460,030,395 | | | | 557,741,228 | |
| | | | | | | | |
42
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Capital Share Transactions (continued): | | | | | | | | |
Cost of shares redeemed: | | | | | | | | |
Class A | | $ | (76,251,283 | ) | | $ | (77,661,628 | ) |
Class C | | | (32,720,738 | ) | | | (44,978,538 | ) |
Class R | | | (8,298,842 | ) | | | (13,394,326 | ) |
Institutional Class | | | (571,365,460 | ) | | | (287,055,533 | ) |
| | | | | | | | |
| | | (688,636,323 | ) | | | (423,090,025 | ) |
| | | | | | | | |
Increase (decrease) in net assets derived from capital share transactions | | | (228,605,928 | ) | | | 134,651,203 | |
| | | | | | | | |
Net Increase (Decrease) in Net Assets | | | (183,866,074 | ) | | | 77,688,654 | |
| | |
Net Assets: | | | | | | | | |
Beginning of year | | | 1,168,744,990 | | | | 1,091,056,336 | |
| | | | | | | | |
End of year1 | | $ | 984,878,916 | | | $ | 1,168,744,990 | |
| | | | | | | | |
| 1 | Net Assets – End of year includes distributions in excess of net investment income of $27,569 in 2018. The Securities and Exchange Commission eliminated the requirement to disclose undistributed (distributions in excess of) net investment income in 2018. |
| * | For the year ended July 31, 2019, the Fund has adopted amendments to Regulation S-X (see Note 13 in “Notes to financial statements”). For the year ended July 31, 2018, the dividends and distributions to shareholders were as follows: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Institutional | |
| | | Class A | | | Class C | | | Class R | | | Class | |
| | | | |
Dividends from net investment income | | $ | (8,104,963 | ) | | $ | (3,172,984 | ) | | $ | (818,568 | ) | | $ | (29,609,714 | ) |
See accompanying notes, which are an integral part of the financial statements.
43
Statements of changes in net assets
Delaware Extended Duration Bond Fund
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
Net investment income | | $ | 24,928,035 | | | $ | 25,045,879 | |
Net realized gain (loss) | | | (4,898,185 | ) | | | 4,256,736 | |
Net change in unrealized appreciation (depreciation) | | | 58,022,062 | | | | (40,757,560 | ) |
| | | | | | | | |
Net increase (decrease) in net assets resulting from operations | | | 78,051,912 | | | | (11,454,945 | ) |
| | | | | | | | |
| | |
Dividends and Distributions to Shareholders from: | | | | | | | | |
Distributable earnings*: | | | | | | | | |
Class A | | | (4,932,266 | ) | | | (6,604,011 | ) |
Class C | | | (465,622 | ) | | | (685,910 | ) |
Class R | | | (477,425 | ) | | | (568,514 | ) |
Institutional Class | | | (17,553,011 | ) | | | (16,476,994 | ) |
Class R6 | | | (1,893,434 | ) | | | (1,234,037 | ) |
| | | | | | | | |
| | | (25,321,758 | ) | | | (25,569,466 | ) |
| | | | | | | | |
| | |
Capital Share Transactions: | | | | | | | | |
Proceeds from shares sold: | | | | | | | | |
Class A | | | 24,026,085 | | | | 29,749,844 | |
Class C | | | 1,258,859 | | | | 2,276,247 | |
Class R | | | 3,448,104 | | | | 3,182,605 | |
Institutional Class | | | 144,800,627 | | | | 167,528,226 | |
Class R6 | | | 2,303,998 | | | | 26,877,912 | |
| | |
Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 4,889,015 | | | | 6,501,977 | |
Class C | | | 435,001 | | | | 652,210 | |
Class R | | | 480,127 | | | | 568,514 | |
Institutional Class | | | 16,706,388 | | | | 15,382,847 | |
Class R6 | | | 1,901,387 | | | | 1,205,755 | |
| | | | | | | | |
| | | 200,249,591 | | | | 253,926,137 | |
| | | | | | | | |
44
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
| | |
Capital Share Transactions (continued): | | | | | | | | |
Cost of shares redeemed: | | | | | | | | |
Class A | | $ | (63,899,743 | ) | | $ | (73,020,245 | ) |
Class C | | | (5,696,100 | ) | | | (12,326,813 | ) |
Class R | | | (8,291,559 | ) | | | (6,829,085 | ) |
Institutional Class | | | (187,981,554 | ) | | | (118,872,759 | ) |
Class R6 | | | (11,288,541 | ) | | | (1,380,444 | ) |
| | | | | | | | |
| | | (277,157,497 | ) | | | (212,429,346 | ) |
| | | | | | | | |
| | |
Increase (decrease) in net assets derived from capital share transactions | | | (76,907,906 | ) | | | 41,496,791 | |
| | | | | | | | |
Net Increase (Decrease) in Net Assets | | | (24,177,752 | ) | | | 4,472,380 | |
Net Assets: | | | | | | | | |
Beginning of year | | | 665,727,973 | | | | 661,255,593 | |
| | | | | | | | |
End of year1 | | $ | 641,550,221 | | | $ | 665,727,973 | |
| | | | | | | | |
| 1 | Net Assets – End of year includes distributions in excess of net investment income of $528,707 in 2018. The Securities and Exchange Commission eliminated the requirement to disclose undistributed (distributions in excess of) net investment income in 2018. |
| * | For the year ended July 31, 2019, the Fund has adopted amendments to Regulation S-X (see Note 13 in “Notes to financial statements”). For the year ended July 31, 2018, the dividends and distributions to shareholders were as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Institutional | | | | |
| | | Class A | | | Class C | | | Class R | | | Class | | | Class R6 | |
| | | | | |
Dividends from net investment income | | $ | (6,604,011 | ) | | $ | (685,910 | ) | | $ | (568,514 | ) | | $ | (16,476,994 | ) | | $ | (1,234,037 | ) |
See accompanying notes, which are an integral part of the financial statements.
45
Financial highlights
Delaware Corporate Bond Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return3 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, net realized gain distributions of $72,919 were made by the Fund’s Class A shares, which calculated to $(0.001) per share. |
| 3 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
46
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | | | | | $ | 6.08 | |
| | | | | | | | | |
| | | 0.21 | | | | | | 0.19 | | | | | | 0.19 | | | | | | 0.19 | | | | | | 0.21 | |
| | | 0.37 | | | | | | (0.27 | ) | | | | | (0.03 | ) | | | | | 0.14 | | | | | | (0.19 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.58 | | | | | | (0.08 | ) | | | | | 0.16 | | | | | | 0.33 | | | | | | 0.02 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.20 | ) | | | | | (0.20 | ) | | | | | (0.23 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.20 | ) | | | | | (0.20 | ) | | | | | (0.29 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 5.97 | | | | | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 10.65% | | | | | | (1.44% | ) | | | | | 2.84% | | | | | | 5.91% | | | | | | 0.28% | |
| | | | | | | | | |
| | $ | 168,910 | | | | | $ | 200,600 | | | | | $ | 248,143 | | | | | $ | 352,477 | | | | | $ | 442,509 | |
| | | 0.82% | | | | | | 0.88% | | | | | | 0.94% | | | | | | 0.94% | | | | | | 0.95% | |
| | | | | | | | | |
| | | 0.92% | | | | | | 0.92% | | | | | | 0.94% | | | | | | 0.96% | | | | | | 0.96% | |
| | | 3.68% | | | | | | 3.26% | | | | | | 3.19% | | | | | | 3.28% | | | | | | 3.43% | |
| | | | | | | | | |
| | | 3.58% | | | | | | 3.22% | | | | | | 3.19% | | | | | | 3.26% | | | | | | 3.42% | |
| | | 173% | | | | | | 158% | | | | | | 168% | | | | | | 217% | | | | | | 215% | |
|
| |
47
Financial highlights
Delaware Corporate Bond Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return3 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, net realized gain distributions of $32,194 were made by the Fund’s Class C shares, which calculated to $(0.001) per share. |
| 3 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
48
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year ended | | | | | | | | | | | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | | | | | $ | 6.08 | |
| | | | | | | | | |
| | | 0.17 | | | | | | 0.14 | | | | | | 0.14 | | | | | | 0.15 | | | | | | 0.16 | |
| | | 0.37 | | | | | | (0.27 | ) | | | | | (0.02 | ) | | | | | 0.14 | | | | | | (0.19 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.54 | | | | | | (0.13 | ) | | | | | 0.12 | | | | | | 0.29 | | | | | | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.18 | ) | | | | | (0.16 | ) | | | | | (0.16 | ) | | | | | (0.16 | ) | | | | | (0.18 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.18 | ) | | | | | (0.16 | ) | | | | | (0.16 | ) | | | | | (0.16 | ) | | | | | (0.24 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 5.97 | | | | | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 9.83% | | | | | | (2.18% | ) | | | | | 2.07% | | | | | | 5.12% | | | | | | (0.48% | ) |
| | | | | | | | | |
| | $ | 68,277 | | | | | $ | 88,274 | | | | | $ | 131,520 | | | | | $ | 173,057 | | | | | $ | 193,746 | |
| | | 1.57% | | | | | | 1.63% | | | | | | 1.69% | | | | | | 1.69% | | | | | | 1.70% | |
| | | | | | | | | |
| | | 1.67% | | | | | | 1.67% | | | | | | 1.69% | | | | | | 1.71% | | | | | | 1.71% | |
| | | 2.93% | | | | | | 2.51% | | | | | | 2.44% | | | | | | 2.53% | | | | | | 2.68% | |
| | | | | | | | | |
| | | 2.83% | | | | | | 2.47% | | | | | | 2.44% | | | | | | 2.51% | | | | | | 2.67% | |
| | | 173% | | | | | | 158% | | | | | | 168% | | | | | | 217% | | | | | | 215% | |
|
| |
49
Financial highlights
Delaware Corporate Bond Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return3 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, net realized gain distributions of $4,867 were made by the Fund’s Class R shares, which calculated to $(0.001) per share. |
| 3 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
50
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 5.62 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.82 | | | | | $ | 6.09 | |
| | | | | | | | | |
| | | 0.19 | | | | | | 0.17 | | | | | | 0.17 | | | | | | 0.17 | | | | | | 0.19 | |
| | | 0.38 | | | | | | (0.26 | ) | | | | | (0.02 | ) | | | | | 0.14 | | | | | | (0.19 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.57 | | | | | | (0.09 | ) | | | | | 0.15 | | | | | | 0.31 | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.21 | ) | | | | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.21 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.21 | ) | | | | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 5.98 | | | | | $ | 5.62 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.82 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 10.36% | | | | | | (1.51% | ) | | | | | 2.58% | | | | | | 5.47% | | | | | | 0.03% | |
| | | | | | | | | |
| | $ | 17,517 | | | | | $ | 19,512 | | | | | $ | 24,207 | | | | | $ | 29,149 | | | | | $ | 28,245 | |
| | | 1.07% | | | | | | 1.13% | | | | | | 1.19% | | | | | | 1.19% | | | | | | 1.20% | |
| | | | | | | | | |
| | | 1.17% | | | | | | 1.17% | | | | | | 1.19% | | | | | | 1.21% | | | | | | 1.21% | |
| | | 3.43% | | | | | | 3.01% | | | | | | 2.94% | | | | | | 3.03% | | | | | | 3.18% | |
| | | | | | | | | |
| | | 3.33% | | | | | | 2.97% | | | | | | 2.94% | | | | | | 3.01% | | | | | | 3.17% | |
| | | 173% | | | | | | 158% | | | | | | 168% | | | | | | 217% | | | | | | 215% | |
|
| |
51
Financial highlights
Delaware Corporate Bond Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return3 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, net realized gain distributions of $110,366 were made by the Fund’s Institutional Class shares, which calculated to $(0.001) per share. |
| 3 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
52
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | | | | | $ | 6.08 | |
| | | | | | | | | |
| | | 0.22 | | | | | | 0.20 | | | | | | 0.20 | | | | | | 0.20 | | | | | | 0.22 | |
| | | 0.37 | | | | | | (0.27 | ) | | | | | (0.02 | ) | | | | | 0.15 | | | | | | (0.19 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.59 | | | | | | (0.07 | ) | | | | | 0.18 | | | | | | 0.35 | | | | | | 0.03 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.23 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.24 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.23 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.30 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 5.97 | | | | | $ | 5.61 | | | | | $ | 5.90 | | | | | $ | 5.94 | | | | | $ | 5.81 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 10.93% | | | | | | (1.20% | ) | | | | | 3.09% | | | | | | 6.18% | | | | | | 0.52% | |
| | | | | | | | | |
| | $ | 730,173 | | | | | $ | 860,359 | | | | | $ | 687,186 | | | | | $ | 583,649 | | | | | $ | 824,165 | |
| | | 0.57% | | | | | | 0.63% | | | | | | 0.69% | | | | | | 0.69% | | | | | | 0.70% | |
| | | | | | | | | |
| | | 0.67% | | | | | | 0.67% | | | | | | 0.69% | | | | | | 0.71% | | | | | | 0.71% | |
| | | 3.93% | | | | | | 3.51% | | | | | | 3.44% | | | | | | 3.53% | | | | | | 3.68% | |
| | | | | | | | | |
| | | 3.83% | | | | | | 3.47% | | | | | | 3.44% | | | | | | 3.51% | | | | | | 3.67% | |
| | | 173% | | | | | | 158% | | | | | | 168% | | | | | | 217% | | | | | | 215% | |
|
| |
53
Financial highlights
Delaware Corporate Bond Fund Class R6
Selected data for each share of the Fund outstanding throughout the period were as follows:
| | | | |
| | | 1/31/191
to
7/31/19 | |
| |
Net asset value, beginning of period | | $ | 5.59 | |
| | | | |
| |
Income from investment operations: | | | | |
Net investment income2 | | | 0.11 | |
Net realized and unrealized gain | | | 0.39 | |
| | | | |
Total from investment operations | | | 0.50 | |
| | | | |
| |
Less dividends and distributions from: | | | | |
Net investment income | | | (0.12 | ) |
| | | | |
Total dividends and distributions | | | (0.12 | ) |
| | | | |
| |
Net asset value, end of period | | $ | 5.97 | |
| | | | |
| |
Total return3 | | | 8.98% | |
| |
Ratios and supplemental data: | | | | |
Net assets, end of period (000 omitted) | | $ | 2 | |
Ratio of expenses to average net assets | | | 0.48% | |
Ratio of expenses to average net assets prior to fees waived | | | 0.58% | |
Ratio of net investment income to average net assets | | | 4.01% | |
Ratio of net investment income to average net assets prior to fees waived | | | 3.91% | |
Portfolio turnover | | | 173% | 4 |
| |
| 1 | Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
| 2 | The average shares outstanding have been applied for per share information. |
| 3 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
| 4 | Portfolio turnover is representative of the Fund for the year ended July 31, 2019. |
See accompanying notes, which are an integral part of the financial statements.
54
This page intentionally left blank.
Financial highlights
Delaware Extended Duration Bond Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | | | |
Net asset value, beginning of period | | | | |
| |
Income (loss) from investment operations: | | | | |
Net investment income1 | | | | |
Net realized and unrealized gain (loss) | | | | |
Total from investment operations | | | | |
| |
Less dividends and distributions from: | | | | |
Net investment income | | | | |
Net realized gain | | | | |
Return of capital | | | | |
Total dividends and distributions | | | | |
| |
Net asset value, end of period | | | | |
| |
Total return3 | | | | |
| |
Ratios and supplemental data: | | | | |
Net assets, end of period (000 omitted) | | | | |
Ratio of expenses to average net assets | | | | |
Ratio of expenses to average net assets prior to fees waived | | | | |
Ratio of net investment income to average net assets | | | | |
Ratio of net investment income to average net assets prior to fees waived | | | | |
Portfolio turnover | | | | |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, return of capital distributions of $99,043 were made by the Fund’s Class A shares, which calculated to $(0.003) per share. |
| 3 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
56
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Year ended | | | | | | | | | | | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 6.28 | | | | | $ | 6.62 | | | | | $ | 6.79 | | | | | $ | 6.29 | | | | | $ | 6.81 | |
| | | | | | | | | |
| | | 0.24 | | | | | | 0.23 | | | | | | 0.22 | | | | | | 0.23 | | | | | | 0.26 | |
| | | 0.56 | | | | | | (0.34 | ) | | | | | (0.16 | ) | | | | | 0.51 | | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.80 | | | | | | (0.11 | ) | | | | | 0.06 | | | | | | 0.74 | | | | | | 0.05 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.24 | ) | | | | | (0.23 | ) | | | | | (0.23 | ) | | | | | (0.23 | ) | | | | | (0.27 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | (0.01 | ) | | | | | (0.30 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | —2 | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.24 | ) | | | | | (0.23 | ) | | | | | (0.23 | ) | | | | | (0.24 | ) | | | | | (0.57 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 6.84 | | | | | $ | 6.28 | | | | | $ | 6.62 | | | | | $ | 6.79 | | | | | $ | 6.29 | |
| | | �� | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 13.17% | | | | | | (1.64% | ) | | | | | 0.97% | | | | | | 12.14% | | | | | | 0.53% | |
| | | | | | | | | |
| | $ | 125,213 | | | | | $ | 150,397 | | | | | $ | 196,754 | | | | | $ | 241,190 | | | | | $ | 244,514 | |
| | | 0.82% | | | | | | 0.87% | | | | | | 0.96% | | | | | | 0.96% | | | | | | 0.98% | |
| | | | | | | | | |
| | | 0.98% | | | | | | 0.98% | | | | | | 1.00% | | | | | | 1.00% | | | | | | 1.02% | |
| | | 3.78% | | | | | | 3.52% | | | | | | 3.40% | | | | | | 3.60% | | | | | | 3.89% | |
| | | | | | | | | |
| | | 3.62% | | | | | | 3.41% | | | | | | 3.36% | | | | | | 3.56% | | | | | | 3.85% | |
| | | 133% | | | | | | 147% | | | | | | 187% | | | | | | 219% | | | | | | 185% | |
|
| |
57
Financial highlights
Delaware Extended Duration Bond Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | | | |
Net asset value, beginning of period | | | | |
| |
Income (loss) from investment operations: | | | | |
Net investment income1 | | | | |
Net realized and unrealized gain (loss) | | | | |
Total from investment operations | | | | |
| |
Less dividends and distributions from: | | | | |
Net investment income | | | | |
Net realized gain | | | | |
Return of capital | | | | |
Total dividends and distributions | | | | |
| |
Net asset value, end of period | | | | |
| |
Total return3 | | | | |
| |
Ratios and supplemental data: | | | | |
Net assets, end of period (000 omitted) | | | | |
Ratio of expenses to average net assets | | | | |
Ratio of expenses to average net assets prior to fees waived | | | | |
Ratio of net investment income to average net assets | | | | |
Ratio of net investment income to average net assets prior to fees waived | | | | |
Portfolio turnover | | | | |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, return of capital distributions of $13,876 were made by the Fund’s Class C shares, which calculated to $(0.003) per share. |
| 3 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
58
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Year ended | | | | | | | | | | | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | | | | | $ | 6.29 | | | | | $ | 6.81 | |
| | | | | | | | | |
| | | 0.19 | | | | | | 0.18 | | | | | | 0.17 | | | | | | 0.18 | | | | | | 0.21 | |
| | | 0.56 | | | | | | (0.33 | ) | | | | | (0.16 | ) | | | | | 0.50 | | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.75 | | | | | | (0.15 | ) | | | | | 0.01 | | | | | | 0.68 | | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.18 | ) | | | | | (0.18 | ) | | | | | (0.22 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | (0.01 | ) | | | | | (0.30 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.19 | ) | | | | | (0.19 | ) | | | | | (0.18 | ) | | | | | (0.19 | ) | | | | | (0.52 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 6.83 | | | | | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | | | | | $ | 6.29 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 12.34% | | | | | | (2.39% | ) | | | | | 0.21% | | | | | | 11.14% | | | | | | (0.22% | ) |
| | | | | | | | | |
| | $ | 14,748 | | | | | $ | 17,612 | | | | | $ | 28,265 | | | | | $ | 33,777 | | | | | $ | 33,323 | |
| | | 1.57% | | | | | | 1.62% | | | | | | 1.71% | | | | | | 1.71% | | | | | | 1.73% | |
| | | | | | | | | |
| | | 1.73% | | | | | | 1.73% | | | | | | 1.75% | | | | | | 1.75% | | | | | | 1.77% | |
| | | 3.03% | | | | | | 2.77% | | | | | | 2.65% | | | | | | 2.85% | | | | | | 3.14% | |
| | | | | | | | | |
| | | 2.87% | | | | | | 2.66% | | | | | | 2.61% | | | | | | 2.81% | | | | | | 3.10% | |
| | | 133% | | | | | | 147% | | | | | | 187% | | | | | | 219% | | | | | | 185% | |
|
| |
59
Financial highlights
Delaware Extended Duration Bond Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
| | | | |
Net asset value, beginning of period | | | | |
| |
Income (loss) from investment operations: | | | | |
Net investment income1 | | | | |
Net realized and unrealized gain (loss) | | | | |
Total from investment operations | | | | |
| |
Less dividends and distributions from: | | | | |
Net investment income | | | | |
Net realized gain | | | | |
Return of capital | | | | |
Total dividends and distributions | | | | |
| |
Net asset value, end of period | | | | |
| |
Total return3 | | | | |
| |
Ratios and supplemental data: | | | | |
Net assets, end of period (000 omitted) | | | | |
Ratio of expenses to average net assets | | | | |
Ratio of expenses to average net assets prior to fees waived | | | | |
Ratio of net investment income to average net assets | | | | |
Ratio of net investment income to average net assets prior to fees waived | | | | |
Portfolio turnover | | | | |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, return of capital distributions of $10,648 were made by the Fund’s Class R shares, which calculated to $(0.003) per share. |
| 3 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
60
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 6.29 | | | | | $ | 6.63 | | | | | $ | 6.80 | | | | | $ | 6.30 | | | | | $ | 6.82 | |
| | | | | | | | | |
| | | 0.22 | | | | | | 0.21 | | | | | | 0.20 | | | | | | 0.21 | | | | | | 0.24 | |
| | | 0.57 | | | | | | (0.33 | ) | | | | | (0.16 | ) | | | | | 0.51 | | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.79 | | | | | | (0.12 | ) | | | | | 0.04 | | | | | | 0.72 | | | | | | 0.03 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.23 | ) | | | | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.21 | ) | | | | | (0.25 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | (0.01 | ) | | | | | (0.30 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.23 | ) | | | | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.22 | ) | | | | | (0.55 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 6.85 | | | | | $ | 6.29 | | | | | $ | 6.63 | | | | | $ | 6.80 | | | | | $ | 6.30 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 12.87% | | | | | | (1.88% | ) | | | | | 0.71% | | | | | | 11.84% | | | | | | 0.29% | |
| | | | | | | | | |
| | $ | 11,984 | | | | | $ | 15,389 | | | | | $ | 19,294 | | | | | $ | 25,965 | | | | | $ | 26,449 | |
| | | 1.07% | | | | | | 1.12% | | | | | | 1.21% | | | | | | 1.21% | | | | | | 1.23% | |
| | | | | | | | | |
| | | 1.23% | | | | | | 1.23% | | | | | | 1.25% | | | | | | 1.25% | | | | | | 1.27% | |
| | | 3.53% | | | | | | 3.27% | | | | | | 3.15% | | | | | | 3.35% | | | | | | 3.64% | |
| | | | | | | | | |
| | | 3.37% | | | | | | 3.16% | | | | | | 3.11% | | | | | | 3.31% | | | | | | 3.60% | |
| | | 133% | | | | | | 147% | | | | | | 187% | | | | | | 219% | | | | | | 185% | |
|
| |
61
Financial highlights
Delaware Extended Duration Bond Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return3 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2016, return of capital distributions of $153,033 were made by the Fund’s Institutional Class shares, which calculated to $(0.003) per share. |
| 3 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
62
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | | | | | $ | 6.28 | | | | | $ | 6.80 | |
| | | | | | | | | |
| | | 0.25 | | | | | | 0.25 | | | | | | 0.24 | | | | | | 0.24 | | | | | | 0.27 | |
| | | 0.56 | | | | | | (0.34 | ) | | | | | (0.17 | ) | | | | | 0.51 | | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.81 | | | | | | (0.09 | ) | | | | | 0.07 | | | | | | 0.75 | | | | | | 0.06 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.26 | ) | | | | | (0.25 | ) | | | | | (0.24 | ) | | | | | (0.24 | ) | | | | | (0.28 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | (0.01 | ) | | | | | (0.30 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 2 | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.26 | ) | | | | | (0.25 | ) | | | | | (0.24 | ) | | | | | (0.25 | ) | | | | | (0.58 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 6.82 | | | | | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | | | | | $ | 6.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 13.30% | | | | | | (1.40% | ) | | | | | 1.21% | | | | | | 12.26% | | | | | | 0.78% | |
| | | | | | | | | |
| | $ | 444,635 | | | | | $ | 433,957 | | | | | $ | 393,714 | | | | | $ | 372,052 | | | | | $ | 342,209 | |
| | | 0.57% | | | | | | 0.62% | | | | | | 0.71% | | | | | | 0.71% | | | | | | 0.73% | |
| | | | | | | | | |
| | | 0.73% | | | | | | 0.73% | | | | | | 0.75% | | | | | | 0.75% | | | | | | 0.77% | |
| | | 4.03% | | | | | | 3.77% | | | | | | 3.65% | | | | | | 3.85% | | | | | | 4.14% | |
| | | | | | | | | |
| | | 3.87% | | | | | | 3.66% | | | | | | 3.61% | | | | | | 3.81% | | | | | | 4.10% | |
| | | 133% | | | | | | 147% | | | | | | 187% | | | | | | 219% | | | | | | 185% | |
|
| |
63
Financial highlights
Delaware Extended Duration Bond Fund Class R6
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return4 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
| 2 | The average shares outstanding have been applied for per share information. |
| 3 | For the period May 2, 2016 to July 31, 2016, return of capital distributions of $3,526 were made by the Fund’s Class R6 shares, which calculated to $(0.003) per share. |
| 4 | Total 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 return during all of the periods shown reflects waivers by the manager. Performance would have been lower had the waiver not been in effect. |
| 5 | Portfolio turnover is representative of the Fund for the year ended July 31, 2016. |
See accompanying notes, which are an integral part of the financial statements.
64
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | | | | | 5/2/161 to | |
| | | | | | | | | | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | |
| |
| | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | | | | | $ | 6.38 | |
| | | | | | | |
| | | 0.26 | | | | | | 0.25 | | | | | | 0.24 | | | | | | 0.23 | |
| | | 0.56 | | | | | | (0.33 | ) | | | | | (0.16 | ) | | | | | 0.22 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 0.82 | | | | | | (0.08 | ) | | | | | 0.08 | | | | | | 0.45 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | (0.26 | ) | | | | | (0.26 | ) | | | | | (0.25 | ) | | | | | (0.05 | ) |
| | | — | | | | | | — | | | | | | — | | | | | | — | 3 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | (0.26 | ) | | | | | (0.26 | ) | | | | | (0.25 | ) | | | | | (0.05 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | $ | 6.83 | | | | | $ | 6.27 | | | | | $ | 6.61 | | | | | $ | 6.78 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | 13.56% | | | | | | (1.32% | ) | | | | | 1.29% | | | | | | 7.20% | |
| | | | | | | |
| | $ | 44,970 | | | | | $ | 48,373 | | | | | $ | 23,229 | | | | | $ | 8,578 | |
| | | 0.49% | | | | | | 0.54% | | | | | | 0.63% | | | | | | 0.63% | |
| | | | | | | |
| | | 0.64% | | | | | | 0.65% | | | | | | 0.67% | | | | | | 0.65% | |
| | | 4.11% | | | | | | 3.85% | | | | | | 3.73% | | | | | | 3.40% | |
| | | | | | | |
| | | 3.96% | | | | | | 3.74% | | | | | | 3.69% | | | | | | 3.38% | |
| | | 133% | | | | | | 147% | | | | | | 187% | | | | | | 219% | 5 |
|
| |
65
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
July 31, 2019
Delaware Group® Income Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Corporate Bond Fund, Delaware Extended Duration Bond Fund, Delaware Floating Rate Fund, and Delaware High-Yield Opportunities Fund. These financial statements and the related notes pertain to Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund (each, a Fund or collectively, the Funds). The Funds areopen-end investment companies. Each Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R, Institutional Class and Class R6 shares. Class A shares are sold with a maximumfront-end sales charge of 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) instead of afront-end sales charge of 1.00%, 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 C shares are sold with a CDSC of 1.00%, which will be incurred if redeemed during the first 12 months. Class R, Institutional Class, and Class R6 shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Class R6 shares do not pay any service fees,sub-accounting fees, and/orsub-transfer agency fees to any brokers, dealers or other financial intermediaries.
The investment objective of the Funds is to seek to provide investors with total return.
1. Significant Accounting Policies
Each Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services — Investment Companies. The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Funds.
Security Valuation— Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value.Open-end investment companies are valued at their published net asset value (NAV). Investments in repurchase agreements are generally valued at par, which approximates fair value, each business day. Other debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Futures contracts are valued at the daily quoted settlement prices. Generally, 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 Trust’s Board of Trustees (Board). 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 suspension of trading in a security. Restricted securities are valued at fair value using methods approved by the Board.
66
Federal Income Taxes— No provision for federal income taxes has been made as each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. Each Fund evaluates tax positions taken or expected to be taken in the course of preparing the Funds’ 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 are recorded as a tax benefit or expense in the current year. Management has analyzed each Fund’s tax positions taken or expected to be taken on each Fund’s federal income tax returns through the year ended July 31, 2019 and for all open tax years (years ended July 31, 2016–July 31, 2018), and has concluded that no provision for federal income tax is required in either Fund’s financial statements. If applicable, each Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in “Other expenses” on the “Statements of operations.” During the year ended July 31, 2019, the Funds did not incur any interest or tax penalties.
Class Accounting— Investment income and common expenses are allocated to the various classes of each Fund on the basis of “settled shares” of each class in relation to the net assets of each Fund. Realized and unrealized gain (loss) on investments are allocated to the various classes of each Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Class R6 shares are not allocated any expenses related to service fees,sub-accounting fees, and/orsub-transfer agency fees paid to brokers, dealers, or other financial intermediaries.
Repurchase Agreements— The Funds may purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Funds’ custodian or a third-partysub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. At July 31, 2019, the Funds held no investments in repurchase agreements.
Use of Estimates— The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
Other— Expenses directly attributable to a Fund are charged directly to that Fund. Other expenses common to various funds within the Delaware Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 theex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively, over the lives of the
67
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
1. Significant Accounting Policies (continued)
respective securities using the effective interest method. Each Fund declares dividends daily from net investment income and pays the dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. Each Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on theex-dividend date.
Each Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. The expenses paid under this arrangement are included on the “Statements of operations” under “Custodian fees” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, each Fund earned the following amounts under this arrangement:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$3,501 | | $1,769 |
Each Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expenses paid under this arrangement are included on the “Statements of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, each Fund earned the following amounts under this arrangement:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$883 | | $481 |
2. Investment Management, Administration Agreements, and Other Transactions with Affiliates
In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly, based on each Fund’s average daily net assets as follows:
| | | | | | |
| | | Delaware
Corporate
Bond Fund | | | Delaware
Extended Duration
Bond Fund |
On the first $500 million | | | 0.5000% | | | 0.5500% |
On the next $500 million | | | 0.4750% | | | 0.5000% |
On the next $1.5 billion | | | 0.4500% | | | 0.4500% |
In excess of $2.5 billion | | | 0.4250% | | | 0.4250% |
68
DMC has contractually agreed to waive all or a portion of its management fee and/or pay/reimburse each Fund to the extent necessary to ensure that total annual operating expenses (excluding any distribution and service(12b-1) fees, acquired fund fees and expenses, taxes, interest, short sale dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.57% of average daily net assets of Class A, Class C, Class R, and Institutional Class shares and 0.48% of average daily net assets of Class R6 shares, for Delaware Corporate Bond Fund. For Delaware Extended Duration Bond Fund, the expense waiver was 0.57% of average daily net assets of Class A, Class C, Class R, and Institutional Class shares, and 0.49% of average daily net assets of Class R6 shares. The expense waivers were in effect from Aug. 1, 2018 through July 31, 2019.* These waivers and reimbursements may only be terminated by agreement of DMC and the Funds. The waivers and reimbursements are accrued daily and received monthly.
Effective May 30, 2019, DMC may seek investment advice and recommendations from its affiliates: Macquarie Investment Management Europe Limited, Macquarie Investment Management Austria Kapitalanlage AG, and Macquarie Investment Management Global Limited (together, the “AffiliatedSub-Advisors”). The Manager may also permit these AffiliatedSub-Advisors to execute Fund security trades on behalf of the Manager and exercise investment discretion for securities in certain markets where DMC believes it will be beneficial to utilize an AffiliatedSub-Advisor’s specialized market knowledge. Although the AffiliatedSub-Advisors serve assub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, pays each AffiliatedSub-Advisor a portion of its investment management fee.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administrative oversight services to each Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of all funds within the Delaware Funds at the following annual rates: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each fund then pays its portion of the remainder of the Total Fee on a relative NAV basis. These amounts are included on the “Statements of operations” under “Accounting and administration expenses.” For the year ended July 31, 2019, each Fund was charged for these services as follows:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$37,632 | | $27,861 |
DIFSC is also the transfer agent and dividend disbursing agent of each Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. These amounts are included on the “Statements of operations” under “Dividend disbursing and
69
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
2. Investment Management, Administration Agreements, and Other Transactions with Affiliates (continued)
transfer agent fees and expenses.” For the year ended July 31, 2019, each Fund was charged for these services as follows:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$78,675 | | $57,133 |
Pursuant to asub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certainsub-transfer agency services to the Funds.Sub-transfer agency fees are paid by the Funds and are also included on the “Statements of operations” under “Dividend disbursing and transfer agent fees and expenses.” The fees that are calculated daily and paid as invoices are received on a monthly or quarterly basis.
Pursuant to a distribution agreement and distribution plan, each Fund pays DDLP, the distributor and an affiliate of DMC, an annual12b-1 fee of 0.25%, 1.00%, and 0.50% of the average daily net assets of the Class A, Class C, and Class R shares, respectively. The fees are calculated daily and paid monthly. Institutional Class and Class R6 shares do not pay12b-1 fees.
As provided in the investment management agreement, each Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Funds. These amounts are included on the “Statements of operations” under “Legal fees.” For the year ended July 31, 2019, each Fund was charged for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees as follows:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$24,742 | | $17,541 |
For the year ended July 31, 2019, DDLP earned commissions on sales of Class A shares for each Fund as follows:
| | |
Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
$10,939 | | $8,044 |
For the year ended July 31, 2019, DDLP received gross CDSC commissions on redemptions of each Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset
70
upfront commissions previously paid by DDLP to broker/dealers on sales of those shares. The amounts received were as follows:
| | | | | | | | | | |
| | | Delaware
Corporate
Bond Fund | | Delaware
Extended Duration
Bond Fund |
Class A | | | $ | 696 | | | | $ | 4 | |
Class C | | | | 2,074 | | | | | 876 | |
Trustees’ fees include expenses accrued by the Funds for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Funds.
In addition to the management fees and other expenses of Delaware Corporate Bond Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.
*The aggregate contractual waiver period covering this report is from Nov. 28, 2017 through Jan. 31, 2020 for Delaware Extended Duration Bond Fund and April 1, 2018 through Jan. 31, 2020 for Delaware Corporate Bond Fund.
3. Investments
For the year ended July 31, 2019, each Fund made purchases and sales of investment securities other than short-term investments as follows:
| | | | | | | | | | |
| | | Delaware
Corporate
Bond Fund | | Delaware
Extended Duration
Bond Fund |
Purchases other than US government securities | | | $ | 1,190,536,538 | | | | $ | 539,623,136 | |
Purchases of US government securities | | | | 330,176,821 | | | | | 282,117,012 | |
Sales other than US government securities | | | | 1,457,209,037 | | | | | 589,595,385 | |
Sales of US government securities | | | | 338,339,505 | | | | | 297,130,558 | |
The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be the final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At July 31, 2019, the cost and unrealized appreciation (depreciation) of investments and derivatives for federal income tax purposes for each Fund were as follows:
| | | | | | | | | | |
| | | Delaware
Corporate
Bond Fund | | Delaware
Extended Duration
Bond Fund |
Cost of investments and derivatives | | | $ | 924,291,985 | | | | $ | 581,681,719 | |
| | | | | | | | | | |
Aggregate unrealized appreciation of investments and derivatives | | | $ | 40,187,272 | | | | $ | 49,883,119 | |
Aggregate unrealized depreciation of investments and derivatives | | | | (5,105,830 | ) | | | | (3,119,984 | ) |
| | | | | | | | | | |
Net unrealized appreciation of investments and derivatives | | | $ | 35,081,442 | | | | $ | 46,763,135 | |
| | | | | | | | | | |
71
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
3. Investments (continued)
US GAAP defines fair value as the price that each Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. Each Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.
Level 1 – Inputs are quoted prices in active markets for identical investments. (Examples: equity securities,open-end investment companies, futures contracts, and exchange-traded options contracts)
Level 2 – Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, and fair valued securities)
Level 3 – Significant unobservable inputs, including each Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities and fair valued securities)
Level 3 investments are valued using significant unobservable inputs. Each Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
72
The following tables summarize the valuation of each Fund’s investments by fair value hierarchy levels as of July 31, 2019:
| | | | | | | | | | | | | | | |
| | | Delaware Corporate Bond Fund |
| | | Level 1 | | Level 2 | | Total |
Securities | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Corporate Debt | | | $ | — | | | | $ | 883,143,127 | | | | $ | 883,143,127 | |
Municipal Bonds | | | | — | | | | | 10,280,385 | | | | | 10,280,385 | |
Loan Agreements | | | | — | | | | | 12,087,881 | | | | | 12,087,881 | |
Convertible Preferred Stock1 | | | | 1,204,743 | | | | | 2,871,180 | | | | | 4,075,923 | |
Preferred Stock1 | | | | 1,318,000 | | | | | 2,218,344 | | | | | 3,536,344 | |
Short-Term Investments | | | | 45,798,405 | | | | | — | | | | | 45,798,405 | |
| | | | | | | | | | | | | | | |
Total Value of Securities | | | $ | 48,321,148 | | | | $ | 910,600,917 | | | | $ | 958,922,065 | |
| | | | | | | | | | | | | | | |
Derivatives2 | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Futures Contracts | | | $ | 451,362 | | | | $ | — | | | | $ | 451,362 | |
| |
| | | Delaware Extended Duration Bond Fund |
| | | Level 1 | | Level 2 | | Total |
| | | |
Securities | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Corporate Debt | | | $ | — | | | | $ | 599,201,683 | | | | $ | 599,201,683 | |
Municipal Bonds | | | | — | | | | | 19,896,331 | | | | | 19,896,331 | |
Convertible Preferred Stock1 | | | | 2,718,054 | | | | | 1,632,933 | | | | | 4,350,987 | |
Preferred Stock | | | | — | | | | | 4,324,058 | | | | | 4,324,058 | |
| | | | | | | | | | | | | | | |
Total Value of Securities | | | $ | 2,718,054 | | | | $ | 625,055,005 | | | | $ | 627,773,059 | |
| | | | | | | | | | | | | | | |
| | | |
Derivatives2 | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | |
Futures Contracts | | | $ | 671,795 | | | | $ | — | | | | $ | 671,795 | |
73
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
3. Investments (continued)
1Security type is valued across multiple levels. Level 1 investments represent exchange-traded investments while Level 2 investments represent investments with observable inputs or matrix-priced investments. The amounts attributed to Level 1 investments and Level 2 investments represent the following percentages of the total market value of these security types for each Fund:
| | | | | | | | | | | | |
| | | Delaware Corporate Bond Fund | |
| | | |
| | | Level 1 | | | Level 2 | | | Total | |
Convertible Preferred Stock | | | 29.56 | % | | | 70.44 | % | | | 100.00 | % |
Preferred Stock | | | 37.27 | % | | | 62.73 | % | | | 100.00 | % |
| |
| | | Delaware Extended Duration Bond Fund | |
| | | |
| | | Level 1 | | | Level 2 | | | Total | |
Convertible Preferred Stock | | | 62.47 | % | | | 37.53 | % | | | 100.00 | % |
2Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument at the year end.
During the year ended July 31, 2019, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Funds. Each Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
A reconciliation of Level 3 investments is presented when each Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to each Fund’s net assets. During the year ended July 31, 2019, there were no Level 3 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 US GAAP. Additionally, distributions from 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 years ended July 31, 2019 and 2018 were as follows:
| | | | | | | | |
| | | Delaware Corporate
Bond Fund | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Ordinary income | | $ | 35,719,690 | | | $ | 41,706,229 | |
| |
| | | Delaware
Extended Duration
Bond Fund | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Ordinary income | | $ | 25,321,758 | | | $ | 25,569,466 | |
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5. Components of Net Assets on a Tax Basis
As of July 31, 2019, the components of net assets on a tax basis were as follows:
| | | | | | | | | | |
| | | Delaware
Corporate
Bond Fund | | Delaware
Extended Duration
Bond Fund |
Shares of beneficial interest | | | $ | 1,009,203,353 | | | | $ | 602,512,463 | |
Undistributed ordinary income | | | | 786,334 | | | | | 54,449 | |
Distributions payable | | | | (793,178 | ) | | | | (573,411 | ) |
Capital loss carryforwards | | | | (59,399,035 | ) | | | | (7,206,415 | ) |
Unrealized appreciation of investments and derivatives | | | | 35,081,442 | | | | | 46,763,135 | |
| | | | | | | | | | |
Net assets | | | $ | 984,878,916 | | | | $ | 641,550,221 | |
| | | | | | | | | | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales,mark-to-market of futures contracts, 305 (C) deemed dividend income, trust preferred securities, and market discount and premium on debt instruments.
Under the Regulated Investment Company Modernization Act of 2010 (Act), net capital losses recognized for tax years beginning after Dec. 22, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. At July 31, 2019, capital loss carryforwards available to offset future realized capital gains for the Funds were as follows:
| | | | | | | | | | | | | | | |
| | | Loss carryforward character |
| | | |
| | | Short-term | | Long-term | | Total |
Delaware Corporate Bond Fund | | | $ | 29,269,919 | | | | $ | 30,129,116 | | | | $ | 59,399,035 | |
Delaware Extended Duration Bond Fund | | | | — | | | | | 7,206,415 | | | | | 7,206,415 | |
75
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
6. Capital Shares
Transactions in capital shares were as follows:
| | | | | | | | | | | | | | | | |
| | | Delaware Corporate
Bond Fund | | | Delaware Extended Duration
Bond Fund | |
| | |
| | | Year ended | | | Year ended | |
| | | | |
| | | 7/31/19 | | | 7/31/18 | | | 7/31/19 | | | 7/31/18 | |
Shares sold: | | | | | | | | | | | | | | | | |
Class A | | | 5,047,279 | | | | 5,854,870 | | | | 3,883,138 | | | | 4,583,796 | |
Class C | | | 1,159,238 | | | | 772,164 | | | | 199,873 | | | | 347,484 | |
Class R | | | 811,772 | | | | 1,568,776 | | | | 547,907 | | | | 490,131 | |
Institutional Class | | | 69,204,787 | | | | 83,859,575 | | | | 23,299,096 | | | | 25,719,032 | |
Class R6 | | | 358 | | | | — | | | | 372,689 | | | | 4,230,248 | |
| | | | |
Shares issued upon reinvestment of dividends and distributions: | | | | | | | | | | | | | | | | |
Class A | | | 1,078,834 | | | | 1,314,091 | | | | 782,475 | | | | 1,004,628 | |
Class C | | | 368,001 | | | | 489,998 | | | | 69,772 | | | | 100,720 | |
Class R | | | 116,666 | | | | 142,082 | | | | 76,870 | | | | 87,815 | |
Institutional Class | | | 2,610,209 | | | | 2,817,667 | | | | 2,673,221 | | | | 2,385,789 | |
Class R6 | | | 7 | | | | — | | | | 304,559 | | | | 188,228 | |
| | | | | | | | | | | | | | | | |
| | | 80,397,151 | | | | 96,819,223 | | | | 32,209,600 | | | | 39,137,871 | |
| | | | | | | | | | | | | | | | |
| | | | |
Shares redeemed: | | | | | | | | | | | | | | | | |
Class A | | | (13,579,203 | ) | | | (13,507,005 | ) | | | (10,311,986 | ) | | | (11,357,434 | ) |
Class C | | | (5,819,937 | ) | | | (7,835,430 | ) | | | (918,555 | ) | | | (1,913,633 | ) |
Class R | | | (1,470,972 | ) | | | (2,339,016 | ) | | | (1,322,896 | ) | | | (1,040,861 | ) |
Institutional Class | | | (102,823,668 | ) | | | (49,931,471 | ) | | | (30,080,443 | ) | | | (18,436,225 | ) |
Class R6 | | | — | | | | — | | | | (1,806,975 | ) | | | (217,332 | ) |
| | | | | | | | | | | | | | | | |
| | | (123,693,780 | ) | | | (73,612,922 | ) | | | (44,440,855 | ) | | | (32,965,485 | ) |
| | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (43,296,629 | ) | | | 23,206,301 | | | | (12,231,255 | ) | | | 6,172,386 | |
| | | | | | | | | | | | | | | | |
76
Certain shareholders may exchange shares of one class for shares of another class in the same Fund. These exchange transactions are included as subscriptions and redemptions in the tables on the previous page, and on the “Statements of changes in net assets.” For the years ended July 31, 2019 and 2018, the Funds had the following exchange transactions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Exchange Redemptions | | | | | | Exchange Subscriptions | | | | | | | |
| | | | | | | |
| | | Class A Shares | | | Class C Shares | | | Class A Shares | | | Institutional Class Shares | | | Value | | | | | | | |
Year ended July 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Delaware Corporate Bond Fund | | | 28,600 | | | | 99,910 | | | | 99,753 | | | | 28,941 | | | $ | 739,628 | | | | | | | | | |
Delaware Extended Duration Bond Fund | | | 116,169 | | | | 1,453 | | | | 1,452 | | | | 116,350 | | | | 754,457 | | | | | | | | | |
| | | |
| | | Exchange Redemptions | | | Exchange Subscriptions | | | | |
| | | | | | | |
| | | Class A Shares | | | Class C Shares | | | Institutional Class Shares | | | Class A Shares | | | Institutional Class Shares | | | Class R6 Shares | | | Value | |
Year ended July 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Delaware Corporate Bond Fund | | | 289,840 | | | | 151,370 | | | | — | | | | 141,480 | | | | 300,106 | | | | — | | | $ | 2,534,820 | |
Delaware Extended Duration Bond Fund | | | 380,428 | | | | 24,894 | | | | 312,829 | | | | 388,027 | | | | 67,214 | | | | 314,364 | | | | 4,627,681 | |
7. Line of Credit
Each Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The revolving line of credit available was reduced from $155,000,000 to $130,000,000 on Sept. 6, 2018. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants based on a weighted average of the respective net assets of each Participant. The Participants were permitted to borrow up to a maximum ofone-third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 5, 2018.
77
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
7. Line of Credit (continued)
On Nov. 5, 2018, the Participants entered into an amendment to the agreement for a $190,000,000 revolving line of credit. The revolving line of credit available was increased to $220,000,000 on Nov. 29, 2018. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 4, 2019.
The Funds had no amounts outstanding as of July 31, 2019, or at any time during the year then ended.
8. Derivatives
US GAAP requires disclosures that enable investors to understand: (1) how and why an entity uses derivatives; (2) how they are accounted for; and (3) how they affect an entity’s results of operations and financial position.
Futures Contracts— A futures contract is an agreement in which the writer (or seller) of the contract agrees to deliver to the buyer an amount of cash or securities equal to a specific dollar amount times the difference between the value of a specific security or index at the close of the last trading day of the contract and the price at which the agreement is made. Each Fund may use futures in the normal course of pursuing its investment objective. Each Fund may invest in futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in interest rates or market conditions. Upon entering into a futures contract, each Fund deposits cash or pledges US government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Funds as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. When investing in futures, there is reduced counterparty credit risk to the Funds because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. At July 31, 2019, Delaware Corporate Bond Fund posted $227,040 and Delaware Extended Duration Bond Fund posted $337,920 cash as collateral for open futures contracts, which are included in “Cash collateral due from broker” on the “Statements of assets and liabilities.”
During the year ended July 31, 2019, the Funds used futures contracts to hedge the Funds’ existing portfolio securities against fluctuations in value caused by changes in interest rates or market conditions.
During the year ended July 31, 2019, the Funds experienced net realized and unrealized gain or loss attributable to their use of futures contracts, which is disclosed as “Variation margin due from broker on futures contracts” on the “Statements of assets and liabilities” and as “Net realized gain (loss) on futures contracts” on the “Statements of operations.”
78
Derivatives Generally. The table below summarizes the average balance of derivative holdings by each Fund during the year ended July 31, 2019:
| | | | | | | | |
| | | Delaware Corporate Bond Fund | | Delaware Extended Duration Bond Fund |
| | | Long Derivative Volume | | Short Derivative Volume | | Long Derivative Volume | | Short Derivative Volume |
Futures contracts (average notional value) | | $8,511,611 | | $19,083,087 | | $9,891,190 | | $– |
9. Securities Lending
Each Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day, which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.
Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations; commercial paper, notes, bonds, and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. A fund can also accept US government securities and letters of credit(non-cash collateral) in connection with securities loans.
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 Funds or, at the discretion of the lending agent, replace the loaned securities. The Funds continue to record dividends or interest, as applicable, on the securities loaned and are subject to
79
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
9. Securities Lending (continued)
changes in value of the securities loaned that may occur during the term of the loan. The Funds have the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized bynon-cash collateral, the Funds receive loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Funds, the security lending agent, and the borrower. The Funds record security lending income net of allocations to the security lending agent and the borrower.
Each Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of each Fund’s cash collateral account may be less than the amount each Fund would be required to return to the borrowers of the securities and each Fund would be required to make up for this shortfall.
During the year ended July 31, 2019, the Funds had no securities out on loan.
10. Credit and Market Risk
Each Fund invests in high yield fixed income securities, which are securities rated lower thanBBB- by Standard & Poor’s Financial Services LLC and lower than Baa3 by Moody’s Investors Service, Inc., or similarly rated by another nationally recognized statistical rating organization. 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.
Each Fund invests in bank loans and other securities that may subject them to direct indebtedness risk, the risk that the Funds will not receive payment of principal, interest, and other amounts due in connection with these investments and will depend primarily on the financial condition of the borrower. Loans that are fully secured offer the Funds more protection than unsecured loans in the event of nonpayment of scheduled interest or principal, although there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s obligation, or that the collateral can be liquidated. Some loans or claims may be in default at the time of purchase. Certain of the loans and the other direct indebtedness acquired by the Funds may involve revolving credit facilities or other standby financing commitments that obligate the Funds to pay additional cash on a certain date or on demand. These commitments may require each Fund to increase its investment in a company at a time when the Funds might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To the extent that each Fund is committed to advance additional funds, it will at all times hold and maintain cash or other high grade debt obligations in an amount sufficient to meet such commitments. When a loan agreement is purchased, the Funds may pay an assignment fee. On an ongoing basis, the Funds may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by the borrower. Prepayment penalty, facility, commitment, consent, and amendment fees are recorded to income as earned or paid.
When interest rates rise, fixed income securities (i.e. debt obligations) generally will decline in value. These declines in value are greater for fixed income securities with longer maturities or durations.
80
As the Funds may be required to rely upon another lending institution to collect and pass on to the Funds amounts payable with respect to the loan and to enforce the Funds’ rights under the loan and other direct indebtedness, an insolvency, bankruptcy, or reorganization of the lending institution may delay or prevent the Funds from receiving such amounts. The highly leveraged nature of many loans may make them especially vulnerable to adverse changes in economic or market conditions. Investments in such loans and other direct indebtedness may involve additional risk to the Funds.
Each Fund invests in certain obligations that may have liquidity protection designed to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies, or letters of credit obtained by the issuer or sponsor through third parties, through various means of structuring the transaction, or through a combination of such approaches. The Funds will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.
Each Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each 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, each Board has delegated to DMC, theday-to-day functions of determining whether individual securities are liquid for purposes of the Funds’ limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Funds’ 15% limit on investments in illiquid securities. Rule 144A securities have been identified on the “Schedules of investments.” Restricted securities are valued pursuant to the security valuation procedures described in Note 1.
11. Contractual Obligations
Each Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is unknown. However, each Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Funds’ existing contracts and expects the risk of loss to be remote.
12. General Motors Term Loan Litigation
The Funds received notice of a litigation proceeding related to a General Motors Corporation (G.M.) term loan participation previously held by the Funds in 2009. Because it was believed that the Funds were secured creditors, the Funds received the full principal on the loans in 2009 after the G.M. bankruptcy. However, based upon a US Court of Appeals ruling the Motors Liquidation Company Avoidance Action Trust sought to recover such amounts arguing that, the Funds were unsecured creditors and, as unsecured creditors, the Funds should not have received payment in full. Based on available information related to the litigation and the Funds’ potential exposure, Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund previously recorded contingent liabilities of $1,460,956 and $554,156, respectively, and assets of $438,287 and $166,247, respectively, based on the potential recoveries by the estate that resulted in a net decrease in the Funds’ NAV to reflect this potential recovery.
81
Notes to financial statements
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
12. General Motors Term Loan Litigation (continued)
During the period, the plaintiff and the term loan lenders, which included the Funds, reached an agreement in principle that resolved the disputes. The parties agreed to terms of a settlement agreement and presented the settlement agreement to the court for approval at a hearing on June 12, 2019. The court approved the settlement documentation and dismissed the case on July 2, 2019. The court’s approval of the settlement and dismissal of the case with prejudice became final on July 16, 2019.
The contingent liabilities and other assets were removed in connection with the case being settled, which resulted in the Funds recognizing a gain in the amount of the liabilities reversed.
13. Recent Accounting Pronouncements
In March 2017, the FASB issued an Accounting Standards Update (ASU), ASU2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain callable debt securities purchased at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the FASB issued an ASU2018-13, which changes certain fair value measurement disclosure requirements. The ASU2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Securities and Exchange Commission (SEC) adopted amendments to RegulationS-X to update and simplify the disclosure requirements for registered investment companies by eliminating requirements that are redundant or duplicative of US GAAP requirements or other SEC disclosure requirements. The new amendments require the presentation of the total, rather than the components, of distributable earnings on the “Statement of assets and liabilities” and the total, rather than the components, of dividends from net investment income and distributions from net realized gains on the “Statements of changes in net assets.” The amendments also removed the requirement for the parenthetical disclosure of undistributed net investment income on the “Statements of changes in net assets” and certain tax adjustments that were reflected in the “Notes to financial statements.” All of these have been reflected in each Fund’s financial statements.
14. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to July 31, 2019, that would require recognition or disclosure in the Funds’ financial statements.
82
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Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Income Funds and Shareholders of Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund (two of the funds constituting Delaware Group® Income Funds, hereafter collectively referred to as the “Funds”) as of July 31, 2019, the related statements of operations for the year ended July 31, 2019, the statements of changes in net assets for each of the two years in the period ended July 31, 2019, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Funds as of July 31, 2019, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period ended July 31, 2019 and each of the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2019 by correspondence with the custodian, transfer agents and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 17, 2019
We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.
84
Other Fund information (Unaudited)
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
Tax Information
The information set forth below is for each Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of the Funds. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All disclosures are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring reporting, it is the intention of the Funds to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended July 31, 2019, each Fund reports distributions paid during the year as follows:
| | | | |
| | | (A)
Ordinary Income
Distributions
(Tax Basis) | |
Delaware Corporate Bond Fund | | | 100.00% | |
Delaware Extended Duration Bond Fund | | | 100.00% | |
(A) is based on a percentage of each Fund’s total distributions.
For the fiscal year ended July 31, 2019, certain interest income paid by Delaware Corporate Bond Fund determined to be Qualified Interest Income and Short-Term Capital Gains may be subject to relief from US withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004, and by the Tax Relief Unemployment Insurance Reauthorization and Job Creations Act of 2010, and as extended by the American Taxpayer Relief Act of 2012. Delaware Extended Duration Bond Fund did not have any foreign shareholders for the fiscal year ended July 31, 2019. For the fiscal year ended July 31, 2019, Delaware Corporate Bond Fund has reported maximum distributions of Qualified Interest Income as follows:
| | | | |
Qualified Interest Income | | | $26,666,654 | |
Board consideration ofSub-Advisory agreements for Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund at a meeting held February27-28, 2019
At a meeting held on Feb.27-28, 2019, the Board of Trustees (the “Board”) of Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund (each, a “Fund” and together, the “Funds”), including a majority ofnon-interested or independent Trustees (the “Independent Trustees”), approved newSub-Advisory Agreements between Delaware Management Company (“DMC” or “Management”) and Macquarie Investment Management Europe Limited (“MIMEL”), Macquarie Investment Management Austria Kapitalanlage (“MIMAK”), and Macquarie Investment Management Global Limited (“MIMGL”), respectively. MIMEL, MIMAK, and MIMGL may also be referenced as“Sub-Advisors” below.
In reaching the decision to approve theSub-Advisory Agreements, the Board considered and reviewed information about each of MIMEL, MIMAK, and MIMGL, including its personnel, operations and financial condition, which had been provided by MIMEL, MIMAK, and MIMGL, respectively. The Board also
85
Other Fund information (Unaudited)
Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund
reviewed material furnished by DMC in advance of the meeting, including: a memorandum from DMC reviewing theSub-Advisory Agreements and the various services proposed to be rendered by MIMEL, MIMAK, and MIMGL; information concerning MIMEL’s, MIMAK’s, and MIMGL’s organizational structure and the experience of their key investment management personnel; copies of MIMEL’s, MIMAK’s, and MIMGL’s Form ADV, financial statements, compliance policies and procedures, and Codes of Ethics; relevant performance information provided with respect to MIMEL, MIMAK, and MIMGL; and a copy of theSub-Advisory Agreements.
In considering such information and materials, the Independent Trustees received assistance and advice from and met separately with their independent counsel. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision to approve theSub-Advisory Agreements. This discussion of the information and factors considered by the Board (as well as the discussion above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual Trustees may have assigned different weights to various factors.
Nature, extent, and quality of services.In considering the nature, extent, and quality of the services to be provided by theSub-Advisors, the Board reviewed the services to be provided by eachSub-Advisor pursuant to eachSub-Advisory Agreement and as described at the meeting. The Board reviewed materials provided by theSub-Advisors regarding the experience and qualifications of the personnel who will be responsible for providing services to the Funds. The Board also considered relevant performance information provided with respect to eachSub-Advisor. In discussing the nature of the services proposed to be provided by theSub-Advisors, it was observed that, unlike traditionalsub-advisors who make all of the investment related decisions with respect to asub-advised portfolio, the relationship between DMC (the Funds’ investment manager) and theSub-Advisors as currently contemplated is primarily more of a collaborative effort between DMC and theSub-Advisors and a cross pollination of investment ideas. The Board further noted the stated intention under the newSub-Advisory Agreements that DMC would have the sole discretion to delegate portions of the implementation of each Fund’s strategy to theSub-Advisors who would be permitted to execute Fund trades and exercise investment discretion pursuant to that delegation and subject to DMC oversight. However, DMC and each Fund’s named portfolio managers will continue to retain principal responsibility for the Fund’s strategy and investment process and be primarily responsible for theday-to-day management of the Fund’s portfolio. Based upon these considerations, the Board was satisfied with the nature and quality of the overall services to be provided by theSub-Advisors to the Funds and its shareholders and was confident in the abilities of theSub-Advisors to provide quality services to the Funds and their shareholders.
Investment performance.In regards to the appointment of theSub-Advisors for the Funds, the Board reviewed information on prior performance for theSub-Advisors. In evaluating performance, the Board considered that theSub-Advisors would provide investment advice and recommendations, including with respect to specific securities, but that DMC’s portfolio managers for each Fund would retain principal responsibility for the Fund’s strategy as described above. In addition, the Board considered that
86
Board consideration of Sub-Advisory agreements for Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund at a meeting held February 27-28, 2019 (continued)
theSub-Advisors would also execute Fund security trades on behalf of DMC and be permitted by DMC to exercise investment discretion for securities in certain markets where DMC wanted to utilize aSub-Advisor’s specialized market knowledge.
Sub-advisory fees.The Board considered that DMC would pay theSub-Advisors asub-advisory fee based on the extent to which aSub-Advisor provides services to each Fund as described in theSub-Advisory Agreements. In considering the appropriateness of thesub-advisory fees, the Board also reviewed and considered the fees in light of the nature, extent, and quality of thesub-advisory services to be provided by eachSub-Advisor, as more fully discussed above. The Board noted that thesub-advisory fees are paid by DMC to eachSub-Advisor and are not additional fees borne by the Funds, and that the management fee paid by each Fund to DMC would stay the same at current asset levels. The Board was provided with information showing an estimate of thesub-advisory fees to be paid to eachSub-Advisor based on a projection ofSub-Advisor allocations given certain historical investment trends, as well as information regarding the expected impact thesub-advisory arrangements would have on the profitability of DMC. The Board also noted that, given the collaborative nature of the services to be provided by theSub-Advisors to the Fund, there were no comparable accounts and corresponding fees to which theSub-Advisors were able to compare this arrangement. The Board concluded that, in light of the quality and extent of the services to be provided and the business relationships between DMC and theSub-Advisors, the proposed fee arrangement was understandable and reasonable.
Profitability, economies of scale, andfall-out benefits.Information about eachSub-Advisor’s profitability from its relationship with the Funds was not available because it had not begun to provide services to the Funds. With regard to potentialfall-out benefits derived or to be derived by theSub-Advisors and their affiliates in connection with their relationship to the Funds, the Board considered the potential benefit to DMC and theSub-Advisors of marketing a global approach on the portfolio management of their fixed income investment strategies. The Trustees also noted that economies of scale are shared with each Fund and its shareholders through investment management fee breakpoints in DMC’s fee schedule for each Fund so that as the Fund grows in size, its effective investment management fee rate declines.
87
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Interested Trustee | | | | |
| | |
Shawn K. Lytle1 2005 Market Street Philadelphia, PA 19103 February 1970 | | President, Chief Executive Officer, and Trustee | | President and Chief Executive Officer since August 2015 |
| | | | Trustee since September 2015 |
Independent Trustees | | | | |
| | |
Thomas L. Bennett 2005 Market Street Philadelphia, PA 19103 October 1947 | | Chair and Trustee | | Trustee since March 2005 |
| | | | Chair since March 2015 |
Jerome D. Abernathy 2005 Market Street Philadelphia, PA 19103 July 1959 | | Trustee | | Since January 2019 |
Ann D. Borowiec 2005 Market Street Philadelphia, PA 19103 November 1958 | | Trustee | | Since March 2015 |
| | | | | |
| 1 | Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor. |
88
for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
President — Macquarie | | 59 | | Trustee — UBS |
Investment Management2 | | | | Relationship Funds, |
(June 2015–Present) | | | | SMA Relationship |
| | | | Trust, and UBS Funds |
Regional Head of | | | | (May 2010–April 2015) |
Americas — UBS Global | | | | |
Asset Management | | | | |
(April 2010–May 2015) | | | | |
| | | | |
Private Investor | | 59 | | None |
(March 2004–Present) | �� | | | |
Managing Member, | | 59 | | None |
Stonebrook Capital | | | | |
Management, LLC (financial | | | | |
technology: macro factors | | | | |
and databases) | | | | |
(January 1993–Present) | | | | |
Chief Executive Officer, | | 59 | | Director — |
Private Wealth Management | | | | Banco Santander International |
(2011–2013) and | | | | (October 2016–Present) |
Market Manager, | | | | |
New Jersey Private | | | | Director — |
Bank (2005–2011) — | | | | Santander Bank, N.A. |
J.P. Morgan Chase & Co. | | | | (December 2016–Present) |
| | | | | |
| 2 | Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent. |
89
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Independent Trustees (continued) | | | | |
| | |
Joseph W. Chow | | Trustee | | Since January 2013 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
January 1953 | | | | |
| | | |
John A. Fry | | Trustee | | Since January 2001 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
May 1960 | | | | |
| | | |
Lucinda S. Landreth | | Trustee | | Since March 2005 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
June 1947 | | | | |
| | | | | |
90
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
Private Investor | | 59 | | Director and Audit Committee |
(April 2011–Present) | | | | Member — Hercules |
| | | | Technology Growth |
| | | | Capital, Inc. |
| | | | (July 2004–July 2014) |
President — | | 59 | | Director; Compensation |
Drexel University | | | | Committee and |
(August 2010–Present) | | | | Governance Committee |
| | | | Member — Community |
President — | | | | Health Systems |
Franklin & Marshall College | | | | (May 2004–present) |
(July 2002–June 2010) | | | | |
| | | | Director — Drexel |
| | | | Morgan & Co. |
| | | | (2015–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — vTv |
| | | | Therapeutics Inc. |
| | | | (2017–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — FS Credit Real |
| | | | Estate Income Trust, Inc. |
| | | | (2018–present) |
Private Investor | | 59 | | None |
(2004–Present) | | | | |
| | | | | |
91
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Independent Trustees (continued) | | | | |
| | |
Frances A. Sevilla-Sacasa | | Trustee | | Since September 2011 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
January 1956 | | | | |
Thomas K. Whitford | | Trustee | | Since January 2013 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
March 1956 | | | | |
| | | | | |
92
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
Private Investor | | 59 | | Trust Manager and |
(January 2017–Present) | | | | Audit Committee |
| | | | Chair — Camden |
Chief Executive Officer — | | | | Property Trust |
Banco Itaú | | | | (August 2011–Present) |
International | | | | |
(April 2012–December 2016) | | | | Director; Audit |
| | | | Committee Member — |
Executive Advisor to Dean | | | | Carrizo Oil & Gas, Inc. |
(August 2011–March 2012) | | | | (March 2018–Present) |
and Interim Dean | | | | |
(January 2011–July 2011) — | | | | |
University of Miami School of | | | | |
Business Administration | | | | |
| | |
President — U.S. Trust, | | | | |
Bank of America Private | | | | |
Wealth Management | | | | |
(Private Banking) | | | | |
(July 2007–December 2008) | | | | |
Vice Chairman | | 59 | | Director — HSBC North |
(2010–April 2013) — | | | | America Holdings Inc. |
PNC Financial | | | | (December 2013–Present) |
Services Group | | | | |
| | | | Director — HSBC USA Inc. |
| | | | (July 2014–Present) |
| | |
| | | | Director — |
| | | | HSBC Bank USA, |
| | | | National Association |
| | | | (July 2014–March 2017) |
| | |
| | | | Director — HSBC |
| | | | Finance Corporation |
| | | | (December 2013–April 2018) |
| | | | | |
93
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Independent Trustees (continued) | | | | |
Christianna Wood | | Trustee | | Since January 2019 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
August 1959 | | | | |
| | | | |
94
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
Chief Executive Officer | | 59 | | Director; Finance Committee |
and President — | | | | and Audit Committee |
Gore Creek | | | | Member — H&R |
Capital, Ltd. | | | | Block Corporation |
(August 2009–Present) | | | | (July 2008–Present) |
| | |
| | | | Director; Chair of Investments |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | Grange Insurance |
| | | | (2013–Present) |
| | |
| | | | Trustee; Chair of |
| | | | Nominating and Governance |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | The Merger Fund |
| | | | (2013–Present), |
| | | | The Merger Fund VL |
| | | | (2013-Present), |
| | | | WCM Alternatives: |
| | | | Event-Driven Fund |
| | | | (2013–Present), |
| | | | and WCM Alternatives: |
| | | | Credit Event Fund |
| | | | (December 2017–Present) |
| | |
| | | | Director; Chair of |
| | | | Governance Committee |
| | | | and Audit Committee |
| | | | Member — International |
| | | | Securities Exchange |
| | | | | (2010–2016) |
95
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Independent Trustees (continued) | | | | |
Janet L. Yeomans | | Trustee | | Since April 1999 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
July 1948 | | | | |
Officers | | | | |
David F. Connor | | Senior Vice President, | | Senior Vice President since |
2005 Market Street | | General Counsel, | | May 2013; General |
Philadelphia, PA 19103 | | and Secretary | | Counsel since May 2015; |
December 1963 | | | | Secretary since |
| | | | | October 2005 |
Daniel V. Geatens | | Vice President | | Vice President and |
2005 Market Street | | and Treasurer | | Treasurer since October 2007 |
Philadelphia, PA 19103 | | | | |
October 1972 | | | | |
| | | | | |
Richard Salus | | Senior Vice President | | Senior Vice President and |
2005 Market Street | | and Chief Financial Officer | | Chief Financial Officer |
Philadelphia, PA 19103 | | | | since November 2006 |
October 1963 | | | | |
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800523-1918.
96
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
Vice President and Treasurer | | 59 | | Director; Personnel and |
(January 2006–July 2012), | | | | Compensation Committee |
Vice President — | | | | Chair; Member of Nominating, |
Mergers & Acquisitions | | | | Investments, and Audit |
(January 2003–January 2006), | | | | Committees for various |
and Vice President | | | | periods throughout |
and Treasurer | | | | directorship — |
(July 1995–January 2003) — | | | | Okabena Company |
3M Company | | | | (2009–2017) |
| | | | |
David F. Connor has served | | 59 | | None3 |
in various capacities at | | | | |
different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
Daniel V. Geatens has served | | 59 | | None3 |
in various capacities at | | | | |
different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
Richard Salus has served | | 59 | | None3 |
in various capacities | | | | |
at different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
| 3 | David F. Connor, Daniel V. Geatens, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. Mr. Geatens also serves as the Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which has an affiliated investment manager. |
97
About the organization
Board of trustees
| | | | | | |
| | | |
Shawn K. Lytle President and Chief Executive Officer Delaware Funds® by Macquarie Philadelphia, PA Thomas L. Bennett Chairman of the Board Delaware Funds by Macquarie Private Investor Rosemont, PA Jerome D. Abernathy Managing Member Stonebrook Capital Management, LLC Jersey City, NJ | | Ann D. Borowiec Former Chief Executive Officer Private Wealth Management J.P. Morgan Chase & Co. New York, NY Joseph W. Chow Former Executive Vice President State Street Corporation Boston, MA John A. Fry President Drexel University Philadelphia, PA | | Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. New York, NY Frances A. Sevilla-Sacasa Former Chief Executive Officer Banco Itaú International Miami, FL | | Thomas K. Whitford Former Vice Chairman PNC Financial Services Group Pittsburgh, PA Christianna Wood Chief Executive Officer and President Gore Creek Capital, Ltd. Golden, CO Janet L. Yeomans Former Vice President and Treasurer 3M Company St. Paul, MN |
|
| Affiliated officers |
| | | |
David F. Connor Senior Vice President, General Counsel, and Secretary Delaware Funds by Macquarie Philadelphia, PA | | Daniel V. Geatens Vice President and Treasurer Delaware Funds by Macquarie Philadelphia, PA | | Richard Salus Senior Vice President and Chief Financial Officer Delaware Funds by Macquarie Philadelphia, PA | | |
This annual report is for the information of Delaware Corporate Bond Fund and Delaware Extended Duration Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on FormN-Q or FormN-PORT (available for filings after March 31, 2019). Each Fund’s FormsN-Q or FormsN-PORT, as well as a description of the policies and procedures that the Funds use to determine how to vote proxies (if any) relating to portfolio securities, are available without charge (i) upon request, by calling 800523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Funds use to determine how to vote proxies (if any) relating to portfolio securities and the Schedules of Investments included in the Funds’ most recent FormN-Q or FormN-PORT are available without charge on the Funds’ website at delawarefunds.com/literature. Each Fund’s FormsN-Q and FormsN-PORT may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800SEC-0330
Information (if any) regarding how the Funds voted proxies relating to portfolio securities during the most recently disclosed12-month period ended June 30 is available without charge (i) through the Funds’ website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
98
Annual report
Fixed income mutual fund
Delaware High-Yield Opportunities Fund
July 31, 2019
|
Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report. If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary. You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary. |
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawarefunds.com/edelivery.
Experience Delaware Funds®by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. As active managers we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware High-Yield Opportunities Fund at delawarefunds.com/literature.
Manage your account online
| · | | Check your account balance and transactions |
| · | | View statements and tax forms |
| · | | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following investment advisers: Macquarie Investment Management Business Trust (MIMBT), Delaware Capital Management Advisers, Inc., Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Europe Limited, Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.
The Fund is distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.
Unless otherwise noted, views expressed herein are current as of July 31, 2019, and subject to change for events occurring after such date.
The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2019 Macquarie Management Holdings, Inc.
Portfolio management review
| | |
| Delaware High-Yield Opportunities Fund | | August 13, 2019 |
| | | | |
| Performance preview (for the year ended July 31, 2019) | | |
| | |
Delaware High-Yield Opportunities Fund (Institutional Class shares) | | 1-year return | | +7.52% |
| | |
Delaware High-Yield Opportunities Fund (Class A shares) | | 1-year return | | +7.25% |
| | |
ICE BofAML US High Yield Constrained Index (benchmark) | | 1-year return | | +6.93% |
Past performance does not guarantee future results.
For complete, annualized performance for Delaware High-Yield Opportunities Fund, please see the table on page 4. Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.
The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.
Please see page 7 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Market review
High yield bonds experienced heightened volatility over the Fund’s fiscal year ended July 31, 2019, as prices and yields responded to shifts in the outlook for interest rates, oil prices, and trade negotiations. The first major reversal occurred during the final months of 2018. Investors called into question the outlook for global growth amid plunging energy prices and a still-hawkish US Federal Reserve. Reacting in part to the message conveyed by a global flight to quality, the Fed signaled a pause in its monetary tightening cycle, citing low inflation and uncertainty arising from theUS-China trade war as reasons to adopt a more “data dependent” stance. Along with a recovery in energy prices and an occasional (if fleeting) easing of trade tensions, risk assets rallied through the early spring of 2019. High yield bond prices rebounded through the end of the fiscal period, although the recovery was tenuous and led by higher-quality credits.
Despite the increased volatility, the fundamental underpinnings of the high yield market remained positive during the12-month period. Corporate earnings generally met or surpassed expectations and technical factors were also generally positive as fund inflows far exceedednew-issue supply. Notably, the new supply was mostly in the form of refinancing – a healthy departure from the traditional late-cycle pattern of leveraged buyouts,
|
The following factors affected high yield bonds over the fiscal year: |
● Fed policy shifted from tightening to easing mode. ● Corporate fundamentals remained solid despite an economic slowdown. ● Negative interest rates overseas drew inflows to US bonds, including high yield. |
1
Portfolio management review
Delaware High-Yield Opportunities Fund
in our view. Reflecting the unsettled economic and political environment, high yield credit spreads moved in a range of nearly 200 basis points over the fiscal year. (One basis point is a hundredth of a percentage point.) On July 31, 2019, the benchmark option-adjusted spread that compares high yield credit to US Treasury bond yields stood at about 420 basis points (down from 535 basis points at the start of the12-month period).
Among industry groups, energy was a notable outlier and the only sector to post a negative return during the Fund’s fiscal year. Theoil-field services and exploration and production (E&P)sub-sectors sustained particularly large declines. The automotive sector also lagged the Fund’s benchmark, the ICE BofAML US High Yield Constrained Index, affected by slowing global growth, particularly in China, the world’s largest car market. Meanwhile, market leadership was concentrated in the relative safety of defensive and rate-sensitive sectors. These included banking, homebuilding, media, and utilities.
Source: Bloomberg.
Within the Fund
For the fiscal year ended July 31, 2019, Delaware High-Yield Opportunities Fund outperformed its benchmark, the ICE BofAML US High Yield Constrained Index. The Fund’s Institutional Class shares gained 7.52%. The Fund’s Class A shares advanced 7.25% at net asset value and 2.55% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the benchmark gained 6.93%. For complete, annualized performance of Delaware High-Yield Opportunities Fund, please see the table on page 4.
During the fiscal year, the Fund’s largest sector contributors were banking and insurance brokers. In both cases, strong credit selection and a sector overweight added value. The Fund’s holdings in consumer lease financing lagged the benchmark return because of an underweight to the sector.
The Fund’s initial overweight to the energy sector, combined with poor credit selection, also detracted from performance during the12-month period.
At the start of the fiscal year, the Fund was positioned in a neutral-risk configuration, except for its overweight to energy, as noted previously. Energy is the largest sector within high yield, and the Fund’s underperformance occurred largely during the final months of 2018. However, we considered the selloff in energy companies overdone, and our view was confirmed when oil prices bounced back over the first three months of 2019. In part, our decision to retain significant exposure to the energy sector, after sustaining early losses, was based on the view that deteriorating economic conditions and heightened geopolitical risks would compel the Fed to reconsider its plans to continue raising interest rates.
As the rebound in energy prices gathered steam later in the spring of 2019, we used the rally as an opportunity to reduce the Fund’s weighting to the sector. We also applied this strategy to the Fund’smetals-and-mining and chemical holdings. Proceeds from the sale of those commodity-linked groups were deployed first in cash and then to buy higher-qualityBB-rated companies. These moves were consistent with our ongoing strategy of constructing a consolidated portfolio of higher-conviction positions. Our emphasis on fewer but higher-quality holdings also reflected the reality that companies reporting lowered forward guidance and earnings misses in the later stages of an economic cycle often experience the sharpest selloffs.
The Fund’s strongest returns came from threeBB-rated bond holdings: cable operatorCharter Communications Inc., United Kingdom-based telecommunications providerVirgin Media Ltd., and the early-stage medical research company,Charles River Laboratories Inc.In each case, the companies fit the profile of the higher-quality
2
credits we prefer as the global economic outlook grows murkier.
Lowered guidance and earnings shortfalls were major factors for the Fund’s leading detractors, most of which were companies in the energy sector that had significant exposure to natural gas prices. (During the fiscal year, natural gas prices fell further than either of the two major crude oil benchmarks.)
In addition to the weak pricing environment for natural gas,Alta Mesa Resources Inc.reported accounting irregularities, a management shakeup, and credit deterioration. We used the rally in energy prices in early 2019 to trim the Fund’s holdings in the issue and had exited the position entirely by the end of the fiscal period. Texas-based natural gas E&P company,Southwestern Energy Co., also detracted from the Fund’s performance after reporting a drop in second-quarter 2019 operating revenue and a decline in natural gas production. However, we remain confident about the company’s longer-term prospects and continue to hold the bonds. The Fund’s stake inLaredo Petroleum Inc., since
liquidated, also lagged the benchmark largely because of a 51% drop in natural gas prices from the high reached in November 2018.
At the end of the fiscal year, the Fund was overweight the higher-quality,BB-rated bonds that we consider appropriate for the higher volatility, lower-rate environment that we think is likely to emerge in the coming months. We also maintained an underweight toB-rated bonds and an even weight toCCC-rated issuers.
Though high yield valuations are stretched by historical standards, we think it is instructive to view credit spreads in the context of a global fixed income market in which $15 trillion of sovereign debt trades with a negative yield. The lack of current income in most of Europe and portions of Asia has motivated inflows to US high yield. Still, we are cognizant of the potential cyclical and geopolitical risks to high yield bonds and have positioned the Fund’s portfolio in a slightly defensive configuration. In that regard, we believe ourbottom-up (bond by bond) approach to constructing the Fund’s portfolio is especially suitable in these uncertain times.
3
| | |
| Performance summary | | |
| Delaware High-Yield Opportunities Fund | | July 31, 2019 |
The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800523-1918 or visiting delawarefunds.com/performance.
| | | | | | | | | | | | | | | | |
Fund and benchmark performance1,2 | | | Average annual total returns through July 31, 2019 | |
| | | 1 year | | | 5 years | | | 10 years | | | Lifetime | |
Class A (Est. Dec. 30, 1996) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | + 7.25% | | | | + 2.87% | | | | + 7.44% | | | | + 6.51% | |
Including sales charge | | | + 2.55% | | | | + 1.91% | | | | + 6.94% | | | | + 6.30% | |
| | | | |
Class C (Est. Feb. 17, 1998) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | + 6.45% | | | | + 2.11% | | | | + 6.69% | | | | + 5.09% | |
Including sales charge | | | + 5.45% | | | | + 2.11% | | | | + 6.69% | | | | + 5.09% | |
| | | | |
Class R (Est. June 2, 2003) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | + 6.97% | | | | + 2.67% | | | | + 7.22% | | | | + 6.83% | |
Including sales charge | | | + 6.97% | | | | + 2.67% | | | | + 7.22% | | | | + 6.83% | |
| | | | |
Institutional Class (Est. Dec. 30, 1996) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | + 7.52% | | | | + 3.13% | | | | + 7.73% | | | | + 6.81% | |
Including sales charge | | | + 7.52% | | | | + 3.13% | | | | + 7.73% | | | | + 6.81% | |
ICE BofAML US High Yield Constrained Index | | | + 6.93% | | | | + 5.09% | | | | + 8.61% | | | | + 6.91%* | |
*The benchmark lifetime return is for Institutional Class share comparison only and is calculated using the last business day in the month of the Fund’s Institutional Class inception date.
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund and benchmark performance” table. Expenses for each class are listed on the “Fund expense ratios” table on page 6. Performance would have been lower had expense limitations not been in effect.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service(12b-1) fee.
Class A shares are sold with a maximumfront-end sales charge of 4.50%, and have an annual12b-1 fee of 0.25% of average daily net assets. The Board has adopted a formula for calculating12b-1 plan fees for the Fund’s Class A shares. The Fund’s Class A shares are currently subject to a blended12b-1 fee equal to the sum of: (i) 0.10% of average daily net assets representing shares acquired prior to June 1, 1992, and (ii) 0.25% of average daily net assets representing shares acquired on or after June 1, 1992. All Class A shares currently bear12b-1 fees at the same rate, the blended rate, currently 0.25% of average daily net assets, based on the formula described above. This method of calculating Class A12b-1 fees may be discontinued at the sole discretion of the Board.
4
Performance for Class A shares, excluding sales charges, assumes that nofront-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual12b-1 fee of 1.00% of average daily net assets. Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual12b-1 fee of 0.50% of average daily net assets.
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The Fund may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.
High yielding,non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivatives transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
This document may mention bond ratings published by nationally recognized statistical rating organizations (NRSROs) Standard & Poor’s, Moody’s Investors Service, and Fitch, Inc. For securities rated by an NRSRO other than S&P, the rating is converted to the equivalent S&P credit rating. Bonds rated AAA are rated as having the highest quality and are generally considered to have the lowest degree of investment risk. Bonds rated AA are considered to be of high quality, but with a slightly higher degree of risk than bonds rated AAA. Bonds rated A are considered to have many favorable investment qualities, though they are somewhat more susceptible to adverse economic conditions. Bonds rated BBB are believed to be of medium-grade quality and generally riskier over the long term. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics, with BB indicating the least degree of speculation of the three.
5
Performance summary
Delaware High-Yield Opportunities Fund
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total annual fund operating expenses (excluding any12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale and dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.69% of the Fund’s average daily net assets during the period from Aug. 1, 2018 to July 31, 2019.* Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements. Please see the “Financial highlights” section in this report for the most recent expense ratios.
| | | | | | | | |
| Fund expense ratios | | Class A | | Class C | | Class R | | Institutional Class |
| | | | |
| Total annual operating expenses (without fee waivers) | | 1.15% | | 1.90% | | 1.40% | | 0.90% |
| Net expenses (including fee waivers, if any) | | 0.94% | | 1.69% | | 1.19% | | 0.69% |
| Type of waiver | | Contractual | | Contractual | | Contractual | | Contractual |
*The aggregate contractual waiver period covering this report is from April 1, 2018 through Nov. 28, 2019.
6
Performance of a $10,000 investment1
Average annual total returns from July 31, 2009 through July 31, 2019
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on July 31, 2009, and includes the effect of a 4.50%front-end sales charge (for Class A shares) and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Expenses are listed in the “Fund expense ratios” table on page 6. Please note additional details on pages 4 through 8.
The graph also assumes $10,000 invested in the ICE BofAML US High Yield Constrained Index as of July 31, 2009. The ICE BofAML US High Yield
Constrained Index tracks the performance of US dollar–denominated high yield corporate debt publicly issued in the US domestic market, but caps individual issuer exposure at 2% of the benchmark. Qualifying securities must have, among other things, a below-investment-grade rating (based on an average of Moody’s, Standard & Poor’s, and Fitch), an investment grade issuing country (based on an average of Moody’s, Standard & Poor’s, and Fitch foreign currency long-term sovereign debt ratings), and maturities of one year or more.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.Past performance is not a guarantee of future results.
7
Performance summary
Delaware High-Yield Opportunities Fund
| | | | | | |
| | | Nasdaq symbols | | CUSIPs | | |
Class A | | DHOAX | | 245908876 | | |
Class C | | DHOCX | | 245908850 | | |
Class R | | DHIRX | | 245908736 | | |
Institutional Class | | DHOIX | | 245908843 | | |
8
Disclosure of Fund expenses
For thesix-month period from February 1, 2019 to July 31, 2019 (Unaudited)
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 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 entiresix-month period from Feb. 1, 2019 to July 31, 2019.
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 expenses shown in the table reflect fee waivers in effect and assume reinvestment of all dividends and distributions.
9
Disclosure of Fund expenses
For the six-month period from February 1, 2019 to July 31, 2019 (Unaudited)
Delaware High-Yield Opportunities Fund
Expense analysis of an investment of $1,000
| | | | | | | | | | | | | | | | | | | | |
| | | Beginning | | Ending | | | | Expenses |
| | | Account Value | | Account Value | | Annualized | | Paid During Period |
| | | 2/1/19 | | 7/31/19 | | Expense Ratio | | 2/1/19 to 7/31/19* |
Actual Fund return† | | | | | | | | | | | | | | | | | | | | |
Class A | | | | $1,000.00 | | | | | $1,064.30 | | | | | 0.94 | % | | | | $4.81 | |
Class C | | | | 1,000.00 | | | | | 1,063.20 | | | | | 1.69 | % | | | | 8.65 | |
Class R | | | | 1,000.00 | | | | | 1,065.70 | | | | | 1.19 | % | | | | 6.09 | |
Institutional Class | | | | 1,000.00 | | | | | 1,065.60 | | | | | 0.69 | % | | | | 3.53 | |
Hypothetical 5% return(5% return before expenses) | | | | | | | | | | | |
| | | | |
Class A | | | | $1,000.00 | | | | | $1,020.13 | | | | | 0.94 | % | | | | $4.71 | |
Class C | | | | 1,000.00 | | | | | 1,016.41 | | | | | 1.69 | % | | | | 8.45 | |
Class R | | | | 1,000.00 | | | | | 1,018.89 | | | | | 1.19 | % | | | | 5.96 | |
Institutional Class | | | | 1,000.00 | | | | | 1,021.37 | | | | | 0.69 | % | | | | 3.46 | |
| * | “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period). |
| † | Because actual returns reflect only the most recentsix-month period, the returns shown may differ significantly from fiscal year returns. |
In addition to the Fund’s expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.
10
Security type / sector allocation
| | |
| Delaware High-Yield Opportunities Fund | | As of July 31, 2019 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications.
| | | | |
| Security type / sector | | Percentage of net assets |
Corporate Bonds | | | 93.13% | |
Automotive | | | 0.51% | |
Banking | | | 3.58% | |
Basic Industry | | | 10.91% | |
Capital Goods | | | 5.80% | |
Communications | | | 7.25% | |
Consumer Cyclical | | | 6.70% | |
ConsumerNon-Cyclical | | | 2.34% | |
Energy | | | 14.82% | |
Healthcare | | | 10.74% | |
Insurance | | | 2.64% | |
Media | | | 12.16% | |
Real Estate | | | 0.89% | |
Services | | | 6.08% | |
Technology & Electronics | | | 4.32% | |
Transportation | | | 1.41% | |
Utilities | | | 2.98% | |
| |
Loan Agreements | | | 4.05% | |
Common Stock | | | 0.00% | |
Short-Term Investments | | | 2.73% | |
Total Value of Securities | | | 99.91% | |
Receivables and Other Assets Net of Liabilities | | | 0.09% | |
Total Net Assets | | | 100.00% | |
11
| | |
| Schedule of investments | | |
| Delaware High-Yield Opportunities Fund | | July 31, 2019 |
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds – 93.13% | | | | | | |
| |
Automotive – 0.51% | | | | | | |
Allison Transmission 144A 5.875% 6/1/29 # | | 914,000 | | $ | 973,410 | |
| | | | | | |
| | | | | 973,410 | |
| | | | | | |
Banking – 3.58% | | | | | | |
Ally Financial 8.00% 11/1/31 | | 1,125,000 | | | 1,509,187 | |
Credit Suisse Group 144A 6.25% #µy | | 950,000 | | | 1,003,163 | |
Popular 6.125% 9/14/23 | | 1,825,000 | | | 1,966,437 | |
Royal Bank of Scotland Group 8.625% µy | | 1,795,000 | | | 1,913,919 | |
Synovus Financial 5.90% 2/7/29 µ | | 480,000 | | | 504,902 | |
| | | | | | |
| | | | | 6,897,608 | |
| | | | | | |
Basic Industry – 10.91% | | | | | | |
BMC East 144A 5.50% 10/1/24 # | | 1,015,000 | | | 1,039,390 | |
Boise Cascade 144A 5.625% 9/1/24 # | | 662,000 | | | 681,860 | |
First Quantum Minerals | | | | | | |
144A 7.25% 5/15/22 # | | 475,000 | | | 479,156 | |
144A 7.50% 4/1/25 # | | 510,000 | | | 501,075 | |
Freeport-McMoRan 6.875% 2/15/23 | | 925,000 | | | 977,031 | |
Hexion 144A 7.875% 7/15/27 # | | 980,000 | | | 972,650 | |
Hudbay Minerals 144A 7.625% 1/15/25 # | | 1,020,000 | | | 1,062,095 | |
IAMGOLD 144A 7.00% 4/15/25 # | | 500,000 | | | 527,500 | |
Joseph T Ryerson & Son 144A 11.00% 5/15/22 # | | 1,465,000 | | | 1,548,084 | |
Lennar 5.00% 6/15/27 | | 560,000 | | | 592,200 | |
M/I Homes 5.625% 8/1/25 | | 1,200,000 | | | 1,224,000 | |
New Enterprise Stone & Lime 144A 10.125% 4/1/22 # | | 1,167,000 | | | 1,200,551 | |
Novelis 144A 5.875% 9/30/26 # | | 655,000 | | | 680,381 | |
Olin | | | | | | |
5.00% 2/1/30 | | 985,000 | | | 961,311 | |
5.625% 8/1/29 | | 965,000 | | | 992,744 | |
Standard Industries 144A 6.00% 10/15/25 # | | 1,855,000 | | | 1,950,069 | |
Steel Dynamics 5.00% 12/15/26 | | 1,895,000 | | | 1,985,013 | |
TPC Group 144A 10.50% 8/1/24 # | | 490,000 | | | 516,950 | |
Tronox Finance 144A 5.75% 10/1/25 # | | 1,030,000 | | | 973,350 | |
Venator Finance 144A 5.75% 7/15/25 # | | 755,000 | | | 670,063 | |
Zekelman Industries 144A 9.875% 6/15/23 # | | 1,390,000 | | | 1,465,581 | |
| | | | | | |
| | | | | 21,001,054 | |
| | | | | | |
Capital Goods – 5.80% | | | | | | |
Amsted Industries 144A 5.625% 7/1/27 # | | 1,475,000 | | | 1,552,880 | |
Ardagh Packaging Finance 144A 6.00% 2/15/25 # | | 1,025,000 | | | 1,060,875 | |
Berry Global 144A 5.625% 7/15/27 # | | 1,105,000 | | | 1,163,013 | |
Bombardier | | | | | | |
144A 7.50% 3/15/25 # | | 995,000 | | | 1,015,522 | |
144A 7.875% 4/15/27 # | | 510,000 | | | 517,650 | |
EnPro Industries 5.75% 10/15/26 | | 1,215,000 | | | 1,257,525 | |
12
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | |
| |
Capital Goods(continued) | | | | | | |
Intertape Polymer Group 144A 7.00% 10/15/26 # | | 1,020,000 | | $ | 1,058,250 | |
Mauser Packaging Solutions Holding 144A 7.25% 4/15/25 # | | 1,005,000 | | | 956,006 | |
TransDigm 144A 6.25% 3/15/26 # | | 1,155,000 | | | 1,214,194 | |
Trivium Packaging Finance | | | | | | |
144A 5.50% 8/15/26 # | | 655,000 | | | 677,106 | |
144A 8.50% 8/15/27 # | | 655,000 | | | 691,025 | |
| | | | | | |
| | | | | 11,164,046 | |
| | | | | | |
Communications – 7.25% | | | | | | |
C&W Senior Financing | | | | | | |
144A 6.875% 9/15/27 # | | 280,000 | | | 294,014 | |
144A 7.50% 10/15/26 # | | 1,165,000 | | | 1,246,550 | |
CenturyLink 7.50% 4/1/24 | | 465,000 | | | 510,193 | |
Cincinnati Bell 144A 7.00% 7/15/24 # | | 1,130,000 | | | 971,800 | |
Frontier Communications 144A 8.00% 4/1/27 # | | 964,000 | | | 1,008,296 | |
Level 3 Financing 5.375% 5/1/25 | | 1,915,000 | | | 1,977,238 | |
Sprint | | | | | | |
7.125% 6/15/24 | | 910,000 | | | 995,313 | |
7.625% 3/1/26 | | 595,000 | | | 666,418 | |
7.875% 9/15/23 | | 1,540,000 | | | 1,715,175 | |
Sprint Capital 8.75% 3/15/32 | | 470,000 | | | 585,738 | |
T-Mobile USA | | | | | | |
6.00% 4/15/24 | | 640,000 | | | 669,606 | |
6.375% 3/1/25 = | | 1,145,000 | | | 0 | |
6.50% 1/15/26 | | 1,070,000 | | | 1,141,904 | |
6.50% 1/15/26 = | | 100,000 | | | 0 | |
Vodafone Group 7.00% 4/4/79 µ | | 680,000 | | | 745,545 | |
Zayo Group 6.375% 5/15/25 | | 1,389,000 | | | 1,429,142 | |
| | | | | | |
| | | | | 13,956,932 | |
| | | | | | |
Consumer Cyclical – 6.70% | | | | | | |
AMC Entertainment Holdings 6.125% 5/15/27 | | 1,900,000 | | | 1,711,187 | |
Boyd Gaming 6.00% 8/15/26 | | 1,450,000 | | | 1,520,687 | |
ESH Hospitality 144A 5.25% 5/1/25 # | | 965,000 | | | 995,156 | |
Golden Nugget 144A 8.75% 10/1/25 # | | 1,196,000 | | | 1,255,800 | |
Hilton Domestic Operating 144A 4.875% 1/15/30 # | | 495,000 | | | 509,850 | |
MGM Growth Properties Operating Partnership 144A 5.75% 2/1/27 # | | 1,445,000 | | | 1,560,976 | |
MGM Resorts International 5.75% 6/15/25 | | 1,075,000 | | | 1,167,396 | |
Scientific Games International | | | | | | |
144A 8.25% 3/15/26 # | | 1,455,000 | | | 1,560,895 | |
10.00% 12/1/22 | | 1,463,000 | | | 1,530,693 | |
13
Schedule of investments
Delaware High-Yield Opportunities Fund
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | |
| |
Consumer Cyclical(continued) | | | | | | |
William Carter 144A 5.625% 3/15/27 # | | 1,025,000 | | $ | 1,078,813 | |
| | | | | | |
| | | | | 12,891,453 | |
| | | | | | |
ConsumerNon-Cyclical – 2.34% | | | | | | |
JBS USA LUX | | | | | | |
144A 5.50% 1/15/30 # | | 490,000 | | | 490,367 | |
144A 5.75% 6/15/25 # | | 180,000 | | | 186,525 | |
144A 6.50% 4/15/29 # | | 675,000 | | | 726,469 | |
144A 6.75% 2/15/28 # | | 1,055,000 | | | 1,138,081 | |
Pilgrim’s Pride 144A 5.75% 3/15/25 # | | 935,000 | | | 967,725 | |
Post Holdings 144A 5.50% 12/15/29 # | | 970,000 | | | 984,550 | |
| | | | | | |
| | | | | 4,493,717 | |
| | | | | | |
Energy – 14.82% | | | | | | |
AmeriGas Partners 5.875% 8/20/26 | | 1,165,000 | | | 1,240,725 | |
Cheniere Corpus Christi Holdings 7.00% 6/30/24 | | 985,000 | | | 1,122,920 | |
Cheniere Energy Partners 5.25% 10/1/25 | | 1,555,000 | | | 1,617,231 | |
Chesapeake Energy | | | | | | |
7.00% 10/1/24 | | 430,000 | | | 350,987 | |
8.00% 1/15/25 | | 1,415,000 | | | 1,216,900 | |
Crestwood Midstream Partners 144A 5.625% 5/1/27 # | | 1,065,000 | | | 1,057,119 | |
DCP Midstream Operating 5.125% 5/15/29 | | 1,010,000 | | | 1,041,563 | |
Diamond Offshore Drilling 7.875% 8/15/25 | | 1,525,000 | | | 1,460,187 | |
Genesis Energy 6.50% 10/1/25 | | 1,575,000 | | | 1,569,094 | |
Gulfport Energy 6.375% 1/15/26 | | 770,000 | | | 587,125 | |
Murphy Oil | | | | | | |
5.625% 12/1/42 | | 1,655,000 | | | 1,489,500 | |
6.875% 8/15/24 | | 1,370,000 | | | 1,438,363 | |
Murphy Oil USA 5.625% 5/1/27 | | 1,475,000 | | | 1,548,750 | |
NuStar Logistics 6.00% 6/1/26 | | 1,265,000 | | | 1,337,737 | |
Oasis Petroleum 144A 6.25% 5/1/26 # | | 1,050,000 | | | 1,000,020 | |
Precision Drilling 144A 7.125% 1/15/26 # | | 1,870,000 | | | 1,785,850 | |
Southwestern Energy 7.75% 10/1/27 | | 1,780,000 | | | 1,553,620 | |
Summit Midstream Holdings 5.75% 4/15/25 | | 990,000 | | | 856,350 | |
Targa Resources Partners | | | | | | |
5.375% 2/1/27 | | 1,215,000 | | | 1,269,675 | |
5.875% 4/15/26 | | 950,000 | | | 1,006,715 | |
Transocean | | | | | | |
144A 7.25% 11/1/25 # | | 1,030,000 | | | 972,063 | |
144A 9.00% 7/15/23 # | | 450,000 | | | 475,182 | |
Valaris 7.75% 2/1/26 | | 1,250,000 | | | 918,750 | |
Whiting Petroleum 6.625% 1/15/26 | | 1,678,000 | | | 1,589,905 | |
| | | | | | |
| | | | | 28,506,331 | |
| | | | | | |
14
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | |
| |
Healthcare – 10.74% | | | | | | |
Bausch Health 144A 5.50% 11/1/25 # | | 1,985,000 | | $ | 2,071,844 | |
Catalent Pharma Solutions 144A 5.00% 7/15/27 # | | 330,000 | | | 339,900 | |
Charles River Laboratories International 144A 5.50% 4/1/26 # | | 2,275,000 | | | 2,411,500 | |
Eagle Holding II 144A PIK 7.75% 5/15/22 #T | | 1,010,000 | | | 1,021,363 | |
Encompass Health | | | | | | |
5.75% 11/1/24 | | 765,000 | | | 776,490 | |
5.75% 9/15/25 | | 1,185,000 | | | 1,238,325 | |
Hadrian Merger 144A 8.50% 5/1/26 # | | 1,095,000 | | | 1,055,306 | |
HCA | | | | | | |
5.375% 2/1/25 | | 795,000 | | | 861,748 | |
5.875% 2/15/26 | | 1,490,000 | | | 1,653,900 | |
5.875% 2/1/29 | | 525,000 | | | 586,687 | |
7.58% 9/15/25 | | 690,000 | | | 805,575 | |
Hill-Rom Holdings | | | | | | |
144A 5.00% 2/15/25 # | | 590,000 | | | 612,863 | |
144A 5.75% 9/1/23 # | | 780,000 | | | 806,325 | |
IQVIA 144A 5.00% 5/15/27 # | | 840,000 | | | 877,699 | |
Surgery Center Holdings 144A 6.75% 7/1/25 # | | 540,000 | | | 481,950 | |
Tenet Healthcare | | | | | | |
5.125% 5/1/25 | | 385,000 | | | 384,600 | |
8.125% 4/1/22 | | 2,015,000 | | | 2,158,569 | |
Teva Pharmaceutical Finance Netherlands III 6.00% 4/15/24 | | 780,000 | | | 723,606 | |
WellCare Health Plans 144A 5.375% 8/15/26 # | | 1,690,000 | | | 1,791,620 | |
| | | | | | |
| | | | | 20,659,870 | |
| | | | | | |
Insurance – 2.64% | | | | | | |
Acrisure 144A 7.00% 11/15/25 # | | 575,000 | | | 530,437 | |
GTCR AP Finance 144A 8.00% 5/15/27 # | | 660,000 | | | 676,500 | |
HUB International 144A 7.00% 5/1/26 # | | 1,895,000 | | | 1,931,706 | |
USI 144A 6.875% 5/1/25 # | | 1,950,000 | | | 1,940,640 | |
| | | | | | |
| | | | | 5,079,283 | |
| | | | | | |
Media – 12.16% | | | | | | |
Altice Luxembourg | | | | | | |
144A 7.625% 2/15/25 # | | 540,000 | | | 531,247 | |
144A 7.75% 5/15/22 # | | 366,000 | | | 374,693 | |
CCO Holdings | | | | | | |
144A 5.375% 6/1/29 # | | 930,000 | | | 966,037 | |
144A 5.50% 5/1/26 # | | 25,000 | | | 26,156 | |
144A 5.75% 2/15/26 # | | 1,815,000 | | | 1,916,567 | |
144A 5.875% 5/1/27 # | | 560,000 | | | 588,700 | |
Clear Channel Worldwide Holdings 144A 9.25% 2/15/24 # | | 1,315,000 | | | 1,430,063 | |
15
Schedule of investments
Delaware High-Yield Opportunities Fund
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | |
| |
Media(continued) | | | | | | |
CSC Holdings | | | | | | |
144A 5.75% 1/15/30 # | | 990,000 | | $ | 1,008,563 | |
6.75% 11/15/21 | | 905,000 | | | 970,613 | |
144A 7.50% 4/1/28 # | | 880,000 | | | 973,500 | |
144A 7.75% 7/15/25 # | | 725,000 | | | 781,187 | |
Cumulus Media New Holdings 144A 6.75% 7/1/26 # | | 985,000 | | | 1,008,394 | |
Diamond Sports Group 144A 6.625% 8/15/27 # | | 1,685,000 | | | 1,731,337 | |
Gray Television 144A 7.00% 5/15/27 # | | 985,000 | | | 1,079,806 | |
Netflix 144A 5.375% 11/15/29 # | | 335,000 | | | 353,425 | |
Nexstar Escrow 144A 5.625% 7/15/27 # | | 1,655,000 | | | 1,719,131 | |
Outfront Media Capital 144A 5.00% 8/15/27 # | | 580,000 | | | 590,150 | |
Radiate Holdco 144A 6.625% 2/15/25 # | | 1,547,000 | | | 1,535,397 | |
Scripps Escrow 144A 5.875% 7/15/27 # | | 660,000 | | | 668,375 | |
Sirius XM Radio | | | | | | |
144A 4.625% 7/15/24 # | | 495,000 | | | 510,741 | |
144A 5.375% 4/15/25 # | | 1,600,000 | | | 1,666,000 | |
Virgin Media Secured Finance | | | | | | |
144A 5.25% 1/15/26 # | | 985,000 | | | 1,009,625 | |
144A 5.50% 5/15/29 # | | 950,000 | | | 975,650 | |
VTR Finance 144A 6.875% 1/15/24 # | | 951,000 | | | 985,474 | |
| | | | | | |
| | | | | 23,400,831 | |
| | | | | | |
Real Estate – 0.89% | | | | | | |
HAT Holdings I 144A 5.25% 7/15/24 # | | 1,640,000 | | | 1,713,800 | |
| | | | | | |
| | | | | 1,713,800 | |
| | | | | | |
Services – 6.08% | | | | | | |
Advanced Disposal Services 144A 5.625% 11/15/24 # | | 1,210,000 | | | 1,276,187 | |
Ashtead Capital 144A 5.25% 8/1/26 # | | 965,000 | | | 1,013,250 | |
Avis Budget Car Rental 144A 6.375% 4/1/24 # | | 360,000 | | | 378,000 | |
Clean Harbors | | | | | | |
144A 4.875% 7/15/27 # | | 580,000 | | | 599,500 | |
144A 5.125% 7/15/29 # | | 580,000 | | | 612,799 | |
Covanta Holding 6.00% 1/1/27 | | 940,000 | | | 975,250 | |
Iron Mountain US Holdings 144A 5.375% 6/1/26 # | | 1,770,000 | | | 1,796,550 | |
Prime Security Services Borrower | | | | | | |
144A 5.75% 4/15/26 # | | 485,000 | | | 507,455 | |
144A 9.25% 5/15/23 # | | 348,000 | | | 366,270 | |
Staples 144A 10.75% 4/15/27 # | | 675,000 | | | 700,313 | |
TMS International Holding 144A 7.25% 8/15/25 # | | 905,000 | | | 871,063 | |
United Rentals North America 5.50% 5/15/27 | | 875,000 | | | 916,300 | |
16
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Corporate Bonds(continued) | | | | | | |
| |
Services(continued) | | | | | | |
United Rentals North America | | | | | | |
5.875% 9/15/26 | | 865,000 | | $ | 923,388 | |
6.50% 12/15/26 | | 700,000 | | | 759,290 | |
| | | | | | |
| | | | | 11,695,615 | |
| | | | | | |
Technology & Electronics – 4.32% | | | | | | |
Banff Merger 144A 9.75% 9/1/26 # | | 545,000 | | | 490,159 | |
Broadcom 3.50% 1/15/28 | | 985,000 | | | 928,011 | |
CDK Global 5.875% 6/15/26 | | 1,360,000 | | | 1,451,800 | |
CommScope 144A 8.25% 3/1/27 # | | 765,000 | | | 756,394 | |
CommScope Technologies | | | | | | |
144A 5.00% 3/15/27 # | | 290,000 | | | 244,687 | |
144A 6.00% 6/15/25 # | | 910,000 | | | 832,650 | |
Micron Technology 4.663% 2/15/30 | | 985,000 | | | 995,612 | |
RP Crown Parent 144A 7.375% 10/15/24 # | | 1,537,000 | | | 1,602,323 | |
SS&C Technologies 144A 5.50% 9/30/27 # | | 963,000 | | | 1,003,326 | |
| | | | | | |
| | | | | 8,304,962 | |
| | | | | | |
Transportation – 1.41% | | | | | | |
Avolon Holdings Funding | | | | | | |
144A 4.375% 5/1/26 # | | 675,000 | | | 698,942 | |
144A 5.25% 5/15/24 # | | 525,000 | | | 564,858 | |
DAE Funding 144A 5.75% 11/15/23 # | | 1,060,000 | | | 1,116,975 | |
VistaJet Malta Finance 144A 10.50% 6/1/24 # | | 335,000 | | | 332,488 | |
| | | | | | |
| | | | | 2,713,263 | |
| | | | | | |
Utilities – 2.98% | | | | | | |
Calpine | | | | | | |
5.75% 1/15/25 | | 685,000 | | | 687,569 | |
144A 5.875% 1/15/24 # | | 1,650,000 | | | 1,691,250 | |
Vistra Operations | | | | | | |
144A 5.00% 7/31/27 # | | 1,352,000 | | | 1,387,490 | |
144A 5.50% 9/1/26 # | | 1,278,000 | | | 1,338,705 | |
144A 5.625% 2/15/27 # | | 595,000 | | | 629,956 | |
| | | | | | |
| | | | | 5,734,970 | |
| | | | | | |
Total Corporate Bonds(cost $175,608,487) | | | | | 179,187,145 | |
| | | | | | |
| | | | | | |
| |
Loan Agreements – 4.05% | | | | | | |
| |
Air Medical Group Holdings Tranche B 1st Lien 5.564% (LIBOR01M + 3.25%) 4/28/22 ● | | 403,129 | | | 390,699 | |
Applied Systems 2nd Lien 9.33% (LIBOR03M + 7.00%) 9/19/25 ● | | 2,270,000 | | | 2,300,645 | |
Blue Ribbon 1st Lien 6.388% (LIBOR01M + 4.00%) 11/13/21 ● | | 475,747 | | | 427,459 | |
17
Schedule of investments
Delaware High-Yield Opportunities Fund
| | | | | | |
| | | Principal amount° | | Value (US $) | |
| |
Loan Agreements(continued) | | | | | | |
| |
Frontier Communications Tranche B1 1st Lien 5.99% (LIBOR01M + 3.75%) 6/15/24 ● | | 507,975 | | $ | 502,956 | |
Kronos 2nd Lien 10.829% (LIBOR03M + 8.25%) 11/1/24 ● | | 883,000 | | | 912,580 | |
Panther BF Aggregator 2 Tranche B 1st Lien 5.734% (LIBOR01M + 3.50%) 4/30/26 ● | | 570,000 | | | 570,884 | |
Stars Group Holdings Tranche B 1st Lien 5.83% (LIBOR03M + 3.50%) 7/10/25 ● | | 924,906 | | | 930,687 | |
Summit Midstream Partners Holdings Tranche B 1st Lien 8.234% (LIBOR01M + 6.00%) 5/21/22 ● | | 495,498 | | | 489,304 | |
Vantage Specialty Chemicals 2nd Lien 10.58% (LIBOR03M + 8.25%) 10/26/25 ● | | 560,000 | | | 540,400 | |
Verscend Holding Tranche B 1st Lien 6.734% (LIBOR01M + 4.50%) 8/27/25 ● | | 712,106 | | | 716,551 | |
| | | | | | |
Total Loan Agreements(cost $7,846,887) | | | | | 7,782,165 | |
| | | | | | |
| | |
| | | Number of shares | | | |
| |
Common Stock – 0.00% | | | | | | |
| |
Century Communications =† | | 4,250,000 | | | 0 | |
| | | | | | |
Total Common Stock(cost $128,662) | | | | | 0 | |
| | | | | | |
| | | | | | |
| |
Short-Term Investments – 2.73% | | | | | | |
| |
Money Market Mutual Funds – 2.73% | | | | | | |
BlackRock FedFund - Institutional Shares(seven-day effective yield 2.23%) | | 1,050,386 | | | 1,050,156 | |
Fidelity Investments Money Market Government Portfolio - Class I(seven-day effective yield 2.19%) | | 1,050,386 | | | 1,050,150 | |
GS Financial Square Government Fund - Institutional Shares(seven-day effective yield 2.23%) | | 1,050,386 | | | 1,050,155 | |
Morgan Stanley Government Portfolio - Institutional Class(seven-day effective yield 2.21%) | | 1,050,386 | | | 1,050,153 | |
State Street Institutional US Government Money Market Fund - Investor Class(seven-day effective yield 2.18%) | | 1,050,386 | | | 1,050,147 | |
| | | | | | |
Total Short-Term Investments(cost $5,250,761) | | | | | 5,250,761 | |
| | | | | | |
| | |
Total Value of Securities – 99.91%
(cost $188,834,797) | | | | $ | 192,220,071 | |
| | | | | | |
| # | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At July 31, 2019, the aggregate value of Rule 144A securities was $107,923,211, which represents 56.09% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
| T | PIK. The first payment of cash and/or principal will be made after July 31, 2019. |
| = | The value of this security was determined using significant unobservable inputs and is reported as a Level 3 security in the disclosure table located in Note 3 in “Notes to financial statements.” |
18
| ° | Principal amount shown is stated in USD unless noted that the security is denominated in another currency. |
| µ | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at July 31, 2019. Rate will reset at a future date. |
| y | No contractual maturity date. |
| † | Non-income producing security. |
| ● | | Variable rate investment. Rates reset periodically. Rate shown reflects the rate in effect at July 31, 2019. For securities based on a published reference rate and spread, the reference rate and spread are indicated in their description above. The reference rate descriptions (i.e. LIBOR03M, LIBOR06M, etc.) used in this report are identical for different securities, but the underlying reference rates may differ due to the timing of the reset period. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions, or for mortgage-backed securities, are impacted by the individual mortgages which are paying off over time. These securities do not indicate a reference rate and spread in their description above. |
Summary of abbreviations:
GS – Goldman Sachs
ICE – Intercontinental Exchange
LIBOR – London Interbank Offered Rate
LIBOR01M – ICE LIBOR USD 1 Month
LIBOR03M – ICE LIBOR USD 3 Month
LIBOR06M – ICE LIBOR USD 6 Month
PIK –Pay-in-kind
USD – US Dollar
See accompanying notes, which are an integral part of the financial statements.
19
| | |
| Statement of assets and liabilities |
| Delaware High-Yield Opportunities Fund | | July 31, 2019 |
| | | | |
Assets: | | | | |
Investments, at value1 | | $ | 192,220,071 | |
Cash | | | 2,868 | |
Receivable for securities sold | | | 4,357,748 | |
Interest receivable | | | 3,059,877 | |
Receivable for fund shares sold | | | 66,612 | |
| | | | |
Total assets | | | 199,707,176 | |
| | | | |
| |
Liabilities: | | | | |
Payable for securities purchased | | | 6,770,000 | |
Distribution payable | | | 247,314 | |
Other accrued expenses | | | 95,678 | |
Investment management fees payable to affiliates | | | 83,415 | |
Payable for fund shares redeemed | | | 63,056 | |
Distribution fees payable to affiliates | | | 45,897 | |
Dividend disbursing and transfer agent fees and expenses payable to affiliates | | | 1,598 | |
Accounting and administration expenses payable to affiliates | | | 954 | |
Trustees’ fees and expenses payable to affiliates | | | 632 | |
Legal fees payable to affiliates | | | 220 | |
Reports and statements to shareholders expenses payable to affiliates | | | 101 | |
| | | | |
Total liabilities | | | 7,308,865 | |
| | | | |
Total Net Assets | | $ | 192,398,311 | |
| | | | |
| |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 254,516,290 | |
Total distributable earnings (loss) | | | (62,117,979 | ) |
| | | | |
Total Net Assets | | $ | 192,398,311 | |
| | | | |
20
| | | | |
Net Asset Value | | | | |
Class A: | | | | |
Net assets | | $ | 121,500,054 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 32,280,843 | |
Net asset value per share | | $ | 3.76 | |
Sales charge | | | 4.50 | % |
Offering price per share, equal to net asset value per share / (1 – sales charge) | | $ | 3.94 | |
| |
Class C: | | | | |
Net assets | | $ | 21,170,328 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 5,619,018 | |
Net asset value per share | | $ | 3.77 | |
| |
Class R: | | | | |
Net assets | | $ | 4,805,363 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 1,272,553 | |
Net asset value per share | | $ | 3.78 | |
| |
Institutional Class: | | | | |
Net assets | | $ | 44,922,566 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 11,939,069 | |
Net asset value per share | | $ | 3.76 | |
1Investments, at cost | | $ | 188,834,797 | |
See accompanying notes, which are an integral part of the financial statements.
21
| | |
| Statement of operations |
Delaware High-Yield Opportunities Fund | | Year ended July 31, 2019 |
| | | | |
Investment Income: | | | | |
Interest | | $ | 12,892,072 | |
Dividends | | | 73,609 | |
| | | | |
| | | 12,965,681 | |
| | | | |
| |
Expenses: | | | | |
Management fees | | | 1,308,673 | |
Distribution expenses — Class A | | | 306,715 | |
Distribution expenses — Class C | | | 223,855 | |
Distribution expenses — Class R | | | 25,429 | |
Dividend disbursing and transfer agent fees and expenses | | | 213,346 | |
Accounting and administration expenses | | | 76,561 | |
Registration fees | | | 63,144 | |
Reports and statements to shareholders expenses | | | 49,738 | |
Audit and tax fees | | | 48,030 | |
Legal fees | | | 11,419 | |
Trustees’ fees and expenses | | | 11,335 | |
Custodian fees | | | 6,499 | |
Other | | | 30,337 | |
| | | | |
| | | 2,375,081 | |
Less expenses waived | | | (427,074 | ) |
Less expenses paid indirectly | | | (1,637 | ) |
| | | | |
Total operating expenses | | | 1,946,370 | |
| | | | |
Net Investment Income | | | 11,019,311 | |
| | | | |
| |
Net Realized and Unrealized Gain (Loss): | | | | |
Net realized loss on investments* | | | (2,486,334 | ) |
Net change in unrealized appreciation (depreciation) of investments | | | 4,774,095 | |
| | | | |
Net Realized and Unrealized Gain | | | 2,287,761 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 13,307,072 | |
| | | | |
*Includes $1,836,309 related to the General Motors term loan litigation. See Note 11 in “Notes to financial statements.”
See accompanying notes, which are an integral part of the financial statements.
22
This page intentionally left blank.
Statements of changes in net assets
Delaware High-Yield Opportunities Fund
| | | | | | | | |
| | | Year ended | |
| | |
| | | 7/31/19 | | | 7/31/18 | |
| | |
Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
Net investment income | | $ | 11,019,311 | | | $ | 12,700,496 | |
Net realized gain (loss) | | | (2,486,334 | ) | | | 1,269,783 | |
Net change in unrealized appreciation (depreciation) | | | 4,774,095 | | | | (12,353,413 | ) |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 13,307,072 | | | | 1,616,866 | |
| | | | | | | | |
| | |
Dividends and Distributions to Shareholders from: | | | | | | | | |
Distributable earnings*: | | | | | | | | |
Class A | | | (6,938,397 | ) | | | (7,439,265 | ) |
Class C | | | (1,095,137 | ) | | | (1,551,349 | ) |
Class R | | | (274,105 | ) | | | (333,829 | ) |
Institutional Class | | | (3,005,584 | ) | | | (3,779,252 | ) |
| | |
Return of capital: | | | | | | | | |
Class A | | | (45,110 | ) | | | (19,548 | ) |
Class C | | | (7,852 | ) | | | (3,750 | ) |
Class R | | | (1,778 | ) | | | (871 | ) |
Institutional Class | | | (16,684 | ) | | | (8,979 | ) |
| | | | | | | | |
| | | (11,384,647 | ) | | | (13,136,843 | ) |
| | | | | | | | |
| | |
Capital Share Transactions: | | | | | | | | |
Proceeds from shares sold: | | | | | | | | |
Class A | | | 6,106,317 | | | | 12,107,867 | |
Class C | | | 1,341,190 | | | | 960,599 | |
Class R | | | 852,038 | | | | 1,225,557 | |
Institutional Class | | | 11,842,227 | | | | 17,356,410 | |
24
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
| | |
Capital Share Transactions (continued): | | | | | | | | |
Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | $ | 6,083,698 | | | $ | 6,417,737 | |
Class C | | | 1,048,731 | | | | 1,480,041 | |
Class R | | | 274,409 | | | | 334,575 | |
Institutional Class | | | 2,803,657 | | | | 3,652,109 | |
| | | | | | | | |
| | | 30,352,267 | | | | 43,534,895 | |
| | | | | | | | |
| | |
Cost of shares redeemed: | | | | | | | | |
Class A | | | (23,283,058 | ) | | | (37,031,870 | ) |
Class C | | | (6,619,020 | ) | | | (15,175,276 | ) |
Class R | | | (2,215,736 | ) | | | (2,920,937 | ) |
Institutional Class | | | (30,182,131 | ) | | | (37,837,824 | ) |
| | | | | | | | |
| | | (62,299,945 | ) | | | (92,965,907 | ) |
| | | | | | | | |
Decrease in net assets derived from capital share transactions | | | (31,947,678 | ) | | | (49,431,012 | ) |
| | | | | | | | |
Net Decrease in Net Assets | | | (30,025,253 | ) | | | (60,950,989 | ) |
| | |
Net Assets: | | | | | | | | |
Beginning of year | | | 222,423,564 | | | | 283,374,553 | |
| | | | | | | | |
End of year1 | | $ | 192,398,311 | | | $ | 222,423,564 | |
| | | | | | | | |
| 1 | Net Assets – End of year includes distributions in excess of net investment income of $318,622 in 2018. The Securities and Exchange Commission eliminated the requirement to disclose undistributed (distributions in excess of) net investment income in 2018. |
| * | For the year ended July 31, 2019, the Fund has adopted amendments to Regulation S-X (see Note 12 in “Notes to financial statements”). For the year ended July 31, 2018, the dividends and distributions to shareholders were as follows: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Institutional | |
| | | Class A | | | Class C | | | Class R | | | Class | |
Dividends from net investment income | | $ | (7,439,265 | ) | | $ | (1,551,349 | ) | | $ | (333,829 | ) | | $ | (3,779,252 | ) |
See accompanying notes, which are an integral part of the financial statements.
25
Financial highlights
Delaware High-Yield Opportunities Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return6 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $45,110 were made by the Fund’s Class A shares, which calculated to $(0.001) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $19,548 were made by the Fund’s Class A shares, which calculated to $(0.001) per share. |
| 4 | For the year ended July 31, 2017, return of capital distributions of $47,292 were made by the Fund’s Class A shares, which calculated to $(0.001) per share. |
| 5 | For the year ended July 31, 2016, return of capital distributions of $150,785 were made by the Fund’s Class A shares, which calculated to $(0.003) per share. |
| 6 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
26
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | |
| |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 3.71 | | | | | $ | 3.89 | | | | | $ | 3.74 | | | | | $ | 3.95 | | | | | $ | 4.38 | |
| | | | | | | | | |
| | | 0.20 | | | | | | 0.20 | | | | | | 0.21 | | | | | | 0.22 | | | | | | 0.24 | |
| | | 0.06 | | | | | | (0.18 | ) | | | | | 0.15 | | | | | | (0.22 | ) | | | | | (0.37 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.26 | | | | | | 0.02 | | | | | | 0.36 | | | | | | — | | | | | | (0.13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.21 | ) | | | | | (0.20 | ) | | | | | (0.21 | ) | | | | | (0.21 | ) | | | | | (0.24 | ) |
| | | — | 2 | | | | | — | 3 | | | | | — | 4 | | | | | — | 5 | | | | | — | |
| | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.21 | ) | | | | | (0.20 | ) | | | | | (0.21 | ) | | | | | (0.21 | ) | | | | | (0.30 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 3.76 | | | | | $ | 3.71 | | | | | $ | 3.89 | | | | | $ | 3.74 | | | | | $ | 3.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 7.25% | | | | | | 0.58% | | | | | | 9.83% | | | | | | 0.41% | | | | | | (3.15% | ) |
| | | | | | | | | |
| | $ | 121,500 | | | | | $ | 131,149 | | | | | $ | 156,157 | | | | | $ | 173,815 | | | | | $ | 238,290 | |
| | | 0.94% | | | | | | 1.02% | | | | | | 1.05% | | | | | | 1.06% | | | | | | 1.07% | |
| | | | | | | | | |
| | | 1.15% | | | | | | 1.15% | | | | | | 1.15% | | | | | | 1.15% | | | | | | 1.14% | |
| | | 5.50% | | | | | | 5.14% | | | | | | 5.42% | | | | | | 5.98% | | | | | | 5.78% | |
| | | | | | | | | |
| | | 5.29% | | | | | | 5.01% | | | | | | 5.32% | | | | | | 5.89% | | | | | | 5.71% | |
| | | 76% | | | | | | 96% | | | | | | 90% | | | | | | 109% | | | | | | 86% | |
|
| |
27
Financial highlights
Delaware High-Yield Opportunities Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return6 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $7,852 were made by the Fund’s Class C shares, which calculated to $(0.001) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $3,750 were made by the Fund’s Class C shares, which calculated to $(0.001) per share. |
| 4 | For the year ended July 31, 2017, return of capital distributions of $11,955 were made by the Fund’s Class C shares, which calculated to $(0.001) per share. |
| 5 | For the year ended July 31, 2016, return of capital distributions of $40,584 were made by the Fund’s Class C shares, which calculated to $(0.003) per share. |
| 6 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
28
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | |
| |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 3.72 | | | | | $ | 3.90 | | | | | $ | 3.74 | | | | | $ | 3.96 | | | | | $ | 4.39 | |
| | | | | | | | | |
| | | 0.17 | | | | | | 0.17 | | | | | | 0.18 | | | | | | 0.19 | | | | | | 0.21 | |
| | | 0.06 | | | | | | (0.18 | ) | | | | | 0.16 | | | | | | (0.23 | ) | | | | | (0.37 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.23 | | | | | | (0.01 | ) | | | | | 0.34 | | | | | | (0.04 | ) | | | | | (0.16 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.18 | ) | | | | | (0.17 | ) | | | | | (0.18 | ) | | | | | (0.18 | ) | | | | | (0.21 | ) |
| | | — | 2 | | | | | — | 3 | | | | | — | 4 | | | | | — | 5 | | | | | — | |
| | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.18 | ) | | | | | (0.17 | ) | | | | | (0.18 | ) | | | | | (0.18 | ) | | | | | (0.27 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 3.77 | | | | | $ | 3.72 | | | | | $ | 3.90 | | | | | $ | 3.74 | | | | | $ | 3.96 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 6.45% | | | | | | (0.16% | ) | | | | | 9.29% | | | | | | (0.59% | ) | | | | | (3.85% | ) |
| | | | | | | | | |
| | $ | 21,170 | | | | | $ | 25,186 | | | | | $ | 39,523 | | | | | $ | 46,842 | | | | | $ | 66,354 | |
| | | 1.69% | | | | | | 1.77% | | | | | | 1.80% | | | | | | 1.81% | | | | | | 1.82% | |
| | | | | | | | | |
| | | 1.90% | | | | | | 1.90% | | | | | | 1.90% | | | | | | 1.90% | | | | | | 1.89% | |
| | | 4.75% | | | | | | 4.39% | | | | | | 4.67% | | | | | | 5.23% | | | | | | 5.03% | |
| | | | | | | | | |
| | | 4.54% | | | | | | 4.26% | | | | | | 4.57% | | | | | | 5.14% | | | | | | 4.96% | |
| | | 76% | | | | | | 96% | | | | | | 90% | | | | | | 109% | | | | | | 86% | |
|
| |
29
Financial highlights
Delaware High-Yield Opportunities Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return6 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $1,778 were made by the Fund’s Class R shares, which calculated to $(0.001) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $871 were made by the Fund’s Class R shares, which calculated to $(0.001) per share. |
| 4 | For the year ended July 31, 2017, return of capital distributions of $2,273 were made by the Fund’s Class R shares, which calculated to $(0.001) per share. |
| 5 | For the year ended July 31, 2016, return of capital distributions of $7,580 were made by the Fund’s Class R shares, which calculated to $(0.003) per share. |
| 6 | Total 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 return during all of the periods shown reflects waivers by the manager. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
30
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | |
| |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 3.73 | | | | | $ | 3.90 | | | | | $ | 3.75 | | | | | $ | 3.97 | | | | | $ | 4.39 | |
| | | | | | | | | |
| | | 0.19 | | | | | | 0.19 | | | | | | 0.20 | | | | | | 0.21 | | | | | | 0.23 | |
| | | 0.06 | | | | | | (0.17 | ) | | | | | 0.15 | | | | | | (0.23 | ) | | | | | (0.36 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.25 | | | | | | 0.02 | | | | | | 0.35 | | | | | | (0.02 | ) | | | | | (0.13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.20 | ) | | | | | (0.19 | ) | | | | | (0.20 | ) | | | | | (0.20 | ) | | | | | (0.23 | ) |
| | | — | 2 | | | | | — | 3 | | | | | — | 4 | | | | | — | 5 | | | | | — | |
| | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.20 | ) | | | | | (0.19 | ) | | | | | (0.20 | ) | | | | | (0.20 | ) | | | | | (0.29 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 3.78 | | | | | $ | 3.73 | | | | | $ | 3.90 | | | | | $ | 3.75 | | | | | $ | 3.97 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 6.97% | | | | | | 0.62% | | | | | | 9.54% | | | | | | (0.09% | ) | | | | | (3.13% | ) |
| | | | | | | | | |
| | $ | 4,805 | | | | | $ | 5,863 | | | | | $ | 7,529 | | | | | $ | 8,766 | | | | | $
|
13,032 |
|
| | | 1.19% | | | | | | 1.27% | | | | | | 1.30% | | | | | | 1.31% | | | | | | 1.32% | |
| | | | | | | | | |
| | | 1.40% | | | | | | 1.40% | | | | | | 1.40% | | | | | | 1.40% | | | | | | 1.39% | |
| | | 5.25% | | | | | | 4.89% | | | | | | 5.17% | | | | | | 5.73% | | | | | | 5.53% | |
| | | | | | | | | |
| | | 5.04% | | | | | | 4.76% | | | | | | 5.07% | | | | | | 5.64% | | | | | | 5.46% | |
| | | 76% | | | | | | 96% | | | | | | 90% | | | | | | 109% | | | | | | 86% | |
|
| |
31
Financial highlights
Delaware High-Yield Opportunities Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Net realized gain |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return6 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $16,684 were made by the Fund’s Institutional Class shares, which calculated to $(0.001) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $8,979 were made by the Fund’s Institutional Class shares, which calculated to $(0.001) per share. |
| 4 | For the year ended July 31, 2017, return of capital distributions of $24,288 were made by the Fund’s Institutional Class shares, which calculated to $(0.001) per share. |
| 5 | For the year ended July 31, 2016, return of capital distributions of $89,798 were made by the Fund’s Institutional Class shares, which calculated to $(0.003) per share. |
| 6 | Total 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 return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
32
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended | |
| |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 3.71 | | | | | $ | 3.89 | | | | | $ | 3.74 | | | | | $ | 3.95 | | | | | $ | 4.38 | |
| | | | | | | | | |
| | | 0.21 | | | | | | 0.21 | | | | | | 0.22 | | | | | | 0.23 | | | | | | 0.25 | |
| | | 0.06 | | | | | | (0.18 | ) | | | | | 0.15 | | | | | | (0.22 | ) | | | | | (0.37 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.27 | | | | | | 0.03 | | | | | | 0.37 | | | | | | 0.01 | | | | | | (0.12 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.25 | ) |
| | | — | 2 | | | | | — | 3 | | | | | — | 4 | | | | | — | 5 | | | | | — | |
| | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | (0.06 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.22 | ) | | | | | (0.21 | ) | | | | | (0.22 | ) | | | | | (0.22 | ) | | | | | (0.31 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 3.76 | | | | | $ | 3.71 | | | | | $ | 3.89 | | | | | $ | 3.74 | | | | | $ | 3.95 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 7.52% | | | | | | 0.84% | | | | | | 10.08% | | | | | | 0.66% | | | | | | (2.91% | ) |
| | | | | | | | | |
| | $ | 44,923 | | | | | $ | 60,226 | | | | | $ | 80,166 | | | | | $ | 103,489 | | | | | $ | 147,069 | |
| | | 0.69% | | | | | | 0.77% | | | | | | 0.80% | | | | | | 0.81% | | | | | | 0.82% | |
| | | | | | | | | |
| | | 0.90% | | | | | | 0.90% | | | | | | 0.90% | | | | | | 0.90% | | | | | | 0.89% | |
| | | 5.75% | | | | | | 5.39% | | | | | | 5.67% | | | | | | 6.23% | | | | | | 6.03% | |
| | | | | | | | | |
| | | 5.54% | | | | | | 5.26% | | | | | | 5.57% | | | | | | 6.14% | | | | | | 5.96% | |
| | | 76% | | | | | | 96% | | | | | | 90% | | | | | | 109% | | | | | | 86% | |
| |
33
| | |
| Notes to financial statements | | |
| Delaware High-Yield Opportunities Fund | | July 31, 2019 |
Delaware Group® Income Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Corporate Bond Fund, Delaware Floating Rate 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 (Fund). The Fund is anopen-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R, and Institutional Class shares. Class A shares are sold with a maximumfront-end sales charge of 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) instead of afront-end sales charge of 1.00%, 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 C shares are sold with a CDSC of 1.00%, which will be incurred 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 Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.
Security Valuation— Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value.Open-end investment companies are valued at their published net asset value (NAV). Investments in repurchase agreements are generally valued at par, which approximates fair value, each business day. Other debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Generally, 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 Trust’s Board of Trustees (Board). 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 suspension of trading in a security. Restricted securities are valued at fair value using methods approved by the Board.
Federal Income Taxes— No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions
34
to shareholders. The Fund evaluates 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 are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or expected to be taken on the Fund’s federal income tax returns through the year ended July 31, 2019 and for all open tax years (years ended July 31, 2016–July 31, 2018), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in “Other expenses” on the “Statement of operations.” During the year ended July 31, 2019, the Fund did not incur any interest or tax penalties.
Class Accounting— Investment income and common expenses are allocated to the various 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 purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third partysub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. At July 31, 2019, the Fund held no investments in repurchase agreements.
Use of Estimates— The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
Other— Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 theex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively, over the lives of the respective securities using the effective interest method. The Fund declares dividends daily from net investment income and pays the dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on theex-dividend date.
35
Notes to financial statements
Delaware High-Yield Opportunities Fund
1. Significant Accounting Policies (continued)
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. The expenses paid under this arrangement are included on the “Statement of operations” under “Custodian fees” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, the Fund earned $1,085 under this arrangement.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expenses paid under this arrangement are included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, the Fund earned $552 under this arrangement.
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 Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly at the rates 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 all or a portion, if any, of its management fee and/or pay/reimburse the Fund to the extent necessary to ensure total annual operating expenses (excluding any distribution and service(12b-1) fees, acquired fund fees and expenses, taxes, interest, short sale dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations), from exceeding 0.69% of the Fund’s average daily net assets from Aug. 1, 2018 through July 31, 2019.* These waivers and reimbursements may only be terminated by agreement of DMC and the Fund. The waivers and reimbursements are accrued daily and received monthly.
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of all funds within the Delaware Funds at the following annual rates: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each Fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each fund then pays its portion of the remainder of the Total Fee on a relative NAV basis. This amount is included on the “Statement of operations” under “Accounting and administration expenses.” For the year ended July 31, 2019, the Fund was charged $11,615 for these services.
Effective May 30, 2019, DMC may seek investment advice and recommendations from its affiliates: Macquarie Investment Management Europe Limited, Macquarie Investment Management Austria Kapitalanlage AG, and Macquarie Investment Management Global Limited (together, the “AffiliatedSub-Advisors”). The Manager may also permit these AffiliatedSub-Advisors to execute Fund security
36
trades on behalf of the Manager and exercise investment discretion for securities in certain markets where DMC believes it will be beneficial to utilize an AffiliatedSub-Advisor’s specialized market knowledge. Although the AffiliatedSub-Advisors serve assub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, pays each AffiliatedSub-Advisor a portion of its investment management fee.
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the year ended July 31, 2019, the Fund was charged $18,145 for these services. Pursuant to asub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certainsub-transfer agency services to the Fund.Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” The fees that are calculated daily and paid as invoices are received on a monthly or quarterly basis.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, annual12b-1 fee of 0.25% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares, and 0.50% of the average daily net assets of the Class R shares. The Board has adopted a formula for calculating12b-1 fees for the Fund’s Class A shares that went into effect on June 1, 1992. The Fund’s Class A shares are currently subject to a blended12b-1 fee equal to the sum of: (i) 0.10% of the average daily net assets representing shares that were acquired prior to June 1, 1992, and (ii) 0.25% of the average daily net assets representing shares that were acquired on or after June 1, 1992. All Class A shareholders currently bear12b-1 fees at the same rate, the blended rate, currently 0.25% of average daily net assets, based on the formula described above. This method of calculating Class A12b-1 fees may be discontinued at the sole discretion of the Board. The fees are calculated daily and paid monthly. Institutional Class shares do not pay12b-1 fees.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended July 31, 2019, the Fund was charged $5,633 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
For the year ended July 31, 2019, DDLP earned $3,590 for commissions on sales of the Fund’s Class A shares. For the year ended July 31, 2019, DDLP received gross CDSC commissions of $2,224 and $243 on redemptions of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.
37
Notes to financial statements
Delaware High-Yield Opportunities Fund
2. Investment Management, Administration Agreements, and Other Transactions with Affiliates (continued)
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
In addition to the management fees and other expenses of the Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.
| * | The aggregate contractual waiver period covering this report is from April 1, 2018 through Nov. 28, 2019. |
3. Investments
For the year ended July 31, 2019, the Fund made purchases and sales of investment securities other than short-term investments as follows:
| | | | |
Purchases | | $ | 149,295,541 | |
Sales | | | 178,132,759 | |
The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At July 31, 2019, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:
| | | | |
Cost of investments | | $ | 189,270,435 | |
| | | | |
Aggregate unrealized appreciation of investments | | $ | 5,963,769 | |
Aggregate unrealized depreciation of investments | | | (3,014,133 | ) |
| | | | |
Net unrealized appreciation of investments | | $ | 2,949,636 | |
| | | | |
US GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized on the next page.
38
| | |
| Level 1 – | | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, and exchange-traded options contracts) |
| |
| Level 2 – | | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, and fair valued securities) |
| |
| Level 3 – | | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities and fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of July 31, 2019:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Securities | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Corporate Debt | | $ | — | | | $ | 179,187,145 | | | $ | — | | | $ | 179,187,145 | |
Loan Agreements | | | — | | | | 7,782,165 | | | | — | | | | 7,782,165 | |
Common Stock | | | — | | | | — | | | | — | | | | — | |
Short-Term Investments | | | 5,250,761 | | | | — | | | | — | | | | 5,250,761 | |
| | | | | | | | | | | | | | | | |
Total Value of Securities | | $ | 5,250,761 | | | $ | 186,969,310 | | | $ | — | | | $ | 192,220,071 | |
| | | | | | | | | | | | | | | | |
The securities that have been valued at zero on the “Schedule of investments” are considered to be Level 3 investments in the table.
During the year ended July 31, 2019, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to the Fund’s net assets. Management has determined not to provide a reconciliation of Level 3 investments as the Level 3 investments were not considered significant to the Fund’s net assets at the beginning, interim, or end of
39
Notes to financial statements
Delaware High-Yield Opportunities Fund
3. Investments (continued)
the year. Management has determined not to provide additional disclosure on Level 3 inputs since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the year.
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 US GAAP. Additionally, distributions from 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 years ended July 31, 2019 and 2018 was as follows:
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Ordinary income | | $ | 11,313,223 | | | $ | 13,103,695 | |
Return of Capital | | | 71,424 | | | | 33,148 | |
| | | | | | | | |
Total | | $ | 11,384,647 | | | $ | 13,136,843 | |
| | | | | | | | |
5. Components of Net Assets on a Tax Basis
As of July 31, 2019, the components of net assets on a tax basis were as follows:
| | | | |
Shares of beneficial interest | | $ | 254,516,290 | |
Distributions payable | | | (247,314 | ) |
Capital loss carryforwards | | | (64,820,301 | ) |
Unrealized appreciation of investments | | | 2,949,636 | |
| | | | |
Net assets | | $ | 192,398,311 | |
| | | | |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and market discount and premium on debt instruments.
Under the Regulated Investment Company Modernization Act of 2010 (Act), net capital losses recognized for tax years beginning after Dec. 22, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. At July 31, 2019, capital loss carryforwards available to offset future realized capital gains were as follows:
| | | | |
| Loss carryforward character |
| | |
| Short-term | | Long-term | | Total |
| | |
| $28,132,174 | | $36,688,127 | | $64,820,301 |
40
6. Capital Shares
Transactions in capital shares were as follows:
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
| | |
Shares sold: | | | | | | | | |
Class A | | | 1,671,550 | | | | 3,211,036 | |
Class C | | | 367,472 | | | | 253,065 | |
Class R | | | 231,650 | | | | 321,149 | |
Institutional Class | | | 3,243,838 | | | | 4,584,231 | |
| | |
Shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 1,660,331 | | | | 1,689,878 | |
Class C | | | 286,587 | | | | 388,712 | |
Class R | | | 74,710 | | | | 87,840 | |
Institutional Class | | | 766,672 | | | | 960,896 | |
| | | | | | | | |
| | | 8,302,810 | | | | 11,496,807 | |
| | | | | | | | |
| | |
Shares redeemed: | | | | | | | | |
Class A | | | (6,361,709 | ) | | | (9,720,408 | ) |
Class C | | | (1,807,954 | ) | | | (4,012,910 | ) |
Class R | | | (607,114 | ) | | | (764,317 | ) |
Institutional Class | | | (8,290,758 | ) | | | (9,935,540 | ) |
| | | | | | | | |
| | | (17,067,535 | ) | | | (24,433,175 | ) |
| | | | | | | | |
Net decrease | | | (8,764,725 | ) | | | (12,936,368 | ) |
| | | | | | | | |
Certain shareholders may exchange shares of one class for shares of another class in the same Fund. These exchange transactions are included as subscriptions and redemptions in the table above and on the “Statements of changes in net assets.” For the years ended July 31, 2019 and 2018, the Fund had the following exchange transactions:
| | | | | | | | | | | | | | | | | | | | |
| | | Exchange Redemptions | | | Exchange Subscriptions | | | | |
| | | | | |
| | | Class A | | | Class C | | | Class A | | | Institutional Class | | | | |
| Year ended | | Shares | | | Shares | | | Shares | | | Shares | | | Value | |
7/31/19 | | | 11,759 | | | | 10,932 | | | | 10,949 | | | | 11,796 | | | $ | 83,730 | |
7/31/18 | | | 15,062 | | | | 208,256 | | | | 203,482 | | | | 21,098 | | | | 837,328 | |
7. Line of Credit
The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The revolving line of credit available was reduced from $155,000,000 to $130,000,000 on Sept. 6, 2018. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants based on a weighted average of the respective net assets of each Participant. The Participants were permitted to
41
Notes to financial statements
Delaware High-Yield Opportunities Fund
7. Line of Credit (continued)
borrow up to a maximum ofone-third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 5, 2018.
On Nov. 5, 2018, the Participants entered into an amendment to the agreement for a $190,000,000 revolving line of credit. The revolving line of credit available was increased to $220,000,000 on Nov. 29, 2018. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 4, 2019.
The Fund had no amounts outstanding as of July 31, 2019 or at any time during the year then ended.
8. Securities Lending
The Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day, which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day, may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.
Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations; commercial paper, notes, bonds, and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. The Fund can also accept US government securities and letters of credit(non-cash collateral) in connection with securities loans.
42
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 or interest, as applicable, on the securities loaned and is subject to changes 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. With respect to security loans collateralized bynon-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent, and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of the Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.
During the year ended July 31, 2019, the Fund had no securities out on loan.
9. Credit and Market Risk
When interest rates rise, fixed income securities (i.e., debt obligations) generally will decline in value. These declines in value are greater for fixed income securities with longer maturities or durations.
The Fund invests in high yield fixed income securities, which are securities rated lower than BBB- by Standard & Poor’s Financial Services LLC and Baa3 by Moody’s Investors Service, Inc., or similarly rated by another nationally recognized statistical rating organization. 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 invests in bank loans and other securities that may subject it to direct indebtedness risk, the risk that the Fund will not receive payment of principal, interest, and other amounts due in connection with these investments and will depend primarily on the financial condition of the borrower. Loans that are fully secured offer the Fund more protection than unsecured loans in the event of nonpayment of scheduled interest or principal, although there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s obligation, or that the collateral can be liquidated. Some loans or claims may be in default at the time of purchase. Certain of the loans and the other direct indebtedness acquired by the Fund may involve revolving credit facilities or other standby financing commitments that obligate the Fund to pay additional cash on a certain date or on demand. These commitments may require the Fund to increase its investment in a company at a time when the Fund might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To the extent that the Fund is committed to advance additional funds, it will at all times hold and maintain cash or other high grade debt obligations in an
43
Notes to financial statements
Delaware High-Yield Opportunities Fund
9. Credit and Market Risk (continued)
amount sufficient to meet such commitments. When a loan agreement is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by the borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
As the Fund may be required to rely upon another lending institution to collect and pass on to the Fund amounts payable with respect to the loan and to enforce the Fund’s rights under the loan and other direct indebtedness, an insolvency, bankruptcy, or reorganization of the lending institution may delay or prevent the Fund from receiving such amounts. The highly leveraged nature of many loans may make them especially vulnerable to adverse changes in economic or market conditions. Investments in such loans and other direct indebtedness may involve additional risk to the Fund.
The Fund invests in certain obligations that may have liquidity protection designed to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies, or letters of credit obtained by the issuer or sponsor through third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of the security.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A promulgated under 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 Board has delegated to DMC theday-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. Rule 144A securities have been identified on the “Schedule of investments.” Restricted securities are valued pursuant to the security valuation procedures described in Note 1.
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.
11. General Motors Term Loan Litigation
The Fund received notice of a litigation proceeding related to a General Motors Corporation (G.M.) term loan participation previously held by the Fund in 2009. Because it was believed that the Fund was a secured creditor, the Fund received the full principal on the loans in 2009 after the G.M. bankruptcy. However, based upon a US Court of Appeals ruling the Motors Liquidation Company Avoidance Action
44
Trust sought to recover such amounts arguing that, the Fund was an unsecured creditor and, as an unsecured creditor, the Fund should not have received payment in full. Based on available information related to the litigation and the Fund’s potential exposure, the Fund previously recorded a contingent liability of $2,623,299 and an asset of $786,990 based on the potential recoveries by the estate that resulted in a net decrease in the Fund’s NAV to reflect this potential recovery.
During the period, the plaintiff and the term loan lenders, which included the Fund, reached an agreement in principle that resolved the disputes. The parties agreed to terms of a settlement agreement and presented the settlement agreement to the court for approval at a hearing on June 12, 2019. The court approved the settlement documentation and dismissed the case on July 2, 2019. The court’s approval of the settlement and dismissal of the case with prejudice became final on July 16, 2019.
The contingent liability and other asset were removed in connection with the case being settled, which resulted in the Fund recognizing a gain in the amount of the liability reversed.
12. Recent Accounting Pronouncements
In March 2017, the FASB issued an Accounting Standards Update (ASU), ASU2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain callable debt securities purchased at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the FASB issued an ASU2018-13, which changes certain fair value measurement disclosure requirements. The ASU2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Securities and Exchange Commission (SEC) adopted amendments to RegulationS-X to update and simplify the disclosure requirements for registered investment companies by eliminating requirements that are redundant or duplicative of US GAAP requirements or other SEC disclosure requirements. The new amendments require the presentation of the total, rather than the components, of distributable earnings on the “Statement of assets and liabilities” and the total, rather than the components, of dividends from net investment income and distributions from net realized gains on the “Statements of changes in net assets.” The amendments also removed the requirement for the parenthetical disclosure of undistributed net investment income on the “Statements of changes in net assets” and certain tax adjustments that were reflected in the “Notes to financial statements.” All of these have been reflected in the Fund’s financial statements.
45
Notes to financial statements
Delaware High-Yield Opportunities Fund
13. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to July 31, 2019, that would require recognition or disclosure in the Fund’s financial statements.
46
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Income Funds and Shareholders of Delaware High-Yield Opportunities Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware High-Yield Opportunities Fund (one of the funds constituting Delaware Group® Income Funds, referred to hereafter as the “Fund”) as of July 31, 2019, the related statement of operations for the year ended July 31, 2019, the statements of changes in net assets for each of the two years in the period ended July 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended July 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of July 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended July 31, 2019 and the financial highlights for each of the five years in the period ended July 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2019 by correspondence with the custodian, transfer agents and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 17, 2019
We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.
47
Other Fund information (Unaudited)
Delaware High-Yield Opportunities Fund
Tax Information
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of the Fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All disclosures are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended July 31, 2019, the Fund reports distributions paid during the year as follows:
| | | | |
(A) Ordinary Income Distribution (Tax Basis) | | | 99.37 | % |
(B) Return of Capital (Tax Basis) | | | 0.63 | % |
Total Distributions (Tax Basis) | | | 100.00 | % |
(A) and (B) are based on a percentage of the Fund’s total distributions.
For the fiscal year ended July 31, 2019, certain interest income paid by the Fund, determined to be Qualified Interest Income may be subject to relief from US withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004; the Tax Relief Unemployment Insurance Reauthorization, and Job Creations Act of 2010; and as extended by the American Taxpayer Relief Act of 2012. For the year ended July 31, 2019, the Fund has reported maximum distributions of Qualified Interest Income of $9,143,716.
Board consideration ofSub-Advisory agreements for Delaware High-Yield Opportunities Fund at a meeting held February27-28, 2019
At a meeting held on Feb.27-28, 2019, the Board of Trustees (the “Board”) of Delaware High-Yield Opportunities Fund (the “Fund”), including a majority ofnon-interested or independent Trustees (the “Independent Trustees”), approved newSub-Advisory Agreements between Delaware Management Company (“DMC” or “Management”) and Macquarie Investment Management Europe Limited (“MIMEL”), Macquarie Investment Management Austria Kapitalanlage (“MIMAK”), and Macquarie Investment Management Global Limited (“MIMGL”), respectively. MIMEL, MIMAK, and MIMGL may also be referenced as“Sub-Advisors” below.
In reaching the decision to approve theSub-Advisory Agreements, the Board considered and reviewed information about each of MIMEL, MIMAK, and MIMGL, including its personnel, operations, and financial condition, which had been provided by MIMEL, MIMAK, and MIMGL, respectively. The Board also reviewed material furnished by DMC in advance of the meeting, including: a memorandum from DMC reviewing theSub-Advisory Agreements and the various services proposed to be rendered by MIMEL, MIMAK, and MIMGL; information concerning MIMEL’s, MIMAK’s, and MIMGL’s organizational structure and the experience of their key investment management personnel; copies of MIMEL’s, MIMAK’s, and MIMGL’s Form ADV, financial statements, compliance policies and procedures, and Codes of Ethics;
48
relevant performance information provided with respect to MIMEL, MIMAK, and MIMGL; and a copy of theSub-Advisory Agreements.
In considering such information and materials, the Independent Trustees received assistance and advice from and met separately with their independent counsel. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision to approve theSub-Advisory Agreements. This discussion of the information and factors considered by the Board (as well as the discussion above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual Trustees may have assigned different weights to various factors.
Nature, extent, and quality of services.In considering the nature, extent, and quality of the services to be provided by theSub-Advisors, the Board reviewed the services to be provided by eachSub-Advisor pursuant to eachSub-Advisory Agreement and as described at the meeting. The Board reviewed materials provided by theSub-Advisors regarding the experience and qualifications of the personnel who will be responsible for providing services to the Fund. The Board also considered relevant performance information provided with respect to eachSub-Advisor. In discussing the nature of the services proposed to be provided by theSub-Advisors, it was observed that, unlike traditionalsub-advisors who make all of the investment related decisions with respect to asub-advised portfolio, the relationship between DMC (the Fund’s investment manager) and theSub-Advisors as currently contemplated is primarily more of a collaborative effort between DMC and theSub-Advisors and a cross pollination of investment ideas. The Board further noted the stated intention under the newSub-Advisory Agreements that DMC would have the sole discretion to delegate portions of the implementation of the Fund’s strategy to theSub-Advisors who would be permitted to execute Fund trades and exercise investment discretion pursuant to that delegation and subject to DMC oversight. However, DMC and the Fund’s named portfolio managers will continue to retain principal responsibility for the Fund’s strategy and investment process and be primarily responsible for theday-to-day management of the Fund’s portfolio. Based upon these considerations, the Board was satisfied with the nature and quality of the overall services to be provided by theSub-Advisors to the Fund and its shareholders and was confident in the abilities of theSub-Advisors to provide quality services to the Fund and its shareholders.
Investment performance.In regards to the appointment of theSub-Advisors for the Fund, the Board reviewed information on prior performance for theSub-Advisors. In evaluating performance, the Board considered that theSub-Advisors would provide investment advice and recommendations, including with respect to specific securities, but that DMC’s portfolio managers for the Fund would retain principal responsibility for the Fund’s strategy as described above. In addition, the Board considered that theSub-Advisors would also execute Fund security trades on behalf of DMC and be permitted by DMC to exercise investment discretion for securities in certain markets where DMC wanted to utilize aSub-Advisor’s specialized market knowledge.
Sub-Advisory fees.The Board considered that DMC would pay theSub-Advisors asub-advisory fee based on the extent to which aSub-Advisor provides services to the Fund as described in theSub-Advisory Agreements. In considering the appropriateness of thesub-advisory fees, the Board also reviewed and considered the fees in light of the nature, extent and quality of thesub-advisory services
49
Other Fund information (Unaudited)
Delaware High-Yield Opportunities Fund
Board consideration ofSub-Advisory agreements for Delaware High-Yield Opportunities Fund at a meeting held February27-28, 2019 (continued)
to be provided by eachSub-Advisor, as more fully discussed above. The Board noted that thesub-advisory fees are paid by DMC to eachSub-Advisor and are not additional fees borne by the Fund, and that the management fee paid by the Fund to DMC would stay the same at current asset levels. The Board was provided with information showing an estimate of thesub-advisory fees to be paid to eachSub-Advisor based on a projection ofSub-Advisor allocations given certain historical investment trends, as well as information regarding the expected impact thesub-advisory arrangements would have on the profitability of DMC. The Board also noted that, given the collaborative nature of the services to be provided by theSub-Advisors to the Fund, there were no comparable accounts and corresponding fees to which theSub-Advisors were able to compare this arrangement. The Board concluded that, in light of the quality and extent of the services to be provided and the business relationships between DMC and theSub-Advisors, the proposed fee arrangement was understandable and reasonable.
Profitability, economies of scale, andfall-out benefits.Information about eachSub-Advisor’s profitability from its relationship with the Fund was not available because it had not begun to provide services to the Fund. With regard to potentialfall-out benefits derived or to be derived by theSub-Advisors and their affiliates in connection with their relationship to the Fund, the Board considered the potential benefit to DMC and theSub-Advisors of marketing a global approach on the portfolio management of their fixed income investment strategies. The Trustees also noted that economies of scale are shared with the Fund and its shareholders through investment management fee breakpoints in DMC’s fee schedule for the Fund so that as the Fund grows in size, its effective investment management fee rate declines.
50
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Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Interested Trustee | | | | |
| Shawn K. Lytle1 | | President, | | President and |
| 2005 Market Street | | Chief Executive Officer, | | Chief Executive Officer |
| Philadelphia, PA 19103 | | and Trustee | | since August 2015 |
| February 1970 | | | | |
| | | | Trustee since September 2015 |
| | |
| | | | |
Independent Trustees | | | | |
| Thomas L. Bennett | | Chair and Trustee | | Trustee since |
| 2005 Market Street | | | | March 2005 |
| Philadelphia, PA 19103 | | | | |
| October 1947 | | | | Chair since |
| | | | | March 2015 |
| Jerome D. Abernathy | | Trustee | | Since January 2019 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| July 1959 | | | | |
| | |
| | | | | |
| Ann D. Borowiec | | Trustee | | Since March 2015 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| November 1958 | | | | |
| | |
| | | | | |
| 1 | Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor. |
52
for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| | | | |
| | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
| | |
President — Macquarie | | 59 | | Trustee — UBS |
Investment Management2 | | | | Relationship Funds, |
(June 2015–Present) | | | | SMA Relationship |
| | | | Trust, and UBS Funds |
Regional Head of | | | | (May 2010–April 2015) |
Americas —UBS Global | | | | |
Asset Management | | | | |
(April 2010–May 2015) | | | | |
| | | | |
Private Investor | | 59 | | None |
(March 2004–Present) | | | | |
| | |
| | | | | |
Managing Member, | | 59 | | None |
Stonebrook Capital | | | | |
Management, LLC (financial | | | | |
technology: macro factors | | | | |
and databases) | | | | |
(January 1993–Present) | | | | |
Chief Executive Officer, | | 59 | | Director — |
Private Wealth Management | | | | Banco Santander International |
(2011–2013) and | | | | (October 2016–Present) |
Market Manager, | | | | |
New Jersey Private | | | | Director — |
Bank (2005–2011 ) — | | | | Santander Bank, N.A. |
J.P. Morgan Chase & Co. | | | | (December 2016–Present) |
| 2 | Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent. |
53
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) | | | | |
| Joseph W. Chow | | Trustee | | Since January 2013 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| January 1953 | | | | |
| | |
| | | | | |
| | |
| John A. Fry | | Trustee | | Since January 2001 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| May 1960 | | | | |
| | |
| | | | | |
| Lucinda S. Landreth | | Trustee | | Since March 2005 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| June 1947 | | | | |
54
| | | | |
Principal Occupation(s) During the Past Five Years | | Number of Portfolios in Fund Complex Overseen by Trustee or Officer | | Other Directorships Held by Trustee or Officer |
| | | | |
Private Investor (April 2011–Present) | | 59 | | Director and Audit Committee Member — Hercules Technology Growth Capital, Inc. (July 2004–July 2014) |
President — Drexel University (August 2010–Present) | | 59 | | Director; Compensation Committee and Governance Committee Member — Community |
President — Franklin & Marshall College | | | | Health Systems (May 2004–present) |
| (July 2002–June 2010) | | | | |
| | | | Director — Drexel |
| | | | Morgan & Co. |
| | | | (2015–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — vTv |
| | | | Therapeutics Inc. |
| | | | (2017–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — FS Credit Real |
| | | | Estate Income Trust, Inc. |
| | | | | (2018–present) |
Private Investor (2004–Present) | | 59 | | None |
| | | | | |
55
Board of trustees / directors and officers addendum
Delaware Funds® by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) | | | | |
| Frances A. Sevilla-Sacasa | | Trustee | | Since September 2011 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| January 1956 | | | | |
| | |
| | | | | |
| Thomas K. Whitford | | Trustee | | Since January 2013 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| March 1956 | | | | |
| | |
| | | | | |
56
| | | | |
| | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
Private Investor | | 59 | | Trust Manager and |
(January 2017–Present) | | | | Audit Committee |
| | | | Chair — Camden |
Chief Executive Officer — | | | | Property Trust |
Banco Itaú | | | | (August 2011–Present) |
International | | | | |
(April 2012–December 2016) | | | | Director; Audit |
| | | | Committee Member — |
Executive Advisor to Dean | | | | Carrizo Oil & Gas, Inc. |
(August 2011–March 2012) | | | | (March 2018–Present) |
and Interim Dean | | | | |
(January 2011–July 2011) — | | | | |
University of Miami School of | | | | |
Business Administration | | | | |
| | |
President — U.S. Trust, | | | | |
Bank of America Private | | | | |
Wealth Management | | | | |
(Private Banking) | | | | |
(July 2007–December 2008) | | | | |
Vice Chairman | | 59 | | Director — HSBC North |
(2010–April 2013) — | | | | America Holdings Inc. |
PNC Financial | | | | (December 2013–Present) |
Services Group | | | | |
| | | | Director — HSBC USA Inc. |
| | | | (July 2014–Present) |
| | |
| | | | Director — |
| | | | HSBC Bank USA, |
| | | | National Association |
| | | | (July 2014–March 2017) |
| | |
| | | | Director — HSBC |
| | | | Finance Corporation |
| | | | | (December 2013–April 2018) |
57
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
| Independent Trustees (continued) | | | | |
| Christianna Wood | | Trustee | | Since January 2019 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| August 1959 | | | | |
58
| | | | |
| Principal Occupation(s) | | Number of Portfolios in Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | |
| | | | |
| Chief Executive Officer | | 59 | | Director; Finance Committee |
| and President — | | | | and Audit Committee |
| Gore Creek | | | | Member — H&R |
| Capital, Ltd. | | | | Block Corporation |
| (August 2009–Present) | | | | (July 2008–Present) |
| | |
| | | | Director; Chair of Investments |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | Grange Insurance |
| | | | (2013–Present) |
| | |
| | | | Trustee; Chair of |
| | | | Nominating and Governance |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | The Merger Fund |
| | | | (2013–Present), |
| | | | The Merger Fund VL |
| | | | (2013-Present), |
| | | | WCM Alternatives: |
| | | | Event-Driven Fund |
| | | | (2013–Present), |
| | | | and WCM Alternatives: |
| | | | Credit Event Fund |
| | | | (December 2017–Present) |
| | |
| | | | Director; Chair of |
| | | | Governance Committee |
| | | | and Audit Committee |
| | | | Member — International |
| | | | Securities Exchange |
| | | | | (2010–2016) |
59
Board of trustees / directors and officers addendum
Delaware Funds® by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) | | |
| Janet L. Yeomans | | Trustee | | Since April 1999 |
| 2005 Market Street | | | | |
| Philadelphia, PA 19103 | | | | |
| July 1948 | | | | |
| | |
| | | | |
Officers | | | | |
| David F. Connor | | Senior Vice President, | | Senior Vice President since |
| 2005 Market Street | | General Counsel, | | May 2013; General |
| Philadelphia, PA 19103 | | and Secretary | | Counsel since May 2015; |
| December 1963 | | | | Secretary since |
| | | | | October 2005 |
| Daniel V. Geatens | | Vice President | | Vice President and |
| 2005 Market Street | | and Treasurer | | Treasurer since October 2007 |
| Philadelphia, PA 19103 | | | | |
| October 1972 | | | | |
| | | | | |
| Richard Salus | | Senior Vice President | | Senior Vice President and |
| 2005 Market Street | | and Chief Financial Officer | | Chief Financial Officer |
| Philadelphia, PA 19103 | | | | since November 2006 |
| October 1963 | | | | |
| | | | | |
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800523-1918.
60
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | |
| | | | |
| Vice President and Treasurer | | 59 | | Director; Personnel and |
| (January 2006–July 2012), | | | | Compensation Committee |
| Vice President — | | | | Chair; Member of Nominating, |
| Mergers & Acquisitions | | | | Investments, and Audit |
| (January 2003–January 2006), | | | | Committees for various |
| and Vice President | | | | periods throughout |
| and Treasurer | | | | directorship — |
| (July 1995–January 2003) — | | | | Okabena Company |
| 3M Company | | | | (2009–2017) |
| | |
| | | | |
| David F. Connor has served | | 59 | | None3 |
| in various capacities at | | | | |
| different times at | | | | |
| Macquarie Investment | | | | |
Management. | | | | |
| Daniel V. Geatens has served | | 59 | | None3 |
| in various capacities at | | | | |
| different times at | | | | |
| Macquarie Investment | | | | |
Management. | | | | |
| Richard Salus has served | | 59 | | None3 |
| in various capacities | | | | |
| at different times at | | | | |
| Macquarie Investment | | | | |
| Management. | | | | |
| 3 | David F. Connor, Daniel V. Geatens, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. Mr. Geatens also serves as the Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which has an affiliated investment manager. |
61
About the organization
| | | | | | |
Board of trustees | | | | | | |
Shawn K. Lytle President and Chief Executive Officer Delaware Funds® by Macquarie Philadelphia, PA Thomas L. Bennett Chairman of the Board Delaware Funds by Macquarie Private Investor Rosemont, PA Jerome D. Abernathy Managing Member Stonebrook Capital Management, LLC Jersey City, NJ | | Ann D. Borowiec Former Chief Executive Officer Private Wealth Management J.P. Morgan Chase & Co. New York, NY Joseph W. Chow Former Executive Vice President State Street Corporation Boston, MA John A. Fry President Drexel University Philadelphia, PA | | Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. New York, NY Frances A. Sevilla-Sacasa Former Chief Executive Officer Banco Itaú International Miami, FL | | Thomas K. Whitford Former Vice Chairman PNC Financial Services Group Pittsburgh, PA Christianna Wood Chief Executive Officer and President Gore Creek Capital, Ltd. Golden, CO Janet L. Yeomans Former Vice President and Treasurer 3M Company St. Paul, MN |
| | | |
Affiliated officers | | | | | | |
| | | |
David F. Connor | | Daniel V. Geatens | | Richard Salus | | |
Senior Vice President, | | Vice President and | | Senior Vice President and | | |
General Counsel, | | Treasurer | | Chief Financial Officer | | |
and Secretary | | Delaware Funds | | Delaware Funds | | |
Delaware Funds | | by Macquarie | | by Macquarie | | |
by Macquarie | | Philadelphia, PA | | Philadelphia, PA | | |
Philadelphia, PA | | | | | | |
This annual 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 the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year onForm N-Q orForm N-PORT (available for filings after March 31, 2019). The Fund’s FormsN-Q or FormsN-PORT, 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 800523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Schedule of Investments included in the Fund’s most recent FormN-Q or FormN-PORT are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s FormsN-Q and FormsN-PORT may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed12-month period ended June 30 is available without charge (i) through the Fund’s website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
62
Annual report
Fixed income mutual fund
Delaware Floating Rate Fund
July 31, 2019
|
Beginning on or about June 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of your Fund’s shareholder reports will no longer be sent to you by mail, unless you specifically request them from the Fund or from your financial intermediary, such as a broker/dealer, bank, or insurance company. Instead, you will be notified by mail each time a report is posted on the website and provided with a link to access the report. |
| |
| If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications from the Fund electronically by signing up at delawarefunds.com/edelivery. If you own these shares through a financial intermediary, you may contact your financial intermediary. |
| |
You may elect to receive paper copies of all future shareholder reports free of charge. You can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by contacting us at 800523-1918. If you own these shares through a financial intermediary, you may contact your financial intermediary to elect to continue to receive paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held with the Delaware Funds® by Macquarie or your financial intermediary. |
Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawarefunds.com/edelivery.
Experience Delaware Funds® by Macquarie
Macquarie Investment Management (MIM) is a global asset manager with offices throughout the United States, Europe, Asia, and Australia. As active managers we prioritize autonomy and accountability at the investment team level in pursuit of opportunities that matter for clients. Delaware Funds is one of the longest-standing mutual fund families, with more than 80 years in existence.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Funds or obtain a prospectus for Delaware Floating Rate Fund at delawarefunds.com/literature.
Manage your account online
| · | | Check your account balance and transactions |
| · | | View statements and tax forms |
| · | | Make purchases and redemptions |
Visit delawarefunds.com/account-access.
Macquarie Asset Management (MAM) offers a diverse range of products including securities investment management, infrastructure and real asset management, and fund and equity-based structured products. MIM is the marketing name for certain companies comprising the asset management division of Macquarie Group. This includes the following investment advisers: Macquarie Investment Management Business Trust (MIMBT), Delaware Capital Management Advisers, Inc., Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Europe Limited, Macquarie Capital Investment Management LLC, and Macquarie Investment Management Europe S.A.
The Fund is distributed byDelaware Distributors, L.P. (DDLP), an affiliate of MIMBT and Macquarie Group Limited.
Other than Macquarie Bank Limited (MBL), none of the entities noted are authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). The obligations of these entities do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of these entities, unless noted otherwise. The Fund is governed by US laws and regulations.
Table of contents
Unless otherwise noted, views expressed herein are current as of July 31, 2019, and subject to change for events occurring after such date.
The Fund is not FDIC insured and is not guaranteed. It is possible to lose the principal amount invested.
Advisory services provided by Delaware Management Company, a series of MIMBT, a US registered investment advisor.
All third-party marks cited are the property of their respective owners.
© 2019 Macquarie Management Holdings, Inc.
Portfolio management review
| | | | |
| Delaware Floating Rate Fund | | August 13, 2019 |
| | | | | | |
| Performance preview (for the year ended July 31, 2019) | |
Delaware Floating Rate Fund (Institutional Class shares) | | 1-year return | | | +4.88% | |
Delaware Floating Rate Fund (Class A shares) | | 1-year return | | | +4.62% | |
S&P/LSTA Leveraged Loan Index (benchmark) | | 1-year return | | | +4.03% | |
Past performance does not guarantee future results.
For complete, annualized performance for Delaware Floating Rate Fund, please see the table on page 4. Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service fee.
The performance of Class A shares excludes the applicable sales charge. Both Institutional Class shares and Class A shares reflect the reinvestment of all distributions.
Please see page 7 for a description of the index. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Market review
The Fund’s fiscal year began with a solid fundamental economic environment, in which most of the Fund’s holdings performed well and provided positive forward-looking guidance. The first half of the fiscal year ended July 31, 2019 was characterized, in part, by divergent central bank policies, with the US Federal Reserve continuing to raise rates while most other major central banks – including the Bank of Japan, the European Central Bank, and the Reserve Bank of Australia – were easing monetary policy. Those actions reflected the differential in economic growth that persisted throughout 2018, with the US economy growing more vigorously than its overseas counterparts. Toward the end of 2018, the US economy also began to signal a decline in growth, leading the Fed in January to not only take further rate increases off the table for 2019 but also suggest that rate cuts were likely to happen. The convergence of central bank policies further contributed to a supportive backdrop for risk assets.
The markets became more turbulent in the fourth quarter of 2018, with floating-rate assets experiencing an increase in redemptions. The Fund’s benchmark, the S&P/LSTA Leveraged Loan Index, declined 3.5% in the fourth quarter as the asset class experienced retail outflows of approximately $14 billion, reversing the cumulative
|
During the fiscal year, Delaware Floating Rate Fund benefited from: |
· converging central bank monetary policy |
· exposure to small loans that have generated higher yield |
· allocations to both high yield bonds and second-lien loans |
· a focus on companies with strong fundamental performance. |
1
Portfolio management review
Delaware Floating Rate Fund
inflows from the first three quarters of the year and bringing 2018 total flows to -$3.1 billion. Negative returns were consistent across rating categories, withCCC-rated loans returning-5.5% versus-3.3% forB-rated loans and-3.5% forBB-rated loans.
As the Fund’s fiscal year progressed, the Fed did an about-face on monetary policy, shifting to a more accommodative stance. After nine consecutive rate hikes, the Fed indicated on June 19 that its next move would be to reduce interest rates. This benefited risk assets, and the Fed did lower rates by 0.25 percentage points on July 31, 2019.
For much of the12-month period, however, the retail segment had outflows, driven primarily by investors’ views on the direction of interest rates. Because floating-rate loans are reset quarterly based on the current rate of the London interbank offered rate (LIBOR), which declined by about 50 basis points, yields generally declined throughout the fixed income market, including high yield and investment grade bonds. (One basis point is a hundredth of a percentage point.)
By the end of the Fund’s fiscal year, floating-rate loans had a yield profile of roughly 6%, similar to high yield bonds. That represented a market dislocation, as floating-rate loans generally yield less than high yield bonds.
Sources: Bloomberg; LCD, an offering of S&P Global Market Intelligence.
Within the Fund
For the fiscal year ended July 31, 2019, Delaware Floating Rate Fund outperformed its benchmark, the S&P/LSTA Leveraged Loan Index. The Fund’s Institutional Class shares gained 4.88%. The Fund’s Class A shares advanced 4.62% at net asset value and 1.69% at maximum offer price. These figures reflect all distributions reinvested. During the same period, the Fund’s benchmark gained 4.03%. For complete,
annualized performance of Delaware Floating Rate Fund, please see the table on page 4.
The Fund outperformed both its benchmark and its Morningstar peer group (the Morningstar Bank Loan Category) in part due to its positioning in relatively small loans. These loans tended to provide additional yield while being less susceptible to redemptions, particularly during the turbulent fourth quarter of 2018 when, as noted previously, higher volatility led to an increase in redemptions among the most liquid loans. Therefore, the Fund managed to capture additional yield without materially increasing the portfolio’s risk profile. Then, when the Fed shifted its policy, the Fund maintained its positioning, which we felt was appropriate given our fundamental views on the Fund’s underlying investments.
The Fund’s modest allocation to both high yield bonds and second-lien loans contributed to its relative performance during the fiscal year. More than 90% of the Fund’s portfolio is in loans, primarily first-lien, secured loans. Based on our generally positive view of market fundamentals, driven from abottom-up (loan by loan) standpoint, we were comfortable underweighting the higher-qualityBBB-rated segment of the market while overweighting theBB-rated segment. That positioning added to the Fund’s performance relative to its benchmark.
An aggregate of corporate financial reports and management commentary drove the Fund’s positioning. We favored companies with stronger fundamental performance and generally avoided exposure to those with weaker fundamentals.
The most significant individual contributors to the Fund’s performance included four companies that had loans trading at a discount to par and that refinanced those loans, providing positive catalysts. These included healthcare giant
Community Health Systems Inc.,telecommunications provider Frontier
2
Communications Corp., office supply retail chainStaples Inc., and luxury retailerNieman Marcus Group Inc.
Partly offsetting those positives was a lack of exposure to some distressed loan issuers whose loans performed well during the Fund’s fiscal year. Sector positioning also detracted from performance. Specifically, the Fund was underweight the business services and electronics sectors, both of which performed well during the fiscal year.
Among individual securities that detracted from performance, exposure to several companies whose financial performance was below expectations hurt the Fund. These included energy companyAlta Mesa Resources Inc. andEnvision Healthcare, both of which we sold during the12-month period. The Fund’s exposure to telecommunications providerDigicel Ltd. andPabst Brewing Co. also detracted from performance. The Fund continues to own both Digicel and Pabst because the investment in both is in the secured part of the capital structure. That should protect the investment in the event of any ongoing volatility in either of those companies’ performance as we would anticipate receiving 100% of the Fund’s money back.
Looking at market risks and opportunities, the greatest risk we perceive in the market is fundamental deterioration in any of the Fund’s holdings. We believe that credit selection will drive performance for loan managers over the next year. Accordingly, we are focused on attempting to avoid exposure to companies with deteriorating fundamental performance.
Although the Fund’s overall positioning hasn’t changed significantly compared to a year ago, we have used the recent rally as an opportunity to take gains in the portfolio and slightly reduce its overall risk profile. We also see potential opportunities that relate to the floating-rate asset class’s overall yield profile of 6% or so. We view this as attractive versus other parts of the fixed income market.
3
Performance summary
| | |
| Delaware Floating Rate Fund | | July 31, 2019 |
The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800523-1918 or visiting delawarefunds.com/performance.
| | | | | | | | | | | | | | | | |
| Fund and benchmark performance1,2 | | Average annual total returns through July 31, 2019 | |
| | | 1 year | | | 3 years | | | 5 years | | | Lifetime | |
Class A (Est. Feb. 26, 2010) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +4.62% | | | | +4.10% | | | | +2.42% | | | | +2.50% | |
Including sales charge | | | +1.69% | | | | +3.15% | | | | +1.86% | | | | +2.20% | |
Class C (Est. Feb. 26, 2010) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +3.84% | | | | +3.32% | | | | +1.66% | | | | +1.74% | |
Including sales charge | | | +2.85% | | | | +3.32% | | | | +1.66% | | | | +1.74% | |
Class R (Est. Feb. 26, 2010) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +4.36% | | | | +3.84% | | | | +2.17% | | | | +2.24% | |
Including sales charge | | | +4.36% | | | | +3.84% | | | | +2.17% | | | | +2.24% | |
Institutional Class (Est. Feb. 26, 2010) | | | | | | | | | | | | | | | | |
Excluding sales charge | | | +4.88% | | | | +4.36% | | | | +2.68% | | | | +2.76% | |
Including sales charge | | | +4.88% | | | | +4.36% | | | | +2.68% | | | | +2.76% | |
S&P/LSTA Leveraged Loan Index | | | +4.03% | | | | +5.02% | | | | +3.85% | | | | +4.86% | * |
*The benchmark lifetime return is for Class A share comparison only and is calculated using the last business day in the month of the Fund’s Class A inception date.
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund and benchmark performance” table. Expenses for each class are listed on the “Fund expense ratios” table on page 6. Performance would have been lower had expense limitations not been in effect.
Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors. In addition, Institutional Class shares pay no distribution and service(12b-1) fee.
Class A shares are sold with a maximumfront-end sales charge of 2.75%, and have an annual12b-1 fee of 0.25% of average daily net assets.
Performance for Class A shares, excluding sales charges, assumes that nofront-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual12b-1 fee of 1.00% of average daily net assets. Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual12b-1 fee of 0.50% of average daily net assets.
4
Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.
The Fund may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.
High yielding,non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.
International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivatives transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
Because the Fund may invest in bank loans and other direct indebtedness, it is subject to the risk that the Fund will not receive payment of principal, interest, and other amounts due in connection with these investments, which primarily depend on the financial condition of the borrower and the lending institution.
This document may mention bond ratings published by nationally recognized statistical rating organizations (NRSROs) Standard & Poor’s, Moody’s Investors Service, and Fitch, Inc. For securities rated by an NRSRO other than S&P, the rating is converted to the equivalent S&P credit rating. Bonds rated AAA are rated as having the highest quality and are generally considered to have the lowest degree of investment risk. Bonds rated AA are considered to be of high quality, but with a slightly higher degree of risk than bonds rated AAA. Bonds rated A are considered to have many favorable investment qualities, though they are somewhat more susceptible to adverse economic conditions. Bonds rated BBB are believed to be of medium-grade quality and generally riskier over the long term. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics, with BB indicating the least degree of speculation of the three.
Portfolio turnover is a measure of how frequently the managers buy and sell assets within a Fund over a particular period. It is usually reported for a12-month time period.
5
Performance summary
Delaware Floating Rate Fund
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total annual fund operating expenses (excluding any12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale and dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.69% of the Fund’s average daily net assets during the period from Aug. 1, 2018 to July 31, 2019.* Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements. Please see the “Financial highlights” section in this report for the most recent expense ratios.
| | | | | | | | |
| Fund expense ratios | | Class A | | Class C | | Class R | | Institutional Class |
Total annual operating expenses (without fee waivers) | | 0.98% | | 1.73% | | 1.23% | | 0.73% |
Net expenses (including fee waivers, if any) | | 0.94% | | 1.69% | | 1.19% | | 0.69% |
Type of waiver | | Contractual | | Contractual | | Contractual | | Contractual |
*The aggregate contractual waiver period covering this report is from April 1, 2018 through Nov. 28, 2019.
6
Performance of a $10,000 investment1
Average annual total returns from Feb. 26, 2010 (Fund’s inception) through July 31, 2019
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Institutional Class and Class A shares of the Fund on
Feb. 26, 2010, and includes the effect of a 2.75%front-end sales charge (for Class A shares) and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Expenses are listed in the “Fund expense ratios” table on page 6. Please note additional details on pages 4 through 8.
The graph also assumes $10,000 invested in the S&P/LSTA Leveraged Loan Index as of Feb. 26, 2010. The S&P/LSTA Leveraged Loan Index is a broad index designed to reflect the market-value-weighted performance of US dollar-denominated institutional leveraged loans.
The London interbank offered rate (LIBOR), mentioned on page 2, is a composite of the rates of interest at which banks borrow from one another in the London market, and it is a widely used benchmark for short-term interest rates.
The Morningstar Bank Loan Category, mentioned on page 2, compares funds that primarily invest in floating-rate bank loans instead of bonds. In exchange for their credit risk, these loans offer high interest payments that typically float above a common short-term benchmark such as LIBOR.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
7
Performance summary
Delaware Floating Rate Fund
| | | | | | | | |
| | | Nasdaq symbols | | CUSIPs | | | |
Class A | | DDFAX | | | 245908660 | | | |
Class C | | DDFCX | | | 245908652 | | | |
Class R | | DDFFX | | | 245908645 | | | |
Institutional Class | | DDFLX | | | 245908637 | | | |
8
Disclosure of Fund expenses
For thesix-month period from February 1, 2019 to July 31, 2019 (Unaudited)
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 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 entiresix-month period from Feb. 1, 2019 to July 31, 2019.
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 expenses shown in the table reflect fee waivers in effect and assume reinvestment of all dividends and distributions.
9
Disclosure of Fund expenses
For thesix-month period from February 1, 2019 to July 31, 2019 (Unaudited)
Delaware Floating Rate Fund
Expense analysis of an investment of $1,000
| | | | | | | | | | | | | | | | | | | | |
| | | Beginning Account Value
2/1/19 | | Ending Account Value
7/31/19 | | Annualized Expense Ratio | | Expenses
Paid During Period
2/1/19 to 7/31/19* |
| | | | |
Actual Fund return† | | | | | | | | | | | | | | | | | | | | |
Class A | | | $ | 1,000.00 | | | | $ | 1,041.50 | | | | | 0.94 | % | | | $ | 4.76 | |
Class C | | | | 1,000.00 | | | | | 1,037.70 | | | | | 1.69 | % | | | | 8.54 | |
Class R | | | | 1,000.00 | | | | | 1,040.20 | | | | | 1.19 | % | | | | 6.02 | |
Institutional Class | | | | 1,000.00 | | | | | 1,042.80 | | | | | 0.69 | % | | | | 3.49 | |
| | |
Hypothetical 5% return(5% return before expenses) | | | | | | | | | | | |
Class A | | | $ | 1,000.00 | | | | $ | 1,020.13 | | | | | 0.94 | % | | | $ | 4.71 | |
Class C | | | | 1,000.00 | | | | | 1,016.41 | | | | | 1.69 | % | | | | 8.45 | |
Class R | | | | 1,000.00 | | | | | 1,018.89 | | | | | 1.19 | % | | | | 5.96 | |
Institutional Class | | | | 1,000.00 | | | | | 1,021.37 | | | | | 0.69 | % | | | | 3.46 | |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect theone-half year period).
† Because actual returns reflect only the most recentsix-month period, the returns shown may differ significantly from fiscal year returns.
In addition to the Fund’s expenses reflected above, the Fund also indirectly bears its portion of the fees and expenses of the investment companies (Underlying Funds) in which it invests. The table above does not reflect the expenses of the Underlying Funds.
10
Security type / sector allocation
| | |
| Delaware Floating Rate Fund | | As of July 31, 2019 (Unaudited) |
Sector designations may be different than the sector designations presented in other fund materials. The sector designations may represent the investment manager’s internal sector classifications.
| | | | |
| Security type / sector | | Percentage of net assets |
| |
Corporate Bonds | | | 7.77 | % |
Banking | | | 0.72 | % |
Basic Industry | | | 0.68 | % |
Capital Goods | | | 0.34 | % |
Communications | | | 1.62 | % |
Consumer Cyclical | | | 0.39 | % |
ConsumerNon-Cyclical | | | 0.74 | % |
Energy | | | 2.41 | % |
Insurance | | | 0.84 | % |
Utilities | | | 0.03 | % |
Loan Agreements | | | 91.37 | % |
Short-Term Investments | | | 6.39 | % |
Total Value of Securities | | | 105.53 | % |
Liabilities Net of Receivables and Other Assets | | | (5.53 | %) |
Total Net Assets | | | 100.00 | % |
11
Schedule of investments
| | |
| Delaware Floating Rate Fund | | July 31, 2019 |
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds – 7.77% | |
| |
Banking – 0.72% | | | | | | | | |
Royal Bank of Scotland Group 8.625%µy | | | 1,000,000 | | | $ | 1,066,250 | |
| | | | | | | | |
| | | | | | | 1,066,250 | |
| | | | | | | | |
Basic Industry – 0.68% | | | | | | | | |
Hexion 144A 7.875% 7/15/27 # | | | 250,000 | | | | 248,125 | |
Joseph T Ryerson & Son 144A 11.00% 5/15/22 # | | | 500,000 | | | | 528,356 | |
Venator Finance 144A 5.75% 7/15/25 # | | | 250,000 | | | | 221,875 | |
| | | | | | | | |
| | | | | | | 998,356 | |
| | | | | | | | |
Capital Goods – 0.34% | | | | | | | | |
Mauser Packaging Solutions Holding 144A 7.25% 4/15/25 # | | | 250,000 | | | | 237,813 | |
New Enterprise Stone & Lime 144A 10.125% 4/1/22 # | | | 250,000 | | | | 257,187 | |
| | | | | | | | |
| | | | | | | 495,000 | |
| | | | | | | | |
Communications – 1.62% | | | | | | | | |
Altice Luxembourg | | | | | | | | |
144A 7.625% 2/15/25 # | | | 500,000 | | | | 491,895 | |
144A 7.75% 5/15/22 # | | | 400,000 | | | | 409,500 | |
Clear Channel Worldwide Holdings 144A 9.25% 2/15/24 # | | | 500,000 | | | | 543,750 | |
CommScope 144A 8.25% 3/1/27 # | | | 500,000 | | | | 494,375 | |
Zayo Group 6.375% 5/15/25 | | | 426,000 | | | | 438,311 | |
| | | | | | | | |
| | | | | | | 2,377,831 | |
| | | | | | | | |
Consumer Cyclical – 0.39% | | | | | | | | |
Scientific Games International | | | | | | | | |
144A 8.25% 3/15/26 # | | | 265,000 | | | | 284,287 | |
10.00% 12/1/22 | | | 272,000 | | | | 284,585 | |
| | | | | | | | |
| | | | | | | 568,872 | |
| | | | | | | | |
ConsumerNon-Cyclical – 0.74% | | | | | | | | |
Hadrian Merger 144A 8.50% 5/1/26 # | | | 300,000 | | | | 289,125 | |
Tenet Healthcare 8.125% 4/1/22 | | | 750,000 | | | | 803,437 | |
| | | | | | | | |
| | | | | | | 1,092,562 | |
| | | | | | | | |
Energy – 2.41% | | | | | | | | |
Antero Resources 5.625% 6/1/23 | | | 710,000 | | | | 676,275 | |
Chesapeake Energy 8.00% 1/15/25 | | | 500,000 | | | | 430,000 | |
Crestwood Midstream Partners 6.25% 4/1/23 | | | 250,000 | | | | 255,637 | |
Genesis Energy | | | | | | | | |
6.00% 5/15/23 | | | 250,000 | | | | 251,875 | |
6.75% 8/1/22 | | | 500,000 | | | | 510,565 | |
Murphy Oil 6.875% 8/15/24 | | | 250,000 | | | | 262,475 | |
Oasis Petroleum 6.875% 3/15/22 | | | 710,000 | | | | 710,249 | |
Southwestern Energy 7.75% 10/1/27 | | | 500,000 | | | | 436,410 | |
| | | | | | | | |
| | | | | | | 3,533,486 | |
| | | | | | | | |
Insurance – 0.84% | | | | | | | | |
Acrisure 144A 7.00% 11/15/25 # | | | 500,000 | | | | 461,250 | |
12
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
| |
Corporate Bonds(continued) | |
| |
Insurance(continued) | | | | | | | | |
GTCR AP Finance 144A 8.00% 5/15/27 # | | | 500,000 | | | $ | 512,500 | |
HUB International 144A 7.00% 5/1/26 # | | | 250,000 | | | | 254,843 | |
| | | | | | | | |
| | | | | | | 1,228,593 | |
| | | | | | | | |
Utilities – 0.03% | | | | | | | | |
Calpine 5.75% 1/15/25 | | | 42,000 | | | | 42,157 | |
| | | | | | | | |
| | | | | | | 42,157 | |
| | | | | | | | |
Total Corporate Bonds(cost $11,353,411) | | | | | | | 11,403,107 | |
| | | | | | | | |
| | | | | | | | |
| |
Loan Agreements – 91.37% | |
| |
Acrisure Tranche B 1st Lien 6.772% (LIBOR03M + 4.25%) 11/22/23 ● | | | 1,748,658 | | | | 1,744,724 | |
AI PLEX AcquiCo Tranche B 1st Lien 0.00% 7/31/26● X | | | 900,000 | | | | 859,500 | |
Air Medical Group Holdings Tranche B 1st Lien 5.564% (LIBOR01M + 3.25%) 4/28/22 ● | | | 642,455 | | | | 622,646 | |
Allied Universal Holdco 1st Lien 6.507% (LIBOR03M + 4.25%) 7/12/26● | | | 1,455,856 | | | | 1,458,888 | |
Alpha 3 Tranche B1 1st Lien 5.33% (LIBOR03M + 3.00%) 1/31/24● | | | 884,044 | | | | 866,501 | |
Altice France Tranche B11 1st Lien 4.984% (LIBOR01M + 2.75%) 7/31/25● | | | 1,431,838 | | | | 1,373,849 | |
Altice France Tranche B13 1st Lien 6.325% (LIBOR01M + 4.00%) 8/14/26● | | | 1,486,256 | | | | 1,473,706 | |
AMC Entertainment Holdings Tranche B1 1st Lien 5.23% (LIBOR03M + 3.00%) 4/22/26● | | | 1,610,963 | | | | 1,614,990 | |
Applied Systems 2nd Lien 9.33% (LIBOR03M + 7.00%) 9/19/25● | | | 2,445,000 | | | | 2,478,008 | |
Applied Systems Tranche B 1st Lien 5.33% (LIBOR03M + 3.00%) 9/19/24● | | | 595,455 | | | | 594,551 | |
AssuredPartners Tranche B 1st Lien 5.734% (LIBOR01M + 3.50%) 10/22/24● | | | 1,220,591 | | | | 1,217,387 | |
Ball Metalpack Finco Tranche B 2nd Lien 11.272% (LIBOR03M + 8.75%) 7/31/26● | | | 293,000 | | | | 284,210 | |
Bausch Health Americas Tranche B 1st Lien 5.379% (LIBOR01M + 3.00%) 6/1/25● | | | 859,075 | | | | 861,491 | |
Berry Global Tranche U 1st Lien 4.902% (LIBOR03M + 2.50%) 5/15/26● | | | 1,100,000 | | | | 1,100,343 | |
Blackstone CQP Holdco Tranche B 1st Lien 5.887% (LIBOR03M + 3.50%) 6/20/24● | | | 900,000 | | | | 904,781 | |
Blue Ribbon 1st Lien 6.388% (LIBOR01M + 4.00%) 11/13/21● | | | 2,055,481 | | | | 1,846,850 | |
Boxer Parent Tranche B 1st Lien 6.58% (LIBOR03M + 4.25%) 10/2/25● | | | 1,792,247 | | | | 1,725,998 | |
13
Schedule of investments
Delaware Floating Rate Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Loan Agreements(continued) | | | | | | | | |
Builders FirstSource 1st Lien 5.33% (LIBOR03M + 3.00%) 2/29/24● | | | 160,207 | | | $ | 160,290 | |
Calpine Construction Finance 1st Lien 4.734% (LIBOR01M + 2.50%) 1/15/25● | | | 153,287 | | | | 153,287 | |
Calpine Tranche B9 1st Lien 5.08% (LIBOR03M + 2.75%) 4/1/26● | | | 1,000,000 | | | | 1,002,321 | |
CenturyLink Tranche B 1st Lien 4.984% (LIBOR01M + 2.75%) 1/31/25● | | | 810,655 | | | | 806,500 | |
Change Healthcare Holdings Tranche B 1st Lien 4.734% (LIBOR01M + 2.50%) 3/1/24 ● | | | 1,238,697 | | | | 1,237,826 | |
Core & Main Tranche B 1st Lien 5.238% (LIBOR03M + 3.00%) 8/1/24 ● | | | 1,686,791 | | | | 1,688,533 | |
Cornerstone Building Brands Tranche B 1st Lien 6.119% (LIBOR01M + 3.75%) 4/12/25● | | | 1,096,920 | | | | 1,072,925 | |
Crestwood Holdings Tranche B 1st Lien 9.87% (LIBOR01M + 7.50%) 3/5/23● | | | 1,188,854 | | | | 1,154,675 | |
CSC Holdings 1st Lien 4.575% (LIBOR01M + 2.25%) 7/17/25● | | | 1,410,322 | | | | 1,400,320 | |
Cumulus Media New Holdings 1st Lien 0.00% 5/15/22● X | | | 1,325,000 | | | | 1,331,625 | |
Curium Bidco Tranche B 1st Lien 6.367% (LIBOR00M + 4.00%) 7/11/26● | | | 1,600,000 | | | | 1,616,000 | |
Datto 1st Lien 6.58% (LIBOR03M + 4.25%) 4/2/26● | | | 2,000,000 | | | | 2,022,500 | |
Deerfield Dakota Holding 1st Lien 6.234% (LIBOR01M + 4.00%) 2/13/25● | | | 1,326,675 | | | | 1,332,479 | |
Deerfield Dakota Holding Tranche B 1st Lien 5.484% (LIBOR01M + 3.25%) 2/13/25 ● | | | 1,033,286 | | | | 1,009,068 | |
Diamond Sports Group Tranche B 1st Lien 0.00% 7/18/26● X | | | 2,225,000 | | | | 2,231,243 | |
Digicel International Finance Tranche B 1st Lien 5.78% (LIBOR03M + 3.25%) 5/27/24 ● | | | 1,706,251 | | | | 1,465,243 | |
Drive Chassis Holdco 2nd Lien 10.588% (LIBOR03M + 8.25%) 4/10/26● | | | 1,665,000 | | | | 1,602,563 | |
DTZ US Borrower Tranche B 1st Lien 5.484% (LIBOR01M + 3.25%) 8/21/25● | | | 1,364,688 | | | | 1,372,080 | |
Dun & Bradstreet Tranche B 1st Lien 7.241% (LIBOR01M + 5.00%) 2/8/26● | | | 1,250,000 | | | | 1,258,334 | |
Edgewater Generation Tranche B 1st Lien 5.984% (LIBOR01M + 3.75%) 12/13/25 ● | | | 1,963,517 | | | | 1,958,362 | |
Emerald TopCo Tranche B 1st Lien 0.00% 7/26/26● X | | | 900,000 | | | | 899,719 | |
Ensemble RCM 1st Lien 0.00% 8/1/26● X | | | 2,280,000 | | | | 2,284,993 | |
ESH Hospitality Tranche B 1st Lien 4.234% (LIBOR01M + 2.00%) 8/30/23● | | | 931,062 | | | | 933,739 | |
Frontier Communications Tranche B1 1st Lien 5.99% (LIBOR01M + 3.75%) 6/15/24● | | | 1,710,093 | | | | 1,693,198 | |
14
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Loan Agreements(continued) | | | | | | | | |
Gardner Denver Tranche B1 1st Lien 4.984% (LIBOR01M + 2.75%) 7/30/24● | | | 381,327 | | | $ | 382,823 | |
Gates Global Tranche B2 1st Lien 4.984% (LIBOR01M + 2.75%) 3/31/24● | | | 937,083 | | | | 934,008 | |
Gentiva Health Services Tranche B 1st Lien 6.00% (LIBOR01M + 3.75%) 7/2/25● | | | 2,685,617 | | | | 2,699,850 | |
GIP III Stetson I Tranche B 1st Lien 6.55% (LIBOR01M + 4.25%) 7/18/25● | | | 1,768,369 | | | | 1,778,684 | |
Gray Television Tranche C 1st Lien 4.832% (LIBOR03M + 2.50%) 1/2/26● | | | 990,000 | | | | 993,584 | |
Grizzly Finco Tranche B 1st Lien 5.57% (LIBOR03M + 3.25%) 10/1/25● | | | 839,327 | | | | 841,740 | |
HD Supply Tranche B5 1st Lien 3.984% (LIBOR01M + 1.75%) 10/17/23● | | | 1,821,238 | | | | 1,826,929 | |
Heartland Dental 1st Lien 5.984% (LIBOR01M + 3.75%) 4/30/25● | | | 1,795,464 | | | | 1,731,501 | |
Hexion TrancheB-EXIT 1st Lien 5.82% (LIBOR03M + 3.50%) 7/1/26● | | | 1,250,000 | | | | 1,248,438 | |
Hoya Midco Tranche B 1st Lien 5.734% (LIBOR01M + 3.50%) 6/30/24● | | | 1,549,098 | | | | 1,538,125 | |
HUB International Tranche B 1st Lien 5.267% (LIBOR03M + 3.00%) 4/25/25● | | | 1,881,000 | | | | 1,863,659 | |
iHeartCommunications 1st Lien 6.579% (LIBOR03M + 4.00%) 5/1/26● | | | 1,325,000 | | | | 1,337,697 | |
Jazz Acquisition 2nd Lien 10.33% (LIBOR03M + 8.00%) 6/19/27● | | | 900,000 | | | | 893,250 | |
Jazz Acquisition Tranche B 1st Lien 6.58% (LIBOR03M + 4.25%) 6/19/26● | | | 1,250,000 | | | | 1,251,563 | |
JBS USA LUX Tranche B 1st Lien 4.734% (LIBOR01M + 2.50%) 5/1/26● | | | 1,596,000 | | | | 1,600,156 | |
Kronos 2nd Lien 10.829% (LIBOR03M + 8.25%) 11/1/24● | | | 887,000 | | | | 916,715 | |
Kronos Tranche B 1st Lien 5.579% (LIBOR03M + 3.00%) 11/1/23● | | | 959,602 | | | | 961,702 | |
Mauser Packaging Solutions Holding Tranche B 1st Lien 5.59% (LIBOR03M + 3.25%) 4/3/24● | | | 1,020,937 | | | | 1,006,473 | |
Midcontinent Communications Tranche B 1st Lien 0.00% 7/16/26● X | | | 450,000 | | | | 452,110 | |
Nascar Holdings Tranche B 1st Lien 0.00% 7/26/26● X | | | 2,700,000 | | | | 2,714,626 | |
Neiman Marcus Group 1st Lien 8.38% (LIBOR01M + 6.00%) 10/25/23● | | | 1,123,374 | | | | 966,383 | |
Nexstar Broadcasting Tranche B 1st Lien 0.00% 6/20/26● X | | | 2,675,000 | | | | 2,675,278 | |
NFP Tranche B 1st Lien 5.234% (LIBOR01M + 3.00%) 1/8/24● | | | 1,496,727 | | | | 1,478,953 | |
15
Schedule of investments
Delaware Floating Rate Fund
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Loan Agreements(continued) | | | | | | | | |
Panther BF Aggregator 2 Tranche B 1st Lien 5.734% (LIBOR01M + 3.50%) 4/30/26 ● | | | 1,675,000 | | | $ | 1,677,596 | |
Perstorp Holding Tranche B 1st Lien 7.271% (LIBOR03M + 4.75%) 2/26/26● | | | 1,250,865 | | | | 1,218,420 | |
Pregis TopCo 1st Lien 0.00% 7/25/26● X | | | 2,000,000 | | | | 2,001,562 | |
Radiate Holdco Tranche B 1st Lien 5.234% (LIBOR01M + 3.00%) 2/1/24● | | | 1,212,100 | | | | 1,198,632 | |
Refinitiv US Holdings Tranche B 1st Lien 5.984% (LIBOR01M + 3.75%) 10/1/25● | | | 924,355 | | | | 925,125 | |
Russell Investments US Institutional Holdco Tranche B 1st Lien 5.484% (LIBOR01M + 3.25%) 6/1/23● | | | 887,850 | | | | 882,671 | |
Sable International Finance Tranche B4 1st Lien 5.484% (LIBOR01M + 3.25%) 1/31/26● | | | 992,747 | | | | 999,089 | |
Scientific Games International Tranche B5 1st Lien 4.984% (LIBOR01M + 2.75%) 8/14/24● | | | 487,572 | | | | 485,947 | |
Sinclair Television Group Tranche B2 1st Lien 4.49% (LIBOR01M + 2.25%) 1/3/24● | | | 585,000 | | | | 585,366 | |
Sprint Communications Tranche B 1st Lien | | | | | | | | |
4.75% (LIBOR01M + 2.50%) 2/3/24● | | | 3,017,055 | | | | 3,012,002 | |
5.25% (LIBOR01M + 3.00%) 2/3/24● | | | 995,000 | | | | 996,399 | |
SS&C European Holdings Tranche B4 1st Lien 4.484% (LIBOR01M + 2.25%) 4/16/25● | | | 89,735 | | | | 89,805 | |
SS&C Technologies Tranche B3 1st Lien 4.484% (LIBOR01M + 2.25%) 4/16/25● | | | 131,801 | | | | 131,904 | |
SS&C Technologies Tranche B5 1st Lien 4.484% (LIBOR01M + 2.25%) 4/16/25 ● | | | 586,511 | | | | 587,198 | |
Stars Group Holdings Tranche B 1st Lien 5.83% (LIBOR03M + 3.50%) 7/10/25 ● | | | 1,449,044 | | | | 1,458,101 | |
Summit Midstream Partners Holdings Tranche B 1st Lien 8.234% (LIBOR01M + 6.00%) 5/21/22● | | | 1,729,333 | | | | 1,707,716 | |
Surgery Center Holdings 1st Lien 5.49% (LIBOR01M + 3.25%) 8/31/24● | | | 972,595 | | | | 936,122 | |
Tecta America 1st Lien 6.734% (LIBOR01M + 4.50%) 11/21/25● | | | 1,825,825 | | | | 1,803,002 | |
Teneo Holdings Tranche B 1st Lien 7.619% (LIBOR03M + 5.25%) 7/12/25● | | | 2,000,000 | | | | 1,935,000 | |
Titan Acquisition Tranche B 1st Lien 5.234% (LIBOR01M + 3.00%) 3/28/25● | | | 1,819,521 | | | | 1,737,643 | |
TMS International Holding Tranche B2 1st Lien 4.997% (LIBOR01M + 2.75%) 8/14/24 ● | | | 870,871 | | | | 871,938 | |
TransDigm Tranche F 1st Lien 4.83% (LIBOR03M + 2.50%) 6/9/23● | | | 986,115 | | | | 981,117 | |
Trident TPI Holdings 1st Lien 5.484% (LIBOR01M + 3.25%) 10/5/24● | | | 1,340,402 | | | | 1,275,057 | |
16
| | | | | | | | |
| | | Principal amount° | | | Value (US $) | |
Loan Agreements(continued) | | | | | | | | |
Tronox Finance Tranche B 1st Lien 5.272% (LIBOR03M + 3.00%) 9/22/24● | | | 472,042 | | | $ | 469,436 | |
Ultimate Software Group 1st Lien 6.08% (LIBOR03M + 3.75%) 5/3/26● | | | 2,360,000 | | | | 2,381,018 | |
United Rentals North America Tranche B 1st Lien 3.984% (LIBOR01M + 1.75%) 10/31/25● | | | 1,265,438 | | | | 1,269,392 | |
Unitymedia Finance Tranche E 1st Lien 4.354% (LIBOR03M + 2.00%) 6/1/23● | | | 1,500,000 | | | | 1,499,745 | |
UPC Financing Partnership Tranche AR 1st Lien 4.854% (LIBOR03M + 2.50%) 1/15/26● | | | 303,911 | | | | 304,211 | |
USI Tranche B 1st Lien 5.33% (LIBOR03M + 3.00%) 5/16/24● | | | 1,736,095 | | | | 1,714,576 | |
USIC Holdings 1st Lien 5.234% (LIBOR01M + 3.00%) 12/9/23● | | | 967,628 | | | | 962,588 | |
USS Ultimate Holdings 2nd Lien 9.95% (LIBOR06M + 7.75%) 8/25/25● | | | 1,250,000 | | | | 1,233,594 | |
USS Ultimate Holdings Tranche B 1st Lien 5.95% (LIBOR03M + 3.75%) 8/25/24● | | | 982,500 | | | | 983,237 | |
Vantage Specialty Chemicals 2nd Lien 10.58% (LIBOR03M + 8.25%) 10/26/25● | | | 890,000 | | | | 858,850 | |
Vantage Specialty Chemicals Tranche B 1st Lien 5.862% (LIBOR03M + 3.50%) 10/28/24● | | | 537,438 | | | | 529,152 | |
Verscend Holding Tranche B 1st Lien 6.734% (LIBOR01M + 4.50%) 8/27/25● | | | 1,006,864 | | | | 1,013,149 | |
Vistra Operations Tranche B3 1st Lien 4.27% (LIBOR03M + 2.00%) 12/1/25● | | | 1,927,345 | | | | 1,933,127 | |
VVC Holding Tranche B 1st Lien 7.045% (LIBOR03M + 4.50%) 2/11/26● | | | 2,074,800 | | | | 2,085,821 | |
Wand NewCo 3 Tranche B 1st Lien 5.86% (LIBOR01M + 3.50%) 2/5/26● | | | 1,166,000 | | | | 1,175,474 | |
Wynn Resorts Tranche B 1st Lien 4.66% (LIBOR01M + 2.25%) 10/30/24● | | | 736,775 | | | | 738,962 | |
Zayo Group Tranche B2 1st Lien 4.484% (LIBOR01M + 2.25%) 1/19/24● | | | 1,225,000 | | | | 1,226,430 | |
Zekelman Industries 1st Lien 4.484% (LIBOR01M + 2.25%) 6/14/21● | | | 1,395,649 | | | | 1,398,265 | |
| | | | | | | | |
Total Loan Agreements (cost $134,272,682) | | | | | | | 134,084,932 | |
| | | | | | | | |
17
Schedule of investments
Delaware Floating Rate Fund
| | | | | | | | |
| | | Number of shares | | | Value (US $) | |
Short-Term Investments – 6.39% | | | | | | | | |
Money Market Mutual Funds - 6.39% | | | | | | | | |
BlackRock FedFund - Institutional Shares(seven-day effective yield 2.23%) | | | 1,874,512 | | | $ | 1,874,446 | |
Fidelity Investments Money Market Government Portfolio - Class I(seven-day effective yield 2.19%) | | | 1,874,512 | | | | 1,874,444 | |
GS Financial Square Government Fund - Institutional Shares(seven-day effective yield 2.23%) | | | 1,874,512 | | | | 1,874,446 | |
Morgan Stanley Government Portfolio - Institutional Class(seven-day effective yield 2.21%) | | | 1,874,512 | | | | 1,874,445 | |
State Street Institutional US Government Money Market Fund - Investor Class(seven-day effective yield 2.18%) | | | 1,874,512 | | | | 1,874,444 | |
| | | | | | | | |
Total Short-Term Investments (cost $9,372,225) | | | | | | | 9,372,225 | |
| | | | | | | | |
| | |
Total Value of Securities – 105.53%
(cost $154,998,318) | | | | | | $ | 154,860,264 | |
| | | | | | | | |
| # | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At July 31, 2019, the aggregate value of Rule 144A securities was $5,234,881, which represents 3.57% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
| ° | Principal amount shown is stated in USD unless noted that the security is denominated in another currency. |
| µ | Fixed to variable rate investment. The rate shown reflects the fixed rate in effect at July 31, 2019. Rate will reset at a future date. |
| y | No contractual maturity date. |
| ● | Variable rate investment. Rates reset periodically. Rate shown reflects the rate in effect at July 31, 2019. For securities based on a published reference rate and spread, the reference rate and spread are indicated in their description above. The reference rate descriptions (i.e. LIBOR03M, LIBOR06M, etc.) used in this report are identical for different securities, but the underlying reference rates may differ due to the timing of the reset period. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions, or for mortgage-backed securities, are impacted by the individual mortgages which are paying off over time. These securities do not indicate a reference rate and spread in their description above. |
| X | This loan will settle after July 31, 2019, at which time the interest rate, based on the LIBOR and the agreed upon spread on trade date, will be reflected. |
18
Unfunded Loan Commitments1
The Fund may invest in floating rate loans. In connection with these investments, the Fund may also enter into unfunded corporate loan commitments (commitments). Commitments may obligate the Fund to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, the Fund earns a commitment fee, typically set as a percentage of the commitment amount. The following unfunded loan commitments were outstanding at July 31, 2019:
| | | | | | | | | | | | | | | | | | | | |
Borrower | | Principal
Amount | | Cost | | Value | | Unrealized Appreciation
(Depreciation) |
| | | | |
| Allied Universal Holdco Tranche DD 1st Lien 1.00% (LIBOR03M + 1.00%) 7/12/26 | | | $ | 144,144 | | | | $ | 142,703 | | | | $ | 144,444 | | | | $ | 1,741 | |
| Heartland Dental Tranche DD 1st Lien 3.75% (LIBOR03M + 3.75%) 4/30/25 | | | | 40,283 | | | | | 40,283 | | | | | 38,848 | | | | | (1,435 | ) |
1See Note 9 in “Notes to financial statements.”
Summary of Abbreviations:
GS – Goldman Sachs
ICE – Intercontinental Exchange
LIBOR – London Interbank Offered Rate
LIBOR00M – ICE LIBOR USD 0 Month
LIBOR01M – ICE LIBOR USD 1 Month
LIBOR03M – ICE LIBOR USD 3 Month
LIBOR06M – ICE LIBOR USD 6 Month
USD – US Dollar
See accompanying notes, which are an integral part of the financial statements.
19
Statement of assets and liabilities
| | | | |
| Delaware Floating Rate Fund | | | July 31, 2019 | |
| | | | |
Assets: | | | | |
Investments, at value1 | | $ | 154,860,264 | |
Receivable for securities sold | | | 15,010,647 | |
Interest receivable | | | 769,003 | |
Receivable for fund shares sold | | | 196,338 | |
| | | | |
Total assets | | | 170,836,252 | |
| | | | |
| |
Liabilities: | | | | |
Cash due to custodian | | | 3,794,344 | |
Payable for securities purchased | | | 19,767,816 | |
Distribution payable | | | 220,599 | |
Payable for fund shares redeemed | | | 137,520 | |
Other accrued expenses | | | 70,528 | |
Investment management fees payable to affiliates | | | 65,532 | |
Distribution fees payable to affiliates | | | 30,190 | |
Dividend disbursing and transfer agent fees and expenses payable to affiliates | | | 1,232 | |
Accounting and administration expenses payable to affiliates | | | 814 | |
Trustees’ fees and expenses payable to affiliates | | | 490 | |
Legal fees payable to affiliates | | | 170 | |
Reports and statements to shareholders expenses payable to affiliates | | | 77 | |
| | | | |
Total liabilities | | | 24,089,312 | |
| | | | |
Total Net Assets | | $ | 146,746,940 | |
| | | | |
| |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 161,399,138 | |
Total distributable earnings (loss) | | | (14,652,198 | ) |
| | | | |
Total Net Assets | | $ | 146,746,940 | |
| | | | |
20
| | | | |
Net Asset Value | | | | |
Class A: | | | | |
Net assets | | $ | 38,669,145 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 4,672,147 | |
Net asset value per share | | $ | 8.28 | |
Sales charge | | | 2.75 | % |
Offering price per share, equal to net asset value per share / (1 – sales charge) | | $ | 8.51 | |
| |
Class C: | | | | |
Net assets | | $ | 25,373,474 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 3,065,379 | |
Net asset value per share | | $ | 8.28 | |
| |
Class R: | | | | |
Net assets | | $ | 61,000 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 7,371 | |
Net asset value per share | | $ | 8.28 | |
| |
Institutional Class: | | | | |
Net assets | | $ | 82,643,321 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | | | 9,985,118 | |
Net asset value per share | | $ | 8.28 | |
| |
| | | | |
1Investments, at cost | | $ | 154,998,318 | |
See accompanying notes, which are an integral part of the financial statements.
21
Statement of operations
| | |
| Delaware Floating Rate Fund | | Year ended July 31, 2019 |
| | | | |
Investment Income: | | | | |
Interest | | $ | 10,852,499 | |
Dividends | | | 69,877 | |
| | | | |
| | | 10,922,376 | |
| | | | |
| |
Expenses: | | | | |
Management fees | | | 886,011 | |
Distribution expenses – Class A | | | 100,979 | |
Distribution expenses – Class C | | | 283,448 | |
Distribution expenses – Class R | | | 1,384 | |
Dividend disbursing and transfer agent fees and expenses | | | 143,620 | |
Accounting and administration expenses | | | 72,260 | |
Registration fees | | | 67,281 | |
Audit and tax fees | | | 55,963 | |
Reports and statements to shareholders expenses | | | 37,063 | |
Legal fees | | | 10,622 | |
Trustees’ fees and expenses | | | 10,110 | |
Custodian fees | | | 9,354 | |
Other expenses | | | 35,051 | |
| | | | |
| | | 1,713,146 | |
Less expenses waived | | | (95,063 | ) |
Less expenses paid indirectly | | | (7,183 | ) |
| | | | |
Total operating expenses | | | 1,610,900 | |
| | | | |
Net Investment Income | | | 9,311,476 | |
| | | | |
| |
Net Realized and Unrealized Loss: | | | | |
Net realized loss on Investments | | | (1,433,483 | ) |
Net change in unrealized appreciation (depreciation) of investments | | | (801,985 | ) |
| | | | |
Net Realized and Unrealized Loss | | | (2,235,468 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 7,076,008 | |
| | | | |
See accompanying notes, which are an integral part of the financial statements.
22
This page intentionally left blank.
Statements of changes in net assets
Delaware Floating Rate Fund
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Increase (Decrease) in Net Assets from Operations: | | | | | | | | |
Net investment income | | $ | 9,311,476 | | | $ | 10,332,307 | |
Net realized gain (loss) | | | (1,433,483 | ) | | | 33,579 | |
Net change in unrealized appreciation (depreciation) | | | (801,985 | ) | | | (1,109,884 | ) |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 7,076,008 | | | | 9,256,002 | |
| | | | | | | | |
| | |
Dividends and Distributions to Shareholders from: | | | | | | | | |
Distributable earnings*: | | | | | | | | |
Class A | | | (2,112,731 | ) | | | (2,090,539 | ) |
Class C | | | (1,269,738 | ) | | | (1,232,135 | ) |
Class R | | | (14,045 | ) | | | (19,311 | ) |
Institutional Class | | | (5,933,633 | ) | | | (7,279,941 | ) |
| | |
Return of capital: | | | | | | | | |
Class A | | | (8,046 | ) | | | (15,115 | ) |
Class C | | | (5,279 | ) | | | (11,921 | ) |
Class R | | | (13 | ) | | | (163 | ) |
Institutional Class | | | (17,196 | ) | | | (56,356 | ) |
| | | | | | | | |
| | | (9,360,681 | ) | | | (10,705,481 | ) |
| | | | | | | | |
| | |
Capital Share Transactions: | | | | | | | | |
Proceeds from shares sold: | | | | | | | | |
Class A | | | 18,124,421 | | | | 13,437,905 | |
Class C | | | 6,416,829 | | | | 2,885,464 | |
Class R | | | 1,228 | | | | 22,191 | |
Institutional Class | | | 33,722,425 | | | | 63,675,428 | |
| | |
Net asset value of shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 1,947,496 | | | | 2,001,869 | |
Class C | | | 1,168,341 | | | | 1,130,443 | |
Class R | | | 13,298 | | | | 19,179 | |
Institutional Class | | | 5,455,651 | | | | 6,273,929 | |
| | | | | | | | |
| | | 66,849,689 | | | | 89,446,408 | |
| | | | | | | | |
24
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Capital Share Transactions (continued): | | | | | | | | |
Cost of shares redeemed: | | | | | | | | |
Class A | | $ | (19,725,947 | ) | | $ | (25,960,784 | ) |
Class C | | | (12,474,941 | ) | | | (12,083,966 | ) |
Class R | | | (364,757 | ) | | | (94,715 | ) |
Institutional Class | | | (99,139,463 | ) | | | (115,405,215 | ) |
| | | | | | | | |
| | | (131,705,108 | ) | | | (153,544,680 | ) |
| | | | | | | | |
Decrease in net assets derived from capital share transactions | | | (64,855,419 | ) | | | (64,098,272 | ) |
| | | | | | | | |
Net Decrease in Net Assets | | | (67,140,092 | ) | | | (65,547,751 | ) |
| | |
Net Assets: | | | | | | | | |
Beginning of year | | | 213,887,032 | | | | 279,434,783 | |
| | | | | | | | |
End of year1 | | $ | 146,746,940 | | | $ | 213,887,032 | |
| | | | | | | | |
| 1 | Net Assets – End of year includes distributions in excess of net investment income of $(249,500) in 2018. The Securities and Exchange Commission eliminated the requirement to disclose undistributed (distributions in excess of) net investment income in 2018. |
| * | For the year ended July 31, 2019, the Fund has adopted amendments to RegulationS-X (see Note 11 in “Notes to financial statements”). For the year ended July 31, 2018, the dividends and distributions to shareholders were as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Class A | | | | | Class C | | | | | Class R | | | | | Institutional Class | | | |
Dividends from net investment income | | ($ | 2,090,539 | ) | | | | $ | (1,232,135 | ) | | | | $ | (19,311 | ) | | | | $ | (7,279,941 | ) | | |
See accompanying notes, which are an integral part of the financial statements.
25
Financial highlights
Delaware Floating Rate Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return4 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $8,046 were made by the Fund’s Class A shares, which calculated to an amount of $(0.002) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $15,115 were made by the Fund’s Class A shares, which calculated to an amount of $(0.003) per share. |
| 4 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
26
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | | | | | $ | 8.63 | |
| | | | | | | | | |
| | | 0.43 | | | | | | 0.35 | | | | | | 0.20 | | | | | | 0.17 | | | | | | 0.18 | |
| | | (0.06 | ) | | | | | (0.03 | ) | | | | | 0.11 | | | | | | (0.15 | ) | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.37 | | | | | | 0.32 | | | | | | 0.31 | | | | | | 0.02 | | | | | | (0.03 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.43 | ) | | | | | (0.37 | ) | | | | | (0.19 | ) | | | | | (0.12 | ) | | | | | (0.17 | ) |
| | | — | 2 | | | | | — | 3 | | | | | (0.02 | ) | | | | | (0.03 | ) | | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.43 | ) | | | | | (0.37 | ) | | | | | (0.21 | ) | | | | | (0.15 | ) | | | | | (0.18 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 8.28 | | | | | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 4.62% | | | | | | 3.85% | | | | | | 3.82% | | | | | | 0.29% | | | | | | (0.35% | ) |
| | | | | | | | | |
| | $ | 38,669 | | | | | $ | 38,701 | | | | | $ | 49,486 | | | | | $ | 57,985 | | | | | $ | 87,398 | |
| | | 0.94% | | | | | | 0.97% | | | | | | 0.97% | | | | | | 0.96% | | | | | | 0.96% | |
| | | | | | | | | |
| | | 0.99% | | | | | | 0.98% | | | | | | 0.97% | | | | | | 0.96% | | | | | | 0.96% | |
| | | 5.22% | | | | | | 4.22% | | | | | | 2.41% | | | | | | 2.09% | | | | | | 2.08% | |
| | | | | | | | | |
| | | 5.17% | | | | | | 4.21% | | | | | | 2.41% | | | | | | 2.09% | | | | | | 2.08% | |
| | | 143% | | | | | | 157% | | | | | | 173% | | | | | | 90% | | | | | | 86% | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
27
Financial highlights
Delaware Floating Rate Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return4 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $5,279 were made by the Fund’s Class C shares, which calculated to an amount of $(0.002) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $11,921 were made by the Fund’s Class C shares, which calculated to an amount of $(0.003) per share. |
| 4 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
28
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | | | | | $ | 8.63 | |
| | | | | | | | | |
| | | 0.37 | | | | | | 0.29 | | | | | | 0.14 | | | | | | 0.11 | | | | | | 0.11 | |
| | | (0.06 | ) | | | | | (0.04 | ) | | | | | 0.11 | | | | | | (0.15 | ) | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.31 | | | | | | 0.25 | | | | | | 0.25 | | | | | | (0.04 | ) | | | | | (0.10 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.37 | ) | | | | | (0.30 | ) | | | | | (0.13 | ) | | | | | (0.06 | ) | | | | | (0.10 | ) |
| | | — | 2 | | | | | — | 3 | | | | | (0.02 | ) | | | | | (0.03 | ) | | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.37 | ) | | | | | (0.30 | ) | | | | | (0.15 | ) | | | | | (0.09 | ) | | | | | (0.11 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 8.28 | | | | | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 3.84% | | | | | | 3.08% | | | | | | 3.06% | | | | | | (0.46% | ) | | | | | (1.10% | ) |
| | | | | | | | | |
| | $ | 25,374 | | | | | $ | 30,512 | | | | | $ | 38,778 | | | | | $ | 51,400 | | | | | $ | 72,505 | |
| | | 1.69% | | | | | | 1.72% | | | | | | 1.72% | | | | | | 1.71% | | | | | | 1.71% | |
| | | | | | | | | |
| | | 1.74% | | | | | | 1.73% | | | | | | 1.72% | | | | | | 1.71% | | | | | | 1.71% | |
| | | 4.47% | | | | | | 3.47% | | | | | | 1.66% | | | | | | 1.34% | | | | | | 1.33% | |
| | | | | | | | | |
| | | 4.42% | | | | | | 3.46% | | | | | | 1.66% | | | | | | 1.34% | | | | | | 1.33% | |
| | | 143% | | | | | | 157% | | | | | | 173% | | | | | | 90% | | | | | | 86% | |
| | |
| |
29
Financial highlights
Delaware Floating Rate Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return4 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $13 were made by the Fund’s Class R shares, which calculated to an amount of $(0.002) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $163 were made by the Fund’s Class R shares, which calculated to an amount of $(0.003) per share. |
| 4 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
30
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | | | | | $ | 8.63 | |
| | | | | | | | | |
| | | 0.41 | | | | | | 0.33 | | | | | | 0.18 | | | | | | 0.15 | | | | | | 0.16 | |
| | | (0.06 | ) | | | | | (0.03 | ) | | | | | 0.11 | | | | | | (0.15 | ) | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.35 | | | | | | 0.30 | | | | | | 0.29 | | | | | | — | | | | | | (0.05 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.41 | ) | | | | | (0.35 | ) | | | | | (0.17 | ) | | | | | (0.10 | ) | | | | | (0.15 | ) |
| | | — | 2 | | | | | — | 3 | | | | | (0.02 | ) | | | | | (0.03 | ) | | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.41 | ) | | | | | (0.35 | ) | | | | | (0.19 | ) | | | | | (0.13 | ) | | | | | (0.16 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 8.28 | | | | | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 4.36% | | | | | | 3.60% | | | | | | 3.57% | | | | | | 0.03% | | | | | | (0.61% | ) |
| | | | | | | | | |
| | $ | 61 | | | | | $ | 416 | | | | | $ | 472 | | | | | $ | 494 | | | | | $ | 570 | |
| | | 1.19% | | | | | | 1.22% | | | | | | 1.22% | | | | | | 1.21% | | | | | | 1.21% | |
| | | | | | | | | |
| | | 1.24% | | | | | | 1.23% | | | | | | 1.22% | | | | | | 1.21% | | | | | | 1.21% | |
| | | 4.97% | | | | | | 3.97% | | | | | | 2.16% | | | | | | 1.84% | | | | | | 1.83% | |
| | | | | | | | | |
| | | 4.92% | | | | | | 3.96% | | | | | | 2.16% | | | | | | 1.84% | | | | | | 1.83% | |
| | | 143% | | | | | | 157% | | | | | | 173% | | | | | | 90% | | | | | | 86% | |
| | |
| |
31
Financial highlights
Delaware Floating Rate Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
|
|
Net asset value, beginning of period |
|
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
|
Less dividends and distributions from: |
Net investment income |
Return of capital |
Total dividends and distributions |
|
Net asset value, end of period |
|
Total return4 |
|
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets prior to fees waived |
Portfolio turnover |
| 1 | The average shares outstanding have been applied for per share information. |
| 2 | For the year ended July 31, 2019, return of capital distributions of $17,196 were made by the Fund’s Institutional Class shares, which calculated to an amount of $(0.002) per share. |
| 3 | For the year ended July 31, 2018, return of capital distributions of $56,356 were made by the Fund’s Institutional Class shares, which calculated to an amount of $(0.003) per share. |
| 4 | Total 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 return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
32
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | | | 7/31/18 | | | | | 7/31/17 | | | | | 7/31/16 | | | | | 7/31/15 | |
| |
| | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | | | | | $ | 8.63 | |
| | | | | | | | | |
| | | 0.45 | | | | | | 0.37 | | | | | | 0.22 | | | | | | 0.19 | | | | | | 0.20 | |
| | | (0.06 | ) | | | | | (0.03 | ) | | | | | 0.11 | | | | | | (0.15 | ) | | | | | (0.21 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 0.39 | | | | | | 0.34 | | | | | | 0.33 | | | | | | 0.04 | | | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | (0.45 | ) | | | | | (0.39 | ) | | | | | (0.21 | ) | | | | | (0.14 | ) | | | | | (0.19 | ) |
| | | — | 2 | | | | | — | 3 | | | | | (0.02 | ) | | | | | (0.03 | ) | | | | | (0.01 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (0.45 | ) | | | | | (0.39 | ) | | | | | (0.23 | ) | | | | | (0.17 | ) | | | | | (0.20 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | $ | 8.28 | | | | | $ | 8.34 | | | | | $ | 8.39 | | | | | $ | 8.29 | | | | | $ | 8.42 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | 4.88% | | | | | | 4.11% | | | | | | 4.08% | | | | | | 0.54% | | | | | | (0.11% | ) |
| | | | | | | | | |
| | $ | 82,643 | | | | | $ | 144,258 | | | | | $ | 190,698 | | | | | $ | 185,674 | | | | | $ | 229,549 | |
| | | 0.69% | | | | | | 0.72% | | | | | | 0.72% | | | | | | 0.71% | | | | | | 0.71% | |
| | | | | | | | | |
| | | 0.74% | | | | | | 0.73% | | | | | | 0.72% | | | | | | 0.71% | | | | | | 0.71% | |
| | | 5.47% | | | | | | 4.47% | | | | | | 2.66% | | | | | | 2.34% | | | | | | 2.33% | |
| | | | | | | | | |
| | | 5.42% | | | | | | 4.46% | | | | | | 2.66% | | | | | | 2.34% | | | | | | 2.33% | |
| | | 143% | | | | | | 157% | | | | | | 173% | | | | | | 90% | | | | | | 86% | |
| | |
| |
33
Notes to financial statements
| | |
| Delaware Floating Rate Fund | | July 31, 2019 |
Delaware Group® Income Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Corporate Bond Fund, Delaware Extended Duration Bond Fund, Delaware Floating Rate Fund, and Delaware High-Yield Opportunities Fund. These financial statements and the related notes pertain to Delaware Floating Rate Fund (Fund). The Fund is anopen-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R, and Institutional Class shares. Class A shares are sold with a maximumfront-end sales charge of 2.75%. Class A share purchases of $1,000,000 or more will incur a limited contingent deferred sales charge (CDSC) instead of afront-end sales charge of 0.75%, if redeemed during the first year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1.00%, 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 high current income and, secondarily, long-term total return.
1. Significant Accounting Policies
The Fund follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. The following accounting policies are in accordance with US generally accepted accounting principles (US GAAP) and are consistently followed by the Fund.
Security Valuation— Equity securities, except those traded on the Nasdaq Stock Market LLC (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange on the valuation date. Equity 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, the mean between the bid and ask prices will be used, which approximates fair value. Debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. US government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value.Open-end investment companies are valued at their published net asset value (NAV). Investments in repurchase agreements are generally valued at par, which approximates fair value, each business day. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Generally, 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 Trust’s Board of Trustees (Board). 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 suspension of trading in a security. Restricted securities are valued at fair value using methods approved by the Board.
Federal and Foreign Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the
34
requisite distributions to shareholders. The Fund evaluates 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 are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken or expected to be taken on the Fund’s federal income tax returns through the year ended July 31, 2019 and for all open tax years (years ended July 31, 2016–July 31, 2018), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries in which it invests that may date back to the inception of the Fund. If applicable, the Fund recognizes interest accrued on unrecognized tax benefits in interest expense and penalties in “Other expenses” on the “Statement of operations.” During the year ended July 31, 2019, the Fund did not incur any interest or tax penalties.
Class Accounting — Investment income and common expenses are allocated to the various 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 purchase certain US government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-partysub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. At July 31, 2019, the Fund held no investments in repurchase agreements.
Use of Estimates — The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Funds® by Macquarie (Delaware Funds) are generally allocated among such funds on the basis of average net assets. Management fees and certain 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 theex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized to interest income, respectively, over the lives of the respective securities using the effective interest method. The Fund declares dividends daily from net investment income and pays the dividends monthly and declares and pays distributions from net realized
35
Notes to financial statements
Delaware Floating Rate Fund
1. Significant Accounting Policies (continued)
gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on theex-dividend date.
The Fund receives earnings credits from its custodian when positive cash balances are maintained, which may be used to offset custody fees. The expenses paid under this arrangement are included on the “Statement of operations” under “Custodian fees” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, the Fund earned $6,995 under this arrangement.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which may be used to offset transfer agent fees. If the amount earned is greater than $1, the expenses paid under this arrangement are included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses” with the corresponding expenses offset included under “Less expenses paid indirectly.” For the year ended July 31, 2019, the Fund earned $188 under this arrangement.
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 Macquarie Investment Management Business Trust and the investment manager, an annual fee which is calculated daily and paid monthly at the rates of 0.50% on the first $500 million of average daily net assets of the Fund, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and 0.425% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive all or a portion, if any, of its management fee and/or pay/ reimburse the Fund to the extent necessary to ensure that total annual operating expenses (excluding any distribution and service(12b-1) fees, acquired fund fees and expenses, taxes, interest, short sale, dividend and interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) from exceeding 0.69% of average daily net assets. The expense waiver is in effect from Aug. 1, 2018 through July 31, 2019.* These waivers and reimbursements may only be terminated by agreement of DMC and the Fund. The waivers and reimbursements are accrued daily and received monthly.
36
Delaware Investments Fund Services Company (DIFSC), an affiliate of DMC, provides fund accounting and financial administrative oversight services to the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of all funds within the Delaware Funds at the following annual rates: 0.00475% of the first $35 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $45 billion (Total Fee). Each fund in the Delaware Funds pays a minimum of $4,000, which, in aggregate, is subtracted from the Total Fee. Each fund then pays its portion of the remainder of the Total Fee on a relative NAV basis. This amount is included on the “Statement of operations” under “Accounting and administration expenses.” For the year ended July 31, 2019, the Fund was charged $10,702 for these services.
Effective May 30, 2019, DMC may seek investment advice and recommendations from its affiliates: Macquarie Investment Management Europe Limited, Macquarie Investment Management Austria Kapitalanlage AG, and Macquarie Investment Management Global Limited (together, the “AffiliatedSub-Advisors”). The Manager may also permit these AffiliatedSub-Advisors to execute Fund security trades on behalf of the Manager and exercise investment discretion for securities in certain markets where DMC believes it will be beneficial to utilize an AffiliatedSub-Advisor��s specialized market knowledge. Although the AffiliatedSub-Advisors serve assub-advisors, DMC has ultimate responsibility for all investment advisory services. For these services, DMC, not the Fund, pays each AffiliatedSub-Advisor a portion of its investment management fee.
DIFSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, DIFSC’s fees are calculated daily and paid monthly based on the aggregate daily net assets of the retail funds within the Delaware Funds at the following annual rates: 0.014% of the first $20 billion; 0.011% of the next $5 billion; 0.007% of the next $5 billion; 0.005% of the next $20 billion; and 0.0025% of average daily net assets in excess of $50 billion. The fees payable to DIFSC under the shareholder services agreement described above are allocated among all retail funds in the Delaware Funds on a relative NAV basis. This amount is included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” For the year ended July 31, 2019, the Fund was charged $15,824 for these services. Pursuant to asub-transfer agency agreement between DIFSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certainsub-transfer agency services to the Fund.Sub-transfer agency fees are paid by the Fund and are also included on the “Statement of operations” under “Dividend disbursing and transfer agent fees and expenses.” The fees that are calculated daily and paid as invoices are received on a monthly or quarterly basis.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual12b-1 fee of 0.25%, 1.00%, and 0.50% of the average daily net assets of the Class A, Class C, and Class R shares, respectively. These fees are calculated daily and paid monthly. Institutional Class shares do not pay12b-1 fees.
As provided in the investment management agreement, the Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended July 31, 2019, the Fund was charged $4,964 for internal legal, tax, and regulatory reporting services provided by DMC and/or its affiliates’ employees. This amount is included on the “Statement of operations” under “Legal fees.”
37
Notes to financial statements
Delaware Floating Rate Fund
2. Investment Management, Administration Agreements, and Other Transactions with Affiliates (continued)
For the year ended July 31, 2019, DDLP earned $3,311 for commissions on sales of the Fund’s Class A shares. For the year ended July 31, 2019, DDLP received gross CDSC commissions of $3,413 and $2,016 on redemption of the Fund’s Class A and Class C shares, respectively, and these commissions were entirely used to offset upfront commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DIFSC, and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
In addition to the management fees and other expenses of the Fund, the Fund indirectly bears the investment management fees and other expenses of the investment companies (Underlying Funds) in which it invests. The amount of these fees and expenses incurred indirectly by the Fund will vary based upon the expense and fee levels of the Underlying Funds and the number of shares that are owned of the Underlying Funds at different times.
*The aggregate contractual waiver period covering this report is from April 1, 2018 through Nov. 28, 2019.
3. Investments
For the year ended July 31, 2019, the Fund made purchases and sales of investment securities other than short-term investments as follows:
| | | | |
Purchases | | $ | 247,336,556 | |
Sales | | | 309,403,644 | |
The tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. At July 31, 2019, the cost and unrealized appreciation (depreciation) of investments for federal income tax purposes for the Fund were as follows:
| | | | |
Cost of investments | | $ | 155,032,392 | |
| | | | |
Aggregate unrealized appreciation of investments | | $ | 1,052,312 | |
Aggregate unrealized depreciation of investments | | | (1,224,440 | ) |
| | | | |
Net unrealized depreciation of investments | | $ | (172,128 | ) |
| | | | |
US GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that
38
market participants would use in pricing the asset or liability based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.
| | | | |
| Level 1 | | – | | Inputs are quoted prices in active markets for identical investments. (Examples: equity securities, open-end investment companies, futures contracts, and exchange-traded options contracts) |
| | |
| Level 2 | | – | | Other observable inputs, including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs. (Examples: debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, and fair valued securities) |
| | |
| Level 3 | | – | | Significant unobservable inputs, including the Fund’s own assumptions used to determine the fair value of investments. (Examples: broker-quoted securities and fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity, and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
39
Notes to financial statements
Delaware Floating Rate Fund
3. Investments (continued)
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of July 31, 2019:
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Total | |
Securities | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Corporate Debt | | $ | — | | | $ | 11,403,107 | | | $ | 11,403,107 | |
Loan Agreements | | | — | | | | 134,084,932 | | | | 134,084,932 | |
Short-Term Investments | | | 9,372,225 | | | | — | | | | 9,372,225 | |
| | | | | | | | | | | | |
Total Value of Securities | | $ | 9,372,225 | | | $ | 145,488,039 | | | $ | 154,860,264 | |
| | | | | | | | | | | | |
During the year ended July 31, 2019, there were no transfers between Level 1 investments or Level 2 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels based on fair value at the beginning of the reporting period.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of the period in relation to net assets.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
| | | | | |
| | | Loan Agreements |
Balance as of 7/31/18 | | | $ | 6,142,641 | |
Net realized gain (loss) | | | | (134,182 | ) |
Net change in unrealized appreciation (depreciation) | | | | (33,827 | ) |
Purchases | | | | 7,010,832 | |
Sales | | | | (10,564,950 | ) |
Amortization | | | | 5,764 | |
Transfers into Level 31 | | | | 8,873,246 | |
Transfers out of Level 32 | | | | (11,299,524 | ) |
| | | | | |
Balance as of 7/31/19 | | | $ | — | |
| | | | | |
Net change in unrealized appreciation (depreciation) from Level 3 investments still held as of 7/31/19 | | | $ | — | |
| | | | | |
1Transferred from level 2 to level 3 due to the lack of available observable pricing inputs during the period.
2Transferred from level 3 to level 2 due to the availability of observable pricing inputs during the period.
40
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 US GAAP. Additionally, distributions from 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 years ended July 31, 2019 and 2018 was as follows:
| | | | | | | | |
| | | Year ended | |
| | | | |
| | | 7/31/19 | | | 7/31/18 | |
Ordinary income | | $ | 9,330,147 | | | $ | 10,621,926 | |
Return of capital | | | 30,534 | | | | 83,555 | |
| | | | | | | | |
Total | | $ | 9,360,681 | | | $ | 10,705,481 | |
| | | | | | | | |
5. Components of Net Assets on a Tax Basis
As of July 31, 2019, the components of net assets on a tax basis were as follows:
| | | | |
Shares of beneficial interest | | $ | 161,399,138 | |
Distributions payable | | | (220,599 | ) |
Capital loss carryforwards | | | (14,259,471 | ) |
Unrealized depreciation on investments | | | (172,128 | ) |
| | | | |
Net assets | | $ | 146,746,940 | |
| | | | |
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.
Under the Regulated Investment Company Modernization Act of 2010 (Act), net capital losses recognized for tax years beginning after Dec. 22, 2010 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses. At July 31, 2019, capital loss carryforwards available to offset future realized capital gains were as follows:
| | | | | | | | |
| | | | | Loss carryforward character | | | | |
| | | | | | | | | |
| | | Short-term | | Long-term | | Total | | |
| | $5,236,010 | | $9,023,461 | | $14,259,471 | | |
41
Notes to financial statements
Delaware Floating Rate Fund
6. Capital Shares
Transactions in capital shares were as follows:
| | | | | | | | |
| | | Year ended | |
| | | 7/31/19 | | | 7/31/18 | |
Shares sold: | | | | | | | | |
Class A | | | 2,193,604 | | | | 1,607,285 | |
Class C | | | 780,385 | | | | 345,171 | |
Class R | | | 147 | | | | 2,654 | |
Institutional Class | | | 4,096,196 | | | | 7,616,014 | |
| | |
Shares issued upon reinvestment of dividends and distributions: | | | | | | | | |
Class A | | | 235,888 | | | | 239,345 | |
Class C | | | 141,807 | | | | 135,198 | |
Class R | | | 1,614 | | | | 2,294 | |
Institutional Class | | | 661,135 | | | | 750,210 | |
| | | | | | | | |
| | | 8,110,776 | | | | 10,698,171 | |
| | | | | | | | |
| | |
Shares redeemed: | | | | | | | | |
Class A | | | (2,396,601 | ) | | | (3,106,058 | ) |
Class C | | | (1,515,842 | ) | | | (1,445,194 | ) |
Class R | | | (44,312 | ) | | | (11,319 | ) |
Institutional Class | | | (12,070,043 | ) | | | (13,805,251 | ) |
| | | | | | | | |
| | | (16,026,798 | ) | | | (18,367,822 | ) |
| | | | | | | | |
Net decrease | | | (7,916,022 | ) | | | (7,669,651 | ) |
| | | | | | | | |
Certain shareholders may exchange shares of one class for shares of another class in the same Fund. These exchange transactions are included as subscriptions and redemptions in the table above and on the “Statements of changes in net assets.” For the years ended July 31, 2019 and 2018, the Fund had the following exchange transactions:
| | | | | | | | | | | | | | | | | | | | |
| | | Exchange Redemptions | | | Exchange Subscriptions | | | | |
Year ended | | Class A
Shares | | | Class C
Shares | | | Class A
Shares | | | Institutional
Class
Shares | | | Value | |
| | | | | | | | | | | | | | | | |
7/31/19 | | | 5,007 | | | | 3,862 | | | | 300 | | | | 8,578 | | | $ | 73,440 | |
7/31/18 | | | 9,634 | | | | 5,168 | | | | 4,760 | | | | 10,056 | | | | 123,660 | |
7. Line of Credit
The Fund, along with certain other funds in the Delaware Funds (Participants), was a participant in a revolving line of credit intended to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The revolving line of credit available was reduced from $155,000,000 to $130,000,000 on Sept. 6, 2018. Under the agreement, the Participants were charged an annual commitment fee of 0.15%, which was allocated across the Participants based on a
42
weighted average of the respective net assets of each Participant. The Participants were permitted to borrow up to a maximum of one-third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit available under the agreement expired on Nov. 5, 2018.
On Nov. 5, 2018, the Participant entered into an amendment to the agreement for a $190,000,000 revolving line of credit. The revolving line of credit available was increased to $220,000,000 on Nov. 29, 2018. The revolving line of credit is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on Nov. 4, 2019.
The Fund had no amounts outstanding as of July 31, 2019 or at any time during the year then ended.
8. Securities Lending
The Fund, along with other funds in the Delaware Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (1) 102% with respect to US securities and foreign securities that are denominated and payable in US dollars; and (2) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities that are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day, which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower, BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security on any particular day may be more or less than the value of the security on loan. The collateral percentage with respect to the market value of the loaned security is determined by the security lending agent.
Cash collateral received by each fund of the Trust is generally invested in a series of individual separate accounts, each corresponding to a fund. The investment guidelines permit each separate account to hold certain securities that would be considered eligible securities for a money market fund. Cash collateral received is generally invested in government securities; certain obligations issued by government sponsored enterprises; repurchase agreements collateralized by US Treasury securities; obligations issued by the central government of any Organization for Economic Cooperation and Development (OECD) country or its agencies, instrumentalities, or establishments; obligations of supranational organizations; commercial paper, notes, bonds, and other debt obligations; certificates of deposit, time deposits, and other bank obligations; and asset-backed securities. The fund can also accept US government securities and letters of credit (non-cash collateral) in connection with securities loans.
43
Notes to financial statements
Delaware Floating Rate Fund
8. Securities Lending (continued)
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 or interest, as applicable, on the securities loaned and is subject to changes 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. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent, and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Fund may incur investment losses as a result of investing securities lending collateral. This could occur if an investment in the collateral investment account defaulted or became impaired. Under those circumstances, the value of the Fund’s cash collateral account may be less than the amount the Fund would be required to return to the borrowers of the securities and the Fund would be required to make up for this shortfall.
During the year ended July 31, 2019, the Fund had no securities out on loan.
9. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities, which are securities rated lower than BBB- by Standard & Poor’s Financial Services LLC and Baa3 by Moody’s Investor Service, Inc., or similarly rated by another nationally recognized statistical rating organization. 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 invests in certain obligations that may have liquidity protection designed to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor through third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of the security.
The Fund invests in bank loans and other securities that may subject it to direct indebtedness risk, the risk that the Fund will not receive payment of principal, interest, and other amounts due in connection with these investments and will depend primarily on the financial condition of the borrower. Loans that are fully secured offer the Fund more protection than unsecured loans in the event of nonpayment of scheduled interest or principal, although there is no assurance that the liquidation of collateral from a secured loan would satisfy the corporate borrower’s obligation, or that the collateral can be liquidated. Some loans or claims may be in default at the time of purchase. Certain of the loans and the other direct indebtedness acquired by the Fund may involve revolving credit facilities or other standby financing
44
commitments that obligate the Fund to pay additional cash on a certain date or on demand. These commitments may require the Fund to increase its investment in a company at a time when the Fund might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To the extent that the Fund is committed to advance additional funds, it will at all times hold and maintain cash or other high-grade debt obligations in an amount sufficient to meet such commitments. When a loan agreement is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by the borrower. Prepayment penalty, facility, commitment, consent, and amendment fees are recorded to income as earned or paid.
As the Fund may be required to rely upon another lending institution to collect and pass on to the Fund amounts payable with respect to the loan and to enforce the Fund’s rights under the loan and other direct indebtedness, an insolvency, bankruptcy, or reorganization of the lending institution may delay or prevent the Fund from receiving such amounts. The highly leveraged nature of many loans may make them especially vulnerable to adverse changes in economic or market conditions. Investments in such loans and other direct indebtedness may involve additional risk to the Fund.
When interest rates rise, fixed income securities (i.e. debt obligations) generally will decline in value. These declines in value are greater for fixed income securities with longer maturities or durations.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A, promulgated under 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 Board 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 securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. Rule 144A securities have been identified on the “Schedule of investments.” Restricted securities are valued pursuant to the security valuation procedures described in Note 1.
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.
11. Recent Accounting Pronouncements
In March 2017, the FASB issued an Accounting Standards Update (ASU), ASU 2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain callable debt securities purchased at a premium, shortening such period to the earliest call date. The ASU 2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to
45
Notes to financial statements
Delaware Floating Rate Fund
11. Recent Accounting Pronouncements (continued)
be amortized to maturity. The ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the FASB issued an ASU 2018-13, which changes certain fair value measurement disclosure requirements. The ASU 2018-13, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. The ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after Dec. 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Securities and Exchange Commission (SEC) adopted amendments to Regulation S-X to update and simplify the disclosure requirements for registered investment companies by eliminating requirements that are redundant or duplicative of US GAAP requirements or other SEC disclosure requirements. The new amendments require the presentation of the total, rather than the components, of distributable earnings on the “Statement of assets and liabilities” and the total, rather than the components, of dividends from net investment income and distributions from net realized gains on the “Statements of changes in net assets.” The amendments also removed the requirement for the parenthetical disclosure of undistributed net investment income on the “Statements of changes in net assets” and certain tax adjustments that were reflected in the “Notes to financial statements.” All of these have been reflected in the Fund’s financial statements.
12. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to July 31, 2019, that would require recognition or disclosure in the Fund’s financial statements.
46
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Income Funds and Shareholders of Delaware Floating Rate Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware Floating Rate Fund (one of the funds constituting Delaware Group® Income Funds, referred to hereafter as the “Fund”) as of July 31, 2019, the related statement of operations for the year ended July 31, 2019, the statements of changes in net assets for each of the two years in the period ended July 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended July 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of July 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended July 31, 2019 and the financial highlights for each of the five years in the period ended July 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2019 by correspondence with the custodian, transfer agents and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
September 17, 2019
We have served as the auditor of one or more investment companies in Delaware Funds® by Macquarie since 2010.
47
Other Fund information (Unaudited)
Delaware Floating Rate Fund
Tax Information
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of the Fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All disclosures are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended July 31, 2019, the Fund reports distributions paid during the year as follows:
| | | | |
(A) Ordinary Income Distribution (Tax Basis) | | | 99.67% | |
(B) Return of Capital (Tax Basis) | | | 0.33% | |
Total Distributions (Tax Basis) | | | 100.00% | |
(A) and (B) are based on a percentage of the Fund’s total distributions.
Board consideration of Sub-Advisory agreements for Delaware Floating Rate Fund at a meeting held February 27-28, 2019
At a meeting held on Feb. 27-28, 2019, the Board of Trustees (the “Board”) of Delaware Floating Rate Fund (the “Fund”), including a majority of non-interested or independent Trustees (the “Independent Trustees”), approved new Sub-Advisory Agreements between Delaware Management Company (“DMC” or “Management”) and Macquarie Investment Management Europe Limited (“MIMEL”), Macquarie Investment Management Austria Kapitalanlage (“MIMAK”), and Macquarie Investment Management Global Limited (“MIMGL”), respectively. MIMEL, MIMAK, and MIMGL may also be referenced as “Sub-Advisors” below.
In reaching the decision to approve the Sub-Advisory Agreements, the Board considered and reviewed information about each of MIMEL, MIMAK, and MIMGL, including its personnel, operations, and financial condition, which had been provided by MIMEL, MIMAK, and MIMGL, respectively. The Board also reviewed material furnished by DMC in advance of the meeting, including: a memorandum from DMC reviewing the Sub-Advisory Agreements and the various services proposed to be rendered by MIMEL, MIMAK, and MIMGL; information concerning MIMEL’s, MIMAK’s, and MIMGL’s organizational structure and the experience of their key investment management personnel; copies of MIMEL’s, MIMAK’s, and MIMGL’s Form ADV, financial statements, compliance policies and procedures, and Codes of Ethics; relevant performance information provided with respect to MIMEL, MIMAK, and MIMGL; and a copy of the Sub-Advisory Agreements.
In considering such information and materials, the Independent Trustees received assistance and advice from and met separately with their independent counsel. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s decision to approve the Sub-Advisory Agreements. This discussion of the information and factors considered by the Board (as
48
well as the discussion above) is not intended to be exhaustive, but rather summarizes certain factors considered by the Board. In view of the wide variety of factors considered, the Board did not, unless otherwise noted, find it practicable to quantify or otherwise assign relative weights to the following factors. In addition, individual Trustees may have assigned different weights to various factors.
Nature, extent, and quality of services.In considering the nature, extent, and quality of the services to be provided by the Sub-Advisors, the Board reviewed the services to be provided by each Sub-Advisor pursuant to each Sub-Advisory Agreement and as described at the meeting. The Board reviewed materials provided by the Sub-Advisors regarding the experience and qualifications of the personnel who will be responsible for providing services to the Fund. The Board also considered relevant performance information provided with respect to each Sub-Advisor. In discussing the nature of the services proposed to be provided by the Sub-Advisors, it was observed that, unlike traditional sub-advisors who make all of the investment related decisions with respect to a sub-advised portfolio, the relationship between DMC (the Fund’s investment manager) and the Sub-Advisors as currently contemplated is primarily more of a collaborative effort between DMC and the Sub-Advisors and a cross pollination of investment ideas. The Board further noted the stated intention under the new Sub-Advisory Agreements that DMC would have the sole discretion to delegate portions of the implementation of the Fund’s strategy to the Sub-Advisors who would be permitted to execute Fund trades and exercise investment discretion pursuant to that delegation and subject to DMC oversight. However, DMC and the Fund’s named portfolio managers will continue to retain principal responsibility for the Fund’s strategy and investment process and be primarily responsible for the day-to-day management of the Fund’s portfolio. Based upon these considerations, the Board was satisfied with the nature and quality of the overall services to be provided by the to the Fund and its shareholders and was confident in the abilities of the Sub-Advisors to provide quality services to the Fund and its shareholders.
Investment performance.In regards to the appointment of the Sub-Advisors for the Fund, the Board reviewed information on prior performance for the Sub-Advisors. In evaluating performance, the Board considered that the Sub-Advisors would provide investment advice and recommendations, including with respect to specific securities, but that DMC’s portfolio managers for the Fund would retain principal responsibility for the Fund’s strategy as described above. In addition, the Board considered that the Sub-Advisors would also execute Fund security trades on behalf of DMC and be permitted by DMC to exercise investment discretion for securities in certain markets where DMC wanted to utilize a Sub-Advisor’s specialized market knowledge.
Sub-Advisory fees.The Board considered that DMC would pay the Sub-Advisors a sub-advisory fee based on the extent to which a Sub-Advisor provides services to the Fund as described in the Sub-Advisory Agreements. In considering the appropriateness of the sub-advisory fees, the Board also reviewed and considered the fees in light of the nature, extent, and quality of the sub-advisory services to be provided by each Sub-Advisor, as more fully discussed above. The Board noted that the sub-advisory fees are paid by DMC to each Sub-Advisor and are not additional fees borne by the Fund, and that the management fee paid by the Fund to DMC would stay the same at current asset levels. The Board was provided with information showing an estimate of the sub-advisory fees to be paid to each Sub-Advisor based on a projection of Sub-Advisor allocations given certain historical investment trends, as well as information regarding the expected impact the sub-advisory arrangements would have on the profitability of DMC. The Board also noted that, given the collaborative nature of the services to be
49
Other Fund information (Unaudited)
Delaware Floating Rate Fund
Board consideration of Sub-Advisory agreements for Delaware Floating Rate Fund at a meeting held February 27-28, 2019 (continued)
provided by the Sub-Advisors to the Fund, there were no comparable accounts and corresponding fees to which the Sub-Advisors were able to compare this arrangement. The Board concluded that, in light of the quality and extent of the services to be provided and the business relationships between DMC and the Sub-Advisors, the proposed fee arrangement was understandable and reasonable.
Profitability, economies of scale, and fall-out benefits.Information about each Sub-Advisor’s profitability from its relationship with the Fund was not available because it had not begun to provide services to the Fund. With regard to potential fall-out benefits derived or to be derived by the Sub-Advisors and their affiliates in connection with their relationship to the Fund, the Board considered the potential benefit to DMC and the Sub-Advisors of marketing a global approach on the portfolio management of their fixed income investment strategies. The Trustees also noted that economies of scale are shared with the Fund and its shareholders through investment management fee breakpoints in DMC’s fee schedule for the Fund so that as the Fund grows in size, its effective investment management fee rate declines.
50
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Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
| | | | |
Name, Address, and Birth Date | | Position(s) Held with Fund(s) | | Length of Time Served |
Interested Trustee | | | | |
Shawn K. Lytle1 | | President, | | President and |
2005 Market Street | | Chief Executive Officer, | | Chief Executive Officer |
Philadelphia, PA 19103 | | and Trustee | | since August 2015 |
February 1970 | | | | |
| | | | Trustee since |
| | | | September 2015 |
Independent Trustees | | | | |
Thomas L. Bennett | | Chair and Trustee | | Trustee since |
2005 Market Street | | | | March 2005 |
Philadelphia, PA 19103 | | | | |
October 1947 | | | | Chair since |
| | | | | March 2015 |
Jerome D. Abernathy | | Trustee | | Since January 2019 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
July 1959 | | | | |
| | |
| | | | | |
Ann D. Borowiec | | Trustee | | Since March 2015 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
November 1958 | | | | |
| 1 | Shawn K.Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor. |
52
for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
President — Macquarie | | 59 | | Trustee — UBS |
Investment Management2 | | | | Relationship Funds, |
(June 2015–Present) | | | | SMA Relationship |
| | | | Trust, and UBS Funds |
Regional Head of | | | | (May 2010–April 2015) |
Americas — UBS Global | | | | |
Asset Management | | | | |
(April 2010–May 2015) | | | | |
| | | | |
Private Investor | | 59 | | None |
(March 2004–Present) | | | | |
| | |
| | | | | |
Managing Member, | | 59 | | None |
Stonebrook Capital | | | | |
Management, LLC (financial technology: macro factors and databases) | | | | |
(January 1993–Present) | | | | |
Chief Executive Officer, | | 59 | | Director — |
Private Wealth Management | | | | Banco Santander International |
(2011–2013) and | | | | (October 2016–Present) |
Market Manager, | | | | |
New Jersey Private | | | | Director — |
Bank (2005–2011) — | | | | Santander Bank, N.A. |
J.P. Morgan Chase & Co. | | | | (December 2016–Present) |
| 2 | Macquarie Investment Management is the marketing name for Macquarie Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent. |
53
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) |
| | |
Joseph W. Chow | | Trustee | | Since January 2013 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
January 1953 | | | | |
| |
| | |
John A. Fry | | Trustee | | Since January 2001 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
May 1960 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| |
| | |
Lucinda S. Landreth | | Trustee | | Since March 2005 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
June 1947 | | | | |
54
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
| | |
Private Investor | | 59 | | Director and Audit Committee |
(April 2011–Present) | | | | Member — Hercules |
| | | | Technology Growth |
| | | | Capital, Inc. |
| | | | | (July 2004–July 2014) |
President — | | 59 | | Director; Compensation |
Drexel University | | | | Committee and |
(August 2010–Present) | | | | Governance Committee |
| | | | Member — Community |
President — | | | | Health Systems |
Franklin & Marshall College | | | | (May 2004–present) |
(July 2002–June 2010) | | | | |
| | | | Director — Drexel |
| | | | Morgan & Co. |
| | | | (2015–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — vTv |
| | | | Therapeutics Inc. |
| | | | (2017–present) |
| | |
| | | | Director and Audit Committee |
| | | | Member — FS Credit Real |
| | | | Estate Income Trust, Inc. |
| | | | | (2018–present) |
Private Investor | | 59 | | None |
(2004–Present) | | | | |
| | | | |
| | | | |
55
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) |
Frances A. Sevilla-Sacasa | | Trustee | | Since September 2011 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
January 1956 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
Thomas K. Whitford | | Trustee | | Since January 2013 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
March 1956 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | |
56
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
Private Investor | | 59 | | Trust Manager and |
(January 2017–Present) | | | | Audit Committee |
| | | | Chair — Camden |
Chief Executive Officer — | | | | Property Trust |
Banco Itaú | | | | (August 2011–Present) |
International | | | | |
(April 2012–December 2016) | | | | Director; Audit |
| | | | Committee Member — |
Executive Advisor to Dean | | | | Carrizo Oil & Gas, Inc. |
(August 2011–March 2012) | | | | (March 2018–Present) |
and Interim Dean | | | | |
(January 2011–July 2011) — | | | | |
University of Miami School of | | | | |
Business Administration | | | | |
| | |
President — U.S. Trust, | | | | |
Bank of America Private | | | | |
Wealth Management | | | | |
(Private Banking) | | | | |
(July 2007–December 2008) | | | | |
Vice Chairman | | 59 | | Director — HSBC North |
(2010–April 2013) — | | | | America Holdings Inc. |
PNC Financial | | | | (December 2013–Present) |
Services Group | | | | |
| | | | Director — HSBC USA Inc. |
| | | | (July 2014–Present) |
| | |
| | | | Director — |
| | | | HSBC Bank USA, |
| | | | National Association |
| | | | (July 2014–March 2017) |
| | |
| | | | Director — HSBC |
| | | | Finance Corporation |
| | | | | (December 2013–April 2018) |
57
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) |
Christianna Wood | | Trustee | | Since January 2019 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
August 1959 | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
58
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
| | |
Chief Executive Officer | | 59 | | Director; Finance Committee |
and President — | | | | and Audit Committee |
Gore Creek | | | | Member — H&R |
Capital, Ltd. | | | | Block Corporation |
(August 2009–Present) | | | | (July 2008–Present) |
| | |
| | | | Director; Chair of Investments |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | Grange Insurance |
| | | | (2013–Present) |
| | |
| | | | Trustee; Chair of |
| | | | Nominating and Governance |
| | | | Committee and Audit |
| | | | Committee Member — |
| | | | The Merger Fund |
| | | | (2013–Present), |
| | | | The Merger Fund VL |
| | | | (2013-Present), |
| | | | WCM Alternatives: |
| | | | Event-Driven Fund |
| | | | (2013–Present), |
| | | | and WCM Alternatives: |
| | | | Credit Event Fund |
| | | | (December 2017–Present) |
| | |
| | | | Director; Chair of |
| | | | Governance Committee |
| | | | and Audit Committee |
| | | | Member — International |
| | | | Securities Exchange |
| | | | | (2010–2016) |
59
Board of trustees / directors and officers addendum
Delaware Funds®by Macquarie
| | | | |
| Name, Address, | | Position(s) | | Length of |
| and Birth Date | | Held with Fund(s) | | Time Served |
Independent Trustees (continued) |
Janet L. Yeomans | | Trustee | | Since April 1999 |
2005 Market Street | | | | |
Philadelphia, PA 19103 | | | | |
July 1948 | | | | |
| | | | |
| | | | |
| | | | |
Officers | | | | |
| | |
David F. Connor | | Senior Vice President, | | Senior Vice President since |
2005 Market Street | | General Counsel, | | May 2013; General |
Philadelphia, PA 19103 | | and Secretary | | Counsel since May 2015; |
December 1963 | | | | Secretary since |
| | | | | October 2005 |
| | |
Daniel V. Geatens | | Vice President | | Vice President and |
2005 Market Street | | and Treasurer | | Treasurer since October 2007 |
Philadelphia, PA 19103 | | | | |
October 1972 | | | | |
| | | | |
| | |
Richard Salus | | Senior Vice President | | Senior Vice President and |
2005 Market Street | | and Chief Financial Officer | | Chief Financial Officer |
Philadelphia, PA 19103 | | | | since November 2006 |
October 1963 | | | | |
| | | | |
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
60
| | | | |
| | | Number of Portfolios in | | |
| Principal Occupation(s) | | Fund Complex Overseen | | Other Directorships |
| During the Past Five Years | | by Trustee or Officer | | Held by Trustee or Officer |
| | | | |
| | |
Vice President and Treasurer | | 59 | | Director; Personnel and |
(January 2006–July 2012), | | | | Compensation Committee |
Vice President — | | | | Chair; Member of Nominating, |
Mergers & Acquisitions | | | | Investments, and Audit |
(January 2003–January 2006), | | | | Committees for various |
and Vice President | | | | periods throughout |
and Treasurer | | | | directorship — |
(July 1995–January 2003) — | | | | Okabena Company |
3M Company | | | | (2009–2017) |
| | | | |
| | |
David F. Connor has served | | 59 | | None3 |
in various capacities at different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
Daniel V. Geatens has served | | 59 | | None3 |
in various capacities at different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
Richard Salus has served | | 59 | | None3 |
in various capacities at different times at | | | | |
Macquarie Investment | | | | |
Management. | | | | |
| | 3 | David F. Connor, Daniel V. Geatens, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. Mr. Geatens also serves as the Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which has an affiliated investment manager. |
61
About the organization
| | | | | | | | |
| Board of trustees | | | | | | | | |
| Shawn K. Lytle | | Ann D. Borowiec | | Lucinda S. Landreth | | | Thomas K. Whitford | |
| President and | | Former Chief Executive | | Former Chief Investment | | | Former Vice Chairman | |
| Chief Executive Officer | | Officer | | Officer | | | PNC Financial Services Group | |
| Delaware Funds® | | Private Wealth Management | | Assurant, Inc. | | | Pittsburgh, PA | |
| by Macquarie | | J.P. Morgan Chase & Co. | | New York, NY | | | | |
| Philadelphia, PA | | New York, NY | | Frances A. Sevilla-Sacasa | |
| Christianna Wood
Chief Executive Officer and President |
|
Thomas L. Bennett | | Joseph W. Chow |
| Chairman of the Board | | Former Executive Vice | | Former Chief Executive | | | Gore Creek Capital, Ltd. | |
| Delaware Funds | | President | | Officer | | | Golden, CO | |
| by Macquarie | | State Street Corporation | | Banco Itaú International | | | Janet L. Yeomans | |
| Private Investor | | Boston, MA | | Miami, FL | | | Former Vice President and | |
| Rosemont, PA | | John A. Fry | | | | | Treasurer | |
Jerome D. Abernathy Managing Member | | President Drexel University | | | |
| 3M Company
St. Paul, MN |
|
| Stonebrook Capital | | Philadelphia, PA | | | | | | |
| Management, LLC | | | | | | | | |
| Jersey City, NJ | | | | | | | | |
| | | |
| Affiliated officers | | | | | | | | |
| | | |
| David F. Connor | | Daniel V. Geatens | | Richard Salus | | | | |
| Senior Vice President, | | Vice President and | | Senior Vice President and | | | | |
| General Counsel, | | Treasurer | | Chief Financial Officer | | | | |
| and Secretary | | Delaware Funds | | Delaware Funds | | | | |
| Delaware Funds | | by Macquarie | | by Macquarie | | | | |
| by Macquarie | | Philadelphia, PA | | Philadelphia, PA | | | | |
| Philadelphia, PA | | | | | | | | |
This annual report is for the information of Delaware Floating Rate Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawarefunds.com/literature.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q or Form N-PORT (available for filings after March 31, 2019). The Fund’s Forms N-Q or Forms N-PORT, 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; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Schedule of Investments included in the Fund’s most recent Form N-Q or Form N-PORT are available without charge on the Fund’s website at delawarefunds.com/literature. The Fund’s Forms N-Q and Forms N-PORT may be reviewed and copied at the SEC’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 website at delawarefunds.com/proxy; and (ii) on the SEC’s website at sec.gov.
62
Item 2. Code of Ethics
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and financial statements;
b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial reporting; and
e. An understanding of audit committee functions.
An “audit committee financial expert” shall have acquired such attributes through:
a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;
c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or
d. Other relevant experience.
The registrant’s Board of Trustees has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
Item 4. Principal Accountant Fees and Services
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $175,680 for the fiscal year ended July 31, 2019.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $172,240 for the fiscal year ended July 31, 2018.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended July 31, 2019.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended July 31, 2018.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended July 31, 2019.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended July 31, 2018.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended July 31, 2019.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended July 31, 2018.
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.
The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $9,955,000 and $11,748,000 for the registrant’s fiscal years ended July 31, 2019 and July 31, 2018, respectively.
(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
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
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 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.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the period covered by the report to stockholders included herein that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable.
Item 13. Exhibits
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.
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.
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.
