N-CSR 1 d207134dncsr.htm IVY HIGH INCOME OPPORTUNITIES FUND Ivy High Income Opportunities Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22800

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DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

--------------------------------------------------------------------------------

(Exact name of registrant as specified in charter)

100 Independence, 610 Market Street, Philadelphia, PA 19106-2354

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(Address of principal executive offices) (Zip code)

David F. Connor, Esq.

100 Independence, 610 Market Street

Philadelphia, PA 19106-2354

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(Name and address of agent for service)

Registrant’s telephone number, including area code: (800) 523-1918

Date of fiscal year end: September 30

Date of reporting period: September 30, 2021


ITEM 1.  REPORTS TO STOCKHOLDERS.

 

 

1


LOGO

  

 

Annual Report

 

SEPTEMBER 30, 2021

 

 

 

 

Delaware Ivy High Income Opportunities Fund*

 

*EffectiveJuly 1, 2021, the name of Ivy High Income Opportunities Fund changed to Delaware Ivy High Income Opportunities Fund

 
The Fund’s common shares are listed on the New York  
Stock Exchange and trade under the ticker symbol IVH  

 

 

The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle.

IVY INVESTMENTSSM refers to the investment management and investment advisory services offered by Macquarie Investment Management Business Trust (MIMBT) through its various series.

On December 2, 2020, Waddell & Reed Financial, Inc. (“WDR”), the parent company of Ivy Investment Management Company, the investment adviser of the Ivy Funds Complex (the “Ivy Funds”), and Macquarie Management Holdings, Inc., the U.S. holding company for Macquarie Group Limited’s U.S. asset management business (“Macquarie”), announced that they had entered into an agreement whereby Macquarie would acquire the investment management business of WDR (the “Transaction”).

The Transaction closed on April 30, 2021. The Fund, as part of Delaware Funds by Macquarie, is now managed by Delaware Management Company, a series of Macquarie Investment Management Business Trust.    


CONTENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND*

 

 

 

Management Discussion, Portfolio Highlights and Schedule of Investments

     3  

Statement of Assets and Liabilities

     13  

Statement of Operations

     14  

Statements of Changes in Net Assets

     15  

Statement of Cash Flows

     16  

Financial Highlights

     17  

Notes to Financial Statements

     18  

Report of Independent Registered Public Accounting Firm

     29  

Income Tax Information

     30  

Other Fund Information

     31  

Dividend Reinvestment Plan

     35  

Board of Trustees / Directors and Officers Addendum

     36  

Board Considerations in Approving DMC/Sub-Advisory Agreements

     41  

Annual Privacy Notice

     46  

Shareholder Meeting Results

     48  

Proxy Voting Information

     49  

Quarterly Portfolio Schedule Information

     49  

Householding Notice

     49  

Certifications

     49  

 

*

Effective July 1, 2021, the name of Ivy High Income Opportunities Fund changed to Delaware Ivy High Income Opportunities Fund.

Macquarie Investment Management (MIM) is a global asset manager with offices in 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.

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), Macquarie Funds Management Hong Kong Limited, Macquarie Investment Management Austria Kapitalanlage AG, Macquarie Investment Management Global Limited, Macquarie Investment Management Europe Limited, and Macquarie Investment Management Europe S.A.

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 September 30, 2021, 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.

© 2021 Macquarie Management Holdings, Inc.

 

2


MANAGEMENT DISCUSSION   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND*

 

 

 

(UNAUDITED)

 

Below, Chad Gunther, portfolio manager of the Delaware Ivy High Income Opportunities Fund, discusses positioning, performance and results for the fiscal year ended September 30, 2021. Mr. Gunther has been manager of the Fund since 2014 and has 23 years of industry experience.

Fiscal Year Performance

 

For the 12 Months Ended September 30, 2021

        

Delaware Ivy High Income Opportunities Fund (Fund at net asset value)

     20.86%  

Delaware Ivy High Income Opportunities Fund (Fund at market price)

     26.28%  

Benchmark and Morningstar Category

        

ICE BofA US High Yield Index

     11.46%  

(generally reflects the performance of securities representing the high-yield sector of the bond market)

        

Morningstar High Yield Bond Universe Average

     10.50%  

(generally reflects the performance of the universe of funds with similar investment objectives)

        

Market update

The recovery in spreads that started with the US Federal Reserve’s (Fed) announcement of unlimited quantitative easing in March 2020 continued in fiscal year 2021. Spreads on the JP Morgan High Yield Index started the fiscal year at 603 basis points (bps) and by fiscal year end had declined to 385 bps. The low point in spreads during the fiscal year was 369 basis points on July 1, 2021 before a new wave of COVID-19 (Delta variant) swept through the world, causing a 47 bps widening in July and August. This widening was short lived as the number of people vaccinated continued to increase and the death rate from this new wave being much less severe than the initial coronavirus outbreak. The Fed has continued to stoke the liquidity fire, expanding its current balance sheet to an unprecedented $8.45 trillion.

Interest rates for the fiscal year reversed the downward trend seen over the past two fiscal years. The 10-year Treasury increased from 65 bps to 146 bps at fiscal year end. The three-year Treasury had an even bigger jump (on a percentage basis), going from 16 bps to 51 bps at year end. The reversal in rates can be attributed to the expansion of the Fed’s balance sheet driving growth as well as vaccination adoption increasing, albeit slowly.

Year-to-date, new issue activity for high-yield bonds totaled $409.7 billion (gross) and $150.6 billion (net). Additionally, year-to-date, leveraged loan issuance stands at $655.5 billion (gross) and $284.3 billion (net), which is up 110% and 138% (year-over-year), respectively.

2021 has seen outflows in high-yield mutual funds, with $11.8 billion leaving the asset class through September 30. That said, more recently outflows have subsided, with August and September inflowing $1.26 billion and $1.26 billion, respectively. Leveraged-loan flows, on the other hand, have been inflowing since the beginning of 2021. Year-to-date, cumulative inflows total $35.3 billion.

Over the first nine months of 2021, a total of 10 companies defaulted, totaling $4.1 billion in bonds and $3.5 billion in loans. Additionally, six companies have completed distressed transactions totaling $2.1 billion. This year’s default volume is on pace to be the lightest in a calendar year since $4.5 billion defaulted in 2007.

Portfolio strategy/performance

The Fund outperformed its benchmark index and Morningstar peer group for the fiscal year. The Fund’s loan exposure contributed 341 bps to outperformance relative to the benchmark, while the Fund’s bond exposure contributed 448 bps to relative outperformance. On the other hand, equities detracted 307 bps from performance.

The portfolio mix started the fiscal year with 70% in high-yield bonds, 26% loans and 4% other. We ended the fiscal year with bonds (64%), loans (29%) and preferred/common equity (6%). In previous communications, we said we maintained our exposure to leveraged loans as we thought they continued to offer attractive yields relative to their seniority in the capital structure. We still believe their relative attractive yields are intact. Bond holdings, broken down by ratings quality, ended the fiscal year at 7.4%, 65.4%, 24.8% and 2.5% for BB, B, CCC and below CCC, respectively.

While the Fund handily outperformed its benchmark and peer group average, performance was diminished by our investments in New Cotai Participation Corp./Studio City International Holdings Ltd. ADR, a Macau casino. COVID-19 continues to have an adverse impact on the region, limiting tourist travel to the destination. That said, the gaming market in Macau is the largest employer in the region, and we believe China’s growing middle class will offer opportunity as they look for entertainment destinations. We acknowledge short-term catalysts are limited, but the risk/reward trade-off at

 

     
    2021       ANNUAL REPORT       3  


           

 

 

 

 

current valuations looks very compelling in our view. On the bond side of the portfolio, detractors from performance were underweights in the gas midstream sector and the oil field services sector. On the loan side, Westmoreland Mining Holdings LLC negatively impacted performance.

We had several outperformers in both our bond and loan investments for the fiscal year. On the loan side, outperformance was led by Dynacast as the company was successful in refinancing its second lien term loan, meaning we were paid out at close to par after being marked at the beginning of the year closer to 50% of par. Another loan with similar performance was Cyxtera Technologies, as the company went public through a special-purpose acquisition company (SPAC). Proceeds were used to redeem our second lien at par. In our bond portfolio, credits in the services, wireless and wireline sectors handily outperformed the benchmark. Our philosophy of owning higher concentrations in higher conviction investments contributed to the outperformance. West Corp., Staples, Inc., Digicel Group Ltd. and Frontier Communications Corp. were all big outperformers during the fiscal year. Credits in the advertising sector also contributed to outperformance but to a lesser degree.

Outlook

Previously we conveyed our belief that unemployment would continue to decline especially as we moved into September and October when government stimulus payments started to expire. Over the past few weeks, we have seen an acceleration to the downside of total continuing claims which supports this view. With solid earnings, declining COVID-19 cases from the Delta variant, tax receipts increasing, and consumer net worth at an all-time high, we feel that the back drop for continued recovery and growth remain strong. The US Federal Reserve’s (Fed) acknowledgment of these trends has set up a consensus view that a taper announcement is forthcoming at the November meeting. The high-yield bond market has responded by returning just three basis points in the month of September, the lowest monthly return in the past 12 months. In sharp contrast, the leverage loan market had its best month of returns since January.

Going forward against a backdrop of rich valuations and a less favorable growth/policy mix, we expect spreads (currently at 320 basis points) will drift modestly wider in the upcoming quarters. As we stated in our last commentary, we think volatility will be centered around the direction of inflation and inflation expectations. The recent rate rally indicates the market may be signaling the overall market view is the Fed is behind the curve in tapering and ultimately raising rates. Inflation news of late has been overpowering, and if the numbers continue to surprise on the upside, the transitory hypothesis around inflation will be called more and more into question. Therefore, the biggest visible risk in our view is a significant acceleration in inflation that brings on a surge in bond yields and aggressive Fed action. Other risks include higher commodity prices, wages, Chinese property developer debt crisis (and any spillover effects), and new fiscal policies that could impact spending and/or growth.

Despite the risks mentioned above, there are several current or likely tailwinds worth noting: Massive monetary stimulus, more reopening, unprecedented surge in consumer net worth and consumer excess saving, supply chain problems ease, and inventory rebuilding extends the business cycle. Default forecasts predict a continuation of low defaults for the foreseeable future and into 2022 as well. Our outlook for returns continues to be benign, and we expect the rest of the year to be a coupon-clipping exercise with bouts of volatility related to rates, inflation, and the growth outlook in a post-pandemic world.

Significant Event(s): Effective November 15, 2021, the Fund’s portfolio management team consists of Adam H. Brown and John P. McCarthy.

*Effective July 1, 2021, the Fund name changed from Ivy High Income Opportunities Fund.

The investment return, price, yields, market value and NAV of a fund’s shares will fluctuate with market conditions. Closed-end funds frequently trade at a discount to their NAV, which may increase an investor’s risk of loss. At the time of sale, your shares may have a market price that is above or below NAV, and it may be worth more or less than your original investment. There is no assurance that the Fund will meet its investment objective.

Risk factors: The price of the Fund’s shares will fluctuate with market conditions and other factors. Fund shares are not guaranteed or endorsed by any bank or other insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than with higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans that are unsecured or not fully collateralized may be subject to restrictions on resale and its resale may trade infrequently on the secondary market. An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle. The opinions expressed in this report are those of the portfolio manager and are current only through the end of the period of the report as stated on the cover. The portfolio manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed.

 

4   ANNUAL REPORT   2021  
     


PORTFOLIO HIGHLIGHTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND(a)

 

 

 

ALL DATA IS AS OF SEPTEMBER 30, 2021 (UNAUDITED)

 

Total Return(1)    Market Price        NAV  

1-year period ended 9-30-21

     23.59%          18.29%  

5-year period ended 9-30-21

     10.61%          10.68%  

Commencement of operations (5-29-13) through 9-30-21

     6.69%          8.43%  

 

Market Price/NAV Performance

Commencement of operations (5-29-13) through 9-30-21

 

LOGO

Market Price/NAV       

Market Price

   $ 13.67  

NAV

   $ 14.93  

Discount to NAV(3)

     (8.44)%  

Market Price Yield(4)

     6.14%  

Structural Leverage Ratio(5)

     26.02%  

Effective Leverage Ratio(6)

     26.17%  

Net asset value or “NAV” is the value of one share of a fund as calculated in accordance with the standard formula for valuing mutual fund shares. The price used to calculate market return (“Market Price”) is determined by using the midpoint between the highest bid and the lowest ask on the primary stock exchange on which shares of a fund are listed for trading, as of the time that such fund’s NAV is calculated. Market and NAV returns assume that dividends and capital gain distributions have been reinvested according to the Fund’s dividend reinvestment plan.

 

 

Asset Allocation (%’s based on total investments)

 

Stocks

     6.2%  

Financials

     1.9%  

Energy

     1.7%  

Consumer Discretionary

     1.4%  

Communication Services

     1.2%  

Industrials

     0.0%  

Warrants

     0.0%  

Bonds

     78.7%  

Corporate Debt Securities

     54.1%  

Loans

     24.6%  

Borrowings(2)

     -25.6%  

Cash Equivalents+

     15.1%  

Quality Weightings (%’s based on total investments)

 

Non-Investment Grade

     78.7%  

BB

     5.5%  

B

     51.9%  

CCC

     19.4%  

Below CCC

     0.3%  

Non-rated

     1.6%  

Borrowings(2)

     -25.6%  

Cash Equivalents+ and Equities

     21.3%  

Our preference is to always use ratings obtained from Standard & Poor’s, Moody’s, and Fitch. It is each Portfolio’s general policy to classify such security at the lower rating level if only two ratings are available. If more than two ratings are available and a median exists, the median is used. If more than two ratings exist without a median, the lower of the two middle ratings is used. We do not evaluate these ratings, but simply assign them to the appropriate credit quality category as determined by the rating agency.

 

 

+

Cash equivalents are defined as highly liquid securities with maturities of less than three months. Cash equivalents may include U.S. Government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.

 

(1)

Past performance is not necessarily indicative of future performance. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Performance at market price will differ from results at NAV. Returns at market price can be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s stock, or changes in the Fund’s dividends. An investment in the Fund involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and, once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets less total liabilities divided by the total number of shares outstanding. Holdings are subject to change daily.

 

(2)

The Fund has entered into a borrowing arrangement with Pershing LLC as a means of financial leverage. See Note 8 in the Notes to Financial Statements for additional information.

 

(3)

The premium/discount is calculated as (most recent market price/most recent NAV) -1.

 

(4)

Market price yield is determined by dividing the annualized current monthly dividend per share (comprised of net investment income) by the market price per share at September 30, 2021.

 

(5)

Structural leverage consists of borrowings outstanding as a percentage of managed assets. Managed assets are the Fund’s total assets, including the assets attributable to the proceeds from any borrowings, minus liabilities other than the aggregate indebtedness entered into for the purpose of leverage.

 

(6)

The Fund’s effective leverage ratio includes both structural leverage and the leveraging effects of certain derivative instruments in the Fund’s portfolio (referred to as “portfolio leverage”), expressed as a percentage of managed assets. Portfolio leverage from the Fund’s use of forward foreign currency contracts is included in the Fund’s effective leverage values.

 

(a)

Effective July 1, 2021, the name of Ivy High Income Opportunities Fund changed to Delaware Ivy High Income Opportunities Fund.

 

     
    2021       ANNUAL REPORT       5  


SCHEDULE OF

INVESTMENTS

  DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

COMMON STOCKS   Shares     Value  

Communication Services

 

 

Integrated Telecommunication Services – 1.7%

 

Frontier Communications Corp. (A)

    148     $ 4,138  
   

 

 

 
 

Total Communication Services – 1.7%

 

    4,138  

Consumer Discretionary

 

 

Apparel Retail – 0.6%

 

True Religion Apparel, Inc. (A)(B)(C)

    *      1,383  
   

 

 

 
 

Casinos & Gaming – 1.3%

 

New Cotai Participation Corp., Class B (A)(B)(C)(D)

    971       2,087  

Studio City International Holdings Ltd. ADR (A)

    108       885  

Studio City International Holdings Ltd. ADR (A)(D)

    45       364  
   

 

 

 
      3,336  
   

 

 

 
 

Total Consumer Discretionary – 1.9%

 

    4,719  

Energy

 

 

Coal & Consumable Fuels – 0.7%

 

Foresight Energy L.P. (A)(C)(D)

    74       1,566  

Westmoreland Coal Co. (A)(E)

    13       20  
   

 

 

 
      1,586  
   

 

 

 
 

Oil & Gas Drilling – 0.4%

 

KCA Deutag UK Finance plc (A)(E)

    11       918  

Vantage Drilling Co., Units (A)

    *      1  
   

 

 

 
      919  
   

 

 

 
 

Oil & Gas Equipment & Services – 0.0%

 

Larchmont Resources LLC (A)(B)(D)(E)

    2       2  
   

 

 

 
 

Total Energy – 1.1%

 

    2,507  

Industrials

 

 

Air Freight & Logistics – 0.0%

 

BIS Industries Ltd. (C)(D)(E)

    804       * 
   

 

 

 
 

Total Industrials – 0.0%

 

    * 
 

TOTAL COMMON STOCKS – 4.7%

 

  $ 11,364  

(Cost: $20,155)

 

 

INVESTMENT FUNDS

               

Registered Investment Companies – 2.6%

 

iShares iBoxx $ High Yield Corporate Bond ETF (F)

    73       6,387  
   

 

 

 
 

TOTAL INVESTMENT FUNDS – 2.6%

 

  $ 6,387  

(Cost: $6,315)

 

PREFERRED STOCKS   Shares     Value  

Consumer Discretionary

 

 

Apparel Retail – 0.1%

 

True Religion Apparel,
Inc. (A)(B)(E)

    *    $ 318  
   

 

 

 
 

Total Consumer Discretionary – 0.1%

 

    318  

Energy

 

 

Oil & Gas Exploration & Production – 1.4%

 

Targa Resources Corp.,

     

9.500% (A)(D)

    3       3,415  
   

 

 

 
 

Total Energy – 1.4%

 

    3,415  
 

TOTAL PREFERRED STOCKS – 1.5%

 

  $ 3,733  

(Cost: $4,572)

 

 

WARRANTS

               

Oil & Gas Exploration & Production – 0.0%

 

California Resources Corp.,

     

expires 10–27–24 (G)

    3       38  
   

 

 

 
 

TOTAL WARRANTS – 0.0%

 

  $ 38  

(Cost: $273)

 

 
CORPORATE DEBT SECURITIES   Principal         

Communication Services

 

 

Advertising – 2.4%

 

Advantage Sales & Marketing, Inc.,

     

6.500%, 11–15–28 (H)(I)

  $ 2,185       2,280  

Centerfield Media Holdings LLC,

     

6.625%, 8–1–26 (I)

    595       614  

Midas OpCo Holdings LLC,

     

5.625%, 8–15–29 (I)

    2,991       3,099  
   

 

 

 
      5,993  
   

 

 

 
 

Broadcasting – 2.0%

 

Clear Channel International B.V.,

     

6.625%, 8–1–25 (I)

    216       226  

Clear Channel Outdoor Holdings, Inc.,

     

5.125%, 8–15–27 (H)(I)

    4,496       4,658  
   

 

 

 
      4,884  
   

 

 

 
 

Cable & Satellite – 8.4%

 

Altice Financing S.A.,

     

5.750%, 8–15–29 (H)(I)

    2,086       2,023  

Altice France Holding S.A.,

     

10.500%, 5–15–27 (H)(I)

    4,582       5,017  

Altice France S.A.:

     

8.125%, 2–1–27 (H)(I)

    2,659       2,865  

5.125%, 7–15–29 (H)(I)

    866       850  

5.500%, 10–15–29 (I)

    469       465  

CSC Holdings LLC:

     

5.750%, 1–15–30 (H)(I)

    555       565  

5.000%, 11–15–31 (I)

    862       827  

DIRECTV Holdings LLC and DIRECTV Financing Co., Inc.,

     

5.875%, 8–15–27 (I)

    565       590  
CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Cable & Satellitee (Continued)

 

DISH DBS Corp.:

     

7.750%, 7–1–26 (H)

  $ 1,032     $ 1,167  

7.375%, 7–1–28

    279       296  

5.125%, 6–1–29

    1,201       1,178  

LCPR Senior Secured Financing Designated Activity Co.,

     

5.125%, 7–15–29 (I)

    337       348  

Telesat Canada and Telesat LLC,

     

5.625%, 12–6–26 (H)(I)

    2,310       2,221  

VTR Comunicaciones S.p.A.,

     

4.375%, 4–15–29 (I)

    1,182       1,220  

VTR Finance B.V.,

     

6.375%, 7–15–28 (I)

    1,087       1,173  
   

 

 

 
      20,805  
   

 

 

 
 

Integrated Telecommunication Services – 5.5%

 

Cablevision Lightpath LLC,

     

5.625%, 9–15–28 (I)

    460       463  

Consolidated Communications, Inc.:

     

5.000%, 10–1–28 (I)

    417       431  

6.500%, 10–1–28 (H)(I)

    899       978  

Frontier Communications Corp.:

     

5.875%, 10–15–27 (I)

    121       128  

5.875%, 11–1–29

    456       462  

West Corp.,

     

8.500%, 10–15–25 (H)(I)

    7,035       6,999  

Windstream Escrow LLC,

     

7.750%, 8–15–28 (H)(I)

    3,949       4,131  
   

 

 

 
      13,592  
   

 

 

 
 

Interactive Media & Services – 0.4%

 

Cars.com, Inc.,

     

6.375%, 11–1–28 (H)(I)

    881       930  
   

 

 

 
 

Movies & Entertainment – 2.0%

 

Premier Entertainment Sub LLC and Premier Entertainment Finance Corp.:

     

5.625%, 9–1–29 (I)

    2,984       3,018  

5.875%, 9–1–31 (I)

    1,908       1,930  
   

 

 

 
      4,948  
   

 

 

 
 

Wireless Telecommunication Service – 4.8%

 

Digicel Group Ltd.,

     

8.750%, 5–25–24 (I)

    385       399  

Digicel Group Ltd. (5.000% Cash and 3.000% PIK),

     

8.000%, 4–1–25 (I)(J)

    250       222  

Digicel Group Ltd. (7.000% Cash or 7.000% PIK),

     

7.000%, 10–1–68 (I)(J)

    214       176  

Digicel International Finance Ltd.:

     

8.750%, 5–25–24 (H)(I)

    6,862       7,113  

8.000%, 12–31–26 (I)

    154       149  

Digicel International Finance Ltd. (6.000% Cash and 7.000% PIK),

     

13.000%, 12–31–25 (I)(J)

    211       213  

Digicel International Finance Ltd. (8.000% Cash and 2.000% PIK or 10.000% PIK),

     

10.000%, 4–1–24 (H)(J)

    1,619       1,621  
 

 

6   ANNUAL REPORT   2021  
     


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Wireless Telecommunication Service (Continued)

 

Digicel Ltd.,

     

6.750%, 3–1–23 (H)(I)

  $ 2,128     $ 2,009  
   

 

 

 
      11,902  
   

 

 

 
 

Total Communication Services – 25.5%

 

    63,054  

Consumer Discretionary

 

 

Apparel Retail – 0.7%

 

Victoria’s Secret & Co.,

     

4.625%, 7–15–29 (H)(I)

    1,634       1,668  
   

 

 

 
 

Automotive Retail – 1.6%

 

Asbury Automotive Group, Inc.:

     

4.500%, 3–1–28 (H)

    936       962  

4.750%, 3–1–30 (H)

    964       1,007  

Ken Garff Automotive LLC,

     

4.875%, 9–15–28 (I)

    290       298  

Lithia Motors, Inc.:

     

3.875%, 6–1–29 (I)

    602       626  

4.375%, 1–15–31 (I)

    466       498  

Sonic Automotive, Inc.,

     

6.125%, 3–15–27 (H)

    489       509  
   

 

 

 
      3,900  
   

 

 

 
 

Casinos & Gaming – 0.3%

 

Everi Holdings, Inc.,

     

5.000%, 7–15–29 (I)

    594       610  
   

 

 

 
 

Education Services – 1.5%

 

Adtalem Global Education, Inc.,

     

5.500%, 3–1–28 (H)(I)

    3,551       3,589  
   

 

 

 
 

Homefurnishing Retail – 0.1%

 

Ambience Merger Sub, Inc.,

     

4.875%, 7–15–28 (I)

    178       178  
   

 

 

 
 

Hotels, Resorts & Cruise Lines – 3.7%

 

Boyne USA, Inc.,

     

4.750%, 5–15–29 (I)

    288       298  

Carnival Corp.:

     

11.500%, 4–1–23 (I)

    112       125  

10.500%, 2–1–26 (H)(I)

    1,458       1,694  

7.625%, 3–1–26 (I)

    295       315  

5.750%, 3–1–27 (H)(I)

    923       955  

9.875%, 8–1–27 (I)

    573       662  

NCL Corp. Ltd.:

     

12.250%, 5–15–24 (H)(I)

    2,342       2,766  

10.250%, 2–1–26 (I)

    684       786  

5.875%, 3–15–26 (I)

    295       303  

Royal Caribbean Cruises Ltd.:

     

11.500%, 6–1–25 (I)

    105       120  

5.500%, 4–1–28 (I)

    1,153       1,181  
   

 

 

 
      9,205  
   

 

 

 
 

Internet & Direct Marketing Retail – 0.7%

 

Arches Buyer, Inc.,

     

4.250%, 6–1–28 (H)(I)

    1,768       1,795  
   

 

 

 
 

Leisure Facilities – 0.5%

 

Legends Hospitality Holding Co. LLC,

     

5.000%, 2–1–26 (I)

    178       183  
CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Leisure Facilities (Continued)

 

Live Nation Entertainment, Inc.,

     

4.750%, 10–15–27 (H)(I)

  $ 1,013     $ 1,031  
   

 

 

 
      1,214  
   

 

 

 
 

Specialized Consumer Services – 0.7%

 

Nielsen Finance LLC and Nielsen Finance Co.:

     

5.625%, 10–1–28 (H)(I)

    870       904  

5.875%, 10–1–30 (I)

    725       764  
   

 

 

 
      1,668  
   

 

 

 
 

Specialty Stores – 6.6%

 

Bed Bath & Beyond, Inc.,

     

5.165%, 8–1–44

    713       615  

Magic MergerCo, Inc.,

     

5.250%, 5–1–28 (H)(I)

    1,009       1,042  

Party City Holdings, Inc. (5.000% Cash and 5.000% PIK),

     

10.000%, 8–15–26 (I)(J)

    93       92  

Party City Holdings, Inc. (6-Month U.S. LIBOR plus 500 bps),

     

5.750%, 7–15–25 (I)(K)

    163       153  

PetSmart, Inc. and PetSmart Finance Corp.,

     

4.750%, 2–15–28 (H)(I)

    1,485       1,528  

Staples, Inc.:

     

7.500%, 4–15–26 (H)(I)

    9,900       10,054  

10.750%, 4–15–27 (H)(I)

    2,982       2,907  
   

 

 

 
      16,391  
   

 

 

 
 

Total Consumer Discretionary – 16.4%

 

    40,218  

Consumer Staples

 

 

Food Distributors – 0.8%

 

Performance Food Group, Inc.,

     

4.250%, 8–1–29 (I)

    1,905       1,912  
   

 

 

 
 

Packaged Foods & Meats – 1.1%

 

Pilgrim’s Pride Corp.,

     

4.250%, 4–15–31 (H)(I)

    1,372       1,476  

Post Holdings, Inc.,

     

4.500%, 9–15–31 (I)

    598       592  

Simmons Foods, Inc.,

     

4.625%, 3–1–29 (I)

    594       599  
   

 

 

 
      2,667  
   

 

 

 
 

Total Consumer Staples – 1.9%

 

    4,579  

Energy

 

 

Oil & Gas Drilling – 0.4%

 

KCA Deutag UK Finance plc:

     

9.875%, 12–1–25 (I)

    115       126  

KCA Deutag UK Finance plc:

     

9.875%, 12–1–25

    555       605  

Offshore Drilling Holding S.A.,

     

8.375%, 9–20–20 (H)(I)(L)(M)

    3,385       324  
   

 

 

 
      1,055  
   

 

 

 
 

Oil & Gas Equipment & Services – 0.1%

 

Nine Energy Service, Inc.,

     

8.750%, 11–1–23 (I)

    806       388  
   

 

 

 
CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Oil & Gas Exploration & Production – 5.3%

 

Antero Resources Corp.,

     

5.375%, 3–1–30 (I)

  $ 241     $ 254  

Ascent Resources Utica Holdings LLC and ARU Finance Corp.:

     

7.000%, 11–1–26 (H)(I)

    711       736  

8.250%, 12–31–28 (I)

    59       64  

5.875%, 6–30–29 (I)

    296       303  

California Resources Corp.,

     

7.125%, 2–1–26 (I)

    173       183  

Chesapeake Escrow Issuer LLC:

     

5.500%, 2–1–26 (I)

    594       622  

5.875%, 2–1–29 (I)

    446       477  

Colgate Energy Partners III LLC,

     

5.875%, 7–1–29 (I)

    237       239  

Crownrock L.P.,

     

5.625%, 10–15–25 (H)(I)

    2,820       2,890  

CrownRock L.P. and CrownRock Finance, Inc.,

     

5.000%, 5–1–29 (I)

    289       302  

Endeavor Energy Resources L.P.,

     

5.500%, 1–30–26 (H)(I)

    956       997  

Laredo Petroleum, Inc.:

     

9.500%, 1–15–25 (H)

    3,242       3,363  

10.125%, 1–15–28 (H)

    1,161       1,257  

Murphy Oil Corp.,

     

6.375%, 7–15–28

    238       252  

Range Resources Corp.,

     

8.250%, 1–15–29 (I)

    59       66  

Vine Energy Holdings LLC,

     

6.750%, 4–15–29

    1,152       1,245  
   

 

 

 
      13,250  
   

 

 

 
 

Oil & Gas Refining & Marketing – 2.5%

 

Callon Petroleum Co. (GTD by Callon Petroleum Operating Co.):

     

6.125%, 10–1–24

    468       461  

9.000%, 4–1–25 (I)

    118       128  

Comstock Resources, Inc.:

     

6.750%, 3–1–29 (H)(I)

    1,360       1,470  

5.875%, 1–15–30 (I)

    717       747  

CVR Energy, Inc.,

     

5.250%, 2–15–25 (I)

    568       563  

PBF Holding Co. LLC,

     

9.250%, 5–15–25 (H)(I)

    3,018       2,864  
   

 

 

 
      6,233  
   

 

 

 
 

Oil & Gas Storage & Transportation – 0.7%

 

Crestwood Midstream Partners L.P.:

     

5.750%, 4–1–25

    297       304  

5.625%, 5–1–27 (I)

    597       615  

6.000%, 2–1–29 (I)

    119       125  

Hess Midstream Operations L.P.,

     

4.250%, 2–15–30 (I)

    238       241  

Rattler Midstream L.P.,

     

5.625%, 7–15–25 (I)

    572       596  
   

 

 

 
      1,881  
   

 

 

 
 

Total Energy – 9.0%

 

    22,807  
 

 

     
    2021       ANNUAL REPORT       7  


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Financials

 

 

Insurance Brokers – 2.7%

 

NFP Corp.,

     

6.875%, 8–15–28 (H)(I)

  $ 6,566     $ 6,713  
   

 

 

 
 

Investment Banking & Brokerage – 0.6%

 

INTL FCStone, Inc.,

     

8.625%, 6–15–25 (H)(I)

    1,423       1,531  
   

 

 

 
 

Property & Casualty Insurance – 0.7%

 

Highlands Holdings Bond Issuer Ltd. and Highlands Holdings Bond Co-Issuer, Inc. (7.625% Cash or 8.375% PIK),

     

7.625%, 10–15–25 (H)(I)(J)

    1,457       1,549  
   

 

 

 
 

Specialized Finance – 2.0%

 

BCPE Cycle Merger Sub II, Inc.,

     

10.625%, 7–15–27 (H)(I)

    2,224       2,367  

Compass Group Diversified Holdings LLC,

     

5.250%, 4–15–29 (H)(I)

    2,380       2,493  
   

 

 

 
      4,860  
   

 

 

 
 

Thrifts & Mortgage Finance – 0.9%

 

Provident Funding Associates L.P. and PFG Finance Corp.,

     

6.375%, 6–15–25 (H)(I)

    2,236       2,279  
   

 

 

 
 

Total Financials – 6.9%

 

    16,932  

Health Care

 

 

Health Care Services – 0.7%

 

Heartland Dental LLC,

     

8.500%, 5–1–26 (H)(I)

    369       383  

ModivCare Escrow Issuer, Inc.,

     

5.000%, 10–1–29 (I)

    1,270       1,318  
   

 

 

 
      1,701  
   

 

 

 
 

Health Care Supplies – 1.0%

 

Mozart Debt Merger Sub, Inc.,

     

3.875%, 4–1–29 (I)

    2,413       2,413  
   

 

 

 
 

Pharmaceuticals – 1.2%

 

P&L Development LLC and PLD Finance Corp.,

     

7.750%, 11–15–25 (H)(I)

    1,818       1,891  

Par Pharmaceutical, Inc.,

     

7.500%, 4–1–27 (H)(I)

    1,188       1,212  
   

 

 

 
      3,103  
   

 

 

 
 

Total Health Care – 2.9%

 

    7,217  

Industrials

 

 

Aerospace & Defense – 4.4%

 

TransDigm, Inc. (GTD by TransDigm Group, Inc.):

     

7.500%, 3–15–27 (H)

    1,094       1,147  

5.500%, 11–15–27 (H)

    2,821       2,902  

4.625%, 1–15–29

    592       592  
CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Aerospace & Defense (Continued)

 

Wolverine Escrow LLC:

     

8.500%, 11–15–24 (H)(I)

  $ 2,535     $ 2,361  

9.000%, 11–15–26 (H)(I)

    3,810       3,524  

13.125%, 11–15–27 (I)

    343       229  
   

 

 

 
      10,755  
   

 

 

 
 

Diversified Support Services – 1.6%

 

Ahern Rentals, Inc.,

     

7.375%, 5–15–23 (H)(I)

    1,507       1,447  

Deluxe Corp.,

     

8.000%, 6–1–29 (I)

    752       787  

Nesco Holdings II, Inc.,

     

5.500%, 4–15–29 (H)(I)

    1,675       1,739  
   

 

 

 
      3,973  
   

 

 

 
 

Security & Alarm Services – 0.4%

 

Prime Security Services Borrower LLC and Prime Finance, Inc.,

     

6.250%, 1–15–28 (H)(I)

    867       897  
   

 

 

 
 

Total Industrials – 6.4%

 

    15,625  

Information Technology

 

 

Application Software – 2.6%

 

J2 Global, Inc.,

     

4.625%, 10–15–30 (I)

    349       371  

Kronos Acquisition Holdings, Inc. and KIK Custom Products, Inc.,

     

5.000%, 12–31–26 (I)

    875       875  

NCR Corp.:

     

5.750%, 9–1–27 (I)

    307       324  

5.000%, 10–1–28 (I)

    856       876  

5.125%, 4–15–29 (H)(I)

    3,172       3,275  

6.125%, 9–1–29 (I)

    393       427  

5.250%, 10–1–30 (I)

    285       300  
   

 

 

 
      6,448  
   

 

 

 
 

Data Processing & Outsourced Services – 0.1%

 

MoneyGram International, Inc.,

     

5.375%, 8–1–26 (I)

    298       303  
   

 

 

 
 

Internet Services & Infrastructure – 0.4%

 

Consensus Cloud Solutions, Inc.:

     

6.000%, 10–15–26 (I)

    301       310  

6.500%, 10–15–28 (I)

    722       751  
   

 

 

 
      1,061  
   

 

 

 
 

IT Consulting & Other Services – 0.2%

 

Sabre GLBL, Inc. (GTD by Sabre Holdings Corp.):

     

9.250%, 4–15–25 (I)

    288       333  

7.375%, 9–1–25 (I)

    114       122  
   

 

 

 
      455  
   

 

 

 
 

Technology Hardware, Storage & Peripherals – 0.3%

 

Brightstar Escrow Corp.,

     

9.750%, 10–15–25 (H)(I)

    804       863  
   

 

 

 
 

Total Information Technology – 3.6%

 

    9,130  
CORPORATE DEBT SECURITIES
(Continued)
  Principal     Value  

Materials

 

 

Commodity Chemicals – 1.1%

 

LSF9 Atlantis Holdings LLC and Victra Finance Corp.,

     

7.750%, 2–15–26 (H)(I)

  $ 1,485     $ 1,542  

NOVA Chemicals Corp.:

     

5.250%, 6–1–27 (H)(I)

    666       700  

4.250%, 5–15–29 (I)

    576       577  
   

 

 

 
      2,819  
   

 

 

 
 

Metal & Glass Containers – 0.4%

 

ARD Finance S.A. (6.500% Cash or 7.250% PIK),

     

6.500%, 6–30–27 (H)(I)(J)

    859       914  
   

 

 

 
 

Total Materials – 1.5%

 

    3,733  

Real Estate

 

 

Specialized REITs – 0.1%

 

Uniti Group L.P., Uniti Group Finance 2019, Inc. and CSL Capital LLC (GTD by Uniti Group, Inc.),

     

4.750%, 4–15–28 (I)

    144       147  
   

 

 

 
 

Total Real Estate – 0.1%

 

    147  
 

TOTAL CORPORATE DEBT
SECURITIES – 74.2%

 

  $ 183,442  

(Cost: $180,132)

 

 
LOANS (K)              

Communication Services

 

 

Advertising – 1.3%

 

Advantage Sales & Marketing, Inc. (ICE LIBOR plus 525 bps),

     

6.000%, 10–28–27

    3,163       3,184  
   

 

 

 
      3,184  
   

 

 

 
 

Broadcasting – 1.0%

 

Clear Channel Outdoor Holdings, Inc. (ICE LIBOR plus 350 bps),

     

3.629%, 8–21–26

    2,638       2,588  
   

 

 

 
 

Cable & Satellite – 0.7%

 

DIRECTV Financing LLC (1-Month ICE LIBOR plus 500 bps),

     

5.750%, 7–22–27

    1,664       1,667  
   

 

 

 
 

Integrated Telecommunication Services – 2.7%

 

West Corp. (3-Month ICE LIBOR plus 400 bps),

     

5.000%, 10–10–24

    6,269       6,186  

Windstream Services LLC (ICE LIBOR plus 625 bps),

     

7.250%, 9–21–27

    529       532  
   

 

 

 
      6,718  
   

 

 

 
 

 

8   ANNUAL REPORT   2021  
     


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

LOANS (K) (Continued)   Principal     Value  

Wireless Telecommunication Service – 1.2%

 

Digicel International Finance Ltd. (ICE LIBOR plus 325 bps),

     

3.430%, 5–27–24

  $ 3,156     $ 3,054  
   

 

 

 
 

Total Communication Services – 6.9%

 

    17,211  

Consumer Discretionary

 

 

Apparel Retail – 0.7%

 

Torrid LLC (1-Month ICE LIBOR plus 550 bps),

     

6.250%, 6–14–28 (C)

    1,805       1,816  
   

 

 

 
 

Casinos & Gaming – 0.1%

 

New Cotai LLC (14.000% Cash or 14.000% PIK),

     

14.000%, 9–10–25 (D)(J)

    293       290  
   

 

 

 
 

Homefurnishing Retail – 0.5%

 

Ambience Merger Sub, Inc. (1-Month ICE LIBOR plus 425 bps),

     

4.750%, 6–25–28

    1,189       1,190  
   

 

 

 
 

Internet & Direct Marketing Retail – 0.3%

 

CNT Holdings I Corp. (ICE LIBOR plus 375 bps),

     

4.500%, 11–8–27

    723       725  
   

 

 

 
 

Leisure Facilities – 0.8%

 

United PF Holdings LLC (ICE LIBOR plus 400 bps),

     

4.132%, 12–30–26

    1,772       1,725  

United PF Holdings LLC (ICE LIBOR plus 850 bps),

     

9.500%, 11–12–26 (C)

    395       397  
   

 

 

 
      2,122  
   

 

 

 
 

Leisure Products – 0.5%

 

MajorDrive Holdings IV LLC (1-Month ICE LIBOR plus 400 bps),

     

4.500%, 6–1–28

    1,342       1,346  
   

 

 

 
 

Specialty Stores – 4.0%

 

Bass Pro Group LLC (ICE LIBOR plus 425 bps),

     

5.000%, 3–5–28

    257       259  

Jo-Ann Stores, Inc. (1-Month ICE LIBOR plus 475 bps),

     

5.500%, 6–30–28

    3,207       3,129  

Michaels Cos., Inc. (The) (1-Month ICE LIBOR plus 425 bps),

     

5.000%, 4–15–28

    1,151       1,154  

PetSmart, Inc. (ICE LIBOR plus 375 bps),

     

4.500%, 2–12–28

    2,718       2,728  

Staples, Inc. (ICE LIBOR plus 500 bps),

     

5.126%, 4–12–26

    2,427       2,321  

Woof Holdings LLC (ICE LIBOR plus 375 bps),

     

4.500%, 12–21–27

    339       340  
   

 

 

 
      9,931  
   

 

 

 
LOANS (K) (Continued)   Principal     Value  

Textiles – 1.1%

 

SIWF Holdings, Inc. (ICE LIBOR plus 425 bps),

     

4.334%, 6–15–25

  $ 2,688     $ 2,691  
   

 

 

 
 

Total Consumer Discretionary – 8.0%

 

    20,111  

Energy

 

 

Coal & Consumable Fuels – 0.3%

 

Foresight Energy LLC (ICE LIBOR plus 800 bps),

     

9.500%, 6–29–27 (D)

    512       512  

Westmoreland Mining Holdings LLC (15.000% Cash or 15.000% PIK),

     

15.000%, 3–15–29 (J)

    1,108       230  
   

 

 

 
      742  
   

 

 

 
 

Oil & Gas Equipment & Services – 0.5%

 

Larchmont Resources LLC (9.000% Cash or 9.000% PIK),

     

9.000%, 8–7–22 (B)(C)(J)

    1,253       1,191  
   

 

 

 
 

Oil & Gas Exploration & Production – 0.4%

 

Ascent Resources Utica Holdings LLC,

     

0.000%, 11–1–25 (N)

    180       198  

Ascent Resources Utica Holdings LLC (1-Month ICE LIBOR plus 900 bps),

     

10.000%, 11–1–25

    625       688  
   

 

 

 
      886  
   

 

 

 
 

Oil & Gas Storage & Transportation – 0.7%

 

EPIC Crude Services L.P. (ICE LIBOR plus 500 bps),

     

5.121%, 3–1–26

    2,215       1,676  
   

 

 

 
 

Total Energy – 1.9%

 

    4,495  

Financials

 

 

Asset Management & Custody Banks – 0.7%

 

Edelman Financial Holdings II, Inc. (ICE LIBOR plus 675 bps),

     

6.834%, 7–20–26

    1,703       1,721  
   

 

 

 
 

Property & Casualty Insurance – 1.3%

 

Amynta Agency Borrower, Inc. (ICE LIBOR plus 400 bps),

     

4.584%, 2–28–25

    3,270       3,270  
   

 

 

 
 

Specialized Finance – 1.2%

 

Gulf Finance LLC (ICE LIBOR plus 525 bps),

     

6.250%, 8–25–23

    2,409       2,322  

Lealand Finance Co. B.V.,

     

0.000%, 6–30–24 (C)(N)

    10       6  

Lealand Finance Co. B.V. (ICE LIBOR plus 300 bps),

     

3.085%, 6–30–24 (C)

    30       18  

Sunset Debt Merger Sub, Inc.,

     

0.000%, 9–17–28 (C)(N)

    602       598  
   

 

 

 
      2,944  
   

 

 

 
 

Total Financials – 3.2%

 

    7,935  
LOANS (K) (Continued)   Principal     Value  

Health Care

 

 

Health Care Facilities – 0.2%

 

Surgery Center Holdings, Inc. (1-Month ICE LIBOR plus 375 bps),

     

4.500%, 8–31–26

  $ 420     $ 421  
   

 

 

 
 

Health Care Services – 3.6%

 

Heartland Dental LLC (ICE LIBOR plus 375 bps),

     

3.584%, 4–30–25

    1,822       1,809  

U.S. Renal Care, Inc. (3-Month ICE LIBOR plus 500 bps),

     

5.125%, 7–26–26

    7,194       7,191  
   

 

 

 
      9,000  
   

 

 

 
 

Total Health Care – 3.8%

 

    9,421  

Industrials

 

 

Building Products – 0.7%

 

CP Atlas Buyer, Inc. (ICE LIBOR plus 375 bps),

     

4.250%, 11–23–27

    1,734       1,732  
   

 

 

 
 

Construction & Engineering – 0.3%

 

WaterBridge Midstream Operating LLC (3-Month ICE LIBOR plus 575 bps),

     

6.750%, 6–21–26

    745       729  
   

 

 

 
 

Industrial Conglomerates – 2.3%

 

PAE Holding Corp. (ICE LIBOR plus 450 bps),

     

5.250%, 10–19–27

    5,803       5,806  
   

 

 

 
 

Industrial Machinery – 1.5%

 

Form Technologies LLC (ICE LIBOR plus 475 bps),

     

5.750%, 7–22–25 (C)

    3,756       3,775  
   

 

 

 
 

Research & Consulting Services – 0.2%

 

Ankura Consulting Group LLC (ICE LIBOR plus 450 bps),

     

5.250%, 3–17–28

    585       587  
   

 

 

 
 

Total Industrials – 5.0%

 

    12,629  

Information Technology

 

 

Communications Equipment – 1.3%

 

MLN U.S. Holdco LLC (ICE LIBOR plus 450 bps),

     

4.583%, 11–30–25

    2,529       2,307  

MLN U.S. Holdco LLC (ICE LIBOR plus 875 bps),

     

8.833%, 11–30–26

    1,214       790  
   

 

 

 
      3,097  
   

 

 

 
 

Data Processing & Outsourced Services – 1.4%

 

CommerceHub, Inc. (ICE LIBOR plus 400 bps),

     

4.750%, 12–2–27

    1,125       1,128  
 

 

     
    2021       ANNUAL REPORT       9  


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

LOANS (K) (Continued)   Principal     Value  

Data Processing & Outsourced Services (Continued)

 

Cyxtera DC Holdings, Inc. (ICE LIBOR plus 325 bps),

     

4.000%, 5–1–24

  $ 1,839     $ 1,828  

MoneyGram International, Inc.,

     

0.000%, 7–14–26 (N)

    477       478  
   

 

 

 
      3,434  
   

 

 

 
 

Internet Services & Infrastructure – 0.3%

 

Informatica LLC,

     

7.125%, 2–25–25

    727       739  
   

 

 

 
 

IT Consulting & Other Services – 1.6%

 

Gainwell Acquisition Corp. (ICE LIBOR plus 400 bps),

     

4.750%, 10–1–27

    2,969       2,980  

Ivanti Software, Inc. (1-Month ICE LIBOR plus 400 bps),

     

4.750%, 12–1–27

    276       277  

Ivanti Software, Inc. (1-Month U.S. LIBOR plus 475 bps),

     

5.750%, 12–1–27

    698       700  
   

 

 

 
      3,957  
   

 

 

 
 

Total Information Technology – 4.6%

 

    11,227  
LOANS (K) (Continued)   Principal     Value  

Materials

 

 

Specialty Chemicals – 0.1%

 

NIC Acquisition Corp. (1-Month ICE LIBOR plus 375 bps),

     

4.500%, 12–29–27

  $ 295     $ 294  
   

 

 

 
 

Total Materials – 0.1%

 

    294  
 

TOTAL LOANS – 33.5%

 

  $ 83,323  

(Cost: $84,530)

 

 
SHORT-TERM SECURITIES   Shares         

Money Market Funds (P) – 20.8%

 

Dreyfus Institutional

     

Preferred Government Money Market Fund – Institutional Shares, 0.010% (O)

    5,880       5,880  

State Street Institutional

     

U.S. Government Money Market Fund – Premier Class, 0.030%

    45,532       45,532  
   

 

 

 
      51,412  
   

 

 

 
 

TOTAL SHORT-TERM SECURITIES – 20.8%

 

  $ 51,412  

(Cost: $51,412)

 

          Value  
 

TOTAL INVESTMENT SECURITIES – 137.3%

  $ 339,699  

(Cost: $347,389)

 

 

BORROWINGS (Q) – (35.2)%

    (87,000
 

LIABILITIES, NET OF CASH AND OTHER ASSETS – (2.1)%

    (5,334
 

NET ASSETS – 100.0%

  $ 247,365  
 

 

Notes to Schedule of Investments

 

*

Not shown due to rounding.

 

(A)

No dividends were paid during the preceding 12 months.

 

(B)

Deemed to be an affiliate due to the Fund owning at least 5% of the voting securities.

 

(C)

Securities whose value was determined using significant unobservable inputs.

 

(D)

Restricted securities. At September 30, 2021, the Fund owned the following restricted securities:

 

Security    Acquisition Date(s)      Shares      Cost      Value  

BIS Industries Ltd.

     12–22–17        804      $ 76      $  

Foresight Energy L.P.

     6–30–20 to 9–8–20        74        1,453        1,566    

Larchmont Resources LLC

     12–8–16        2        560        2    

New Cotai Participation Corp., Class B

     9–29–20        971        8,782        2,087    

Studio City International Holdings Ltd. ADR

     8–5–20        45        694        364    

Targa Resources Corp., 9.500%

     10–24–17        3        3,522        3,415    
              Principal                         

Foresight Energy LLC (ICE LIBOR plus 800 bps), 9.500%, 06–29–27

     12–31–20      $ 512        512        512    

New Cotai LLC (14.000% Cash or 14.000% PIK), 14.000%, 09–10–25

     9–10–20 to 3–16–21        293        293        290    
        

 

 

 
         $ 15,892      $ 8,236    
        

 

 

 

 

    

The total value of these securities represented 3.3% of net assets at September 30, 2021.

 

(E)

Listed on an exchange outside the United States.

 

(F)

All or a portion of securities with an aggregate value of $5,755 are on loan.

 

 

10   ANNUAL REPORT   2021  
     


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

(G)

Warrants entitle the Fund to purchase a predetermined number of shares of common stock and are non-income producing. The purchase price and number of shares are subject to adjustment under certain conditions until the expiration date, if any.

 

(H)

All or a portion of securities with an aggregate value of $135,075 have been pledged as collateral on open borrowings.

 

(I)

Securities were purchased pursuant to an exemption from registration available under Rule 144A under the Securities Act of 1933 and may only be resold in transactions exempt from registration, normally to qualified institutional buyers. At September 30, 2021 the total value of these securities amounted to $163,497 or 66.1% of net assets.

 

(J)

Payment-in-kind bond which may pay interest in additional par and/or in cash. Rates shown are the current rate and possible payment rates.

 

(K)

Variable rate security. Interest rate disclosed is that which is in effect at September 30, 2021. Description of the reference rate and spread, if applicable, are included in the security description.

 

(L)

Non-income producing as the issuer has either missed its most recent interest payment or declared bankruptcy.

 

(M)

Step bond that pays an initial coupon rate for the first period and then a higher or lower coupon rate for the following periods. Interest rate disclosed is that which is in effect at September 30, 2021.

 

(N)

All or a portion of this position has not settled. Full contract rates do not take effect until settlement date.

 

(O)

Investment made with cash collateral received from securities on loan.

 

(P)

Rate shown is the annualized 7-day yield at September 30, 2021.

 

(Q)

Borrowings payable as a percentage of total investment securities is 25.6%.

The following futures contracts were outstanding at September 30, 2021 (contracts unrounded):

 

Description    Type      Number of
Contracts
     Expiration Date      Notional
Amount
     Value    

Unrealized

Appreciation

 

U.S. Treasury Long Bond

     Short        2        12–21–21        200      $ (319   $ 9  

U.S. Treasury Ultra Long Bond

     Short        1        12–21–21        100        (191     7  
              

 

 

 
               $ (510   $ 16  
              

 

 

 

The following table is a summary of the valuation of the Fund’s investments by the fair value hierarchy levels as of September 30, 2021. See Note 3 to the Financial Statements for further information regarding fair value measurement.

 

     Level 1      Level 2      Level 3  

Assets

       

Investments in Securities

       

Common Stocks

       

Communication Services

  $ 4,138      $      $  

Consumer Discretionary

    1,249               3,470  

Energy

           941        1,566  

Industrials

                  * 

Total Common Stocks

  $ 5,387      $ 941      $ 5,036  

Investment Funds

    6,387                

Preferred Stocks

           3,733         

Warrants

    38                

Corporate Debt Securities

           183,442         

Loans

           75,522        7,801  

Short-Term Securities

    51,412                

Total

  $ 63,224      $ 263,638      $ 12,837  

Futures Contracts

  $ 16      $      $  

 

 

     
    2021       ANNUAL REPORT       11  


SCHEDULE OF INVESTMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND (in thousands)

 

 

 

SEPTEMBER 30, 2021

 

The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

     Common
Stocks
       Loans  

Beginning Balance 10-1-20

  $ 5,531        $ 3,173  

Net realized gain (loss)

    (509        18  

Net change in unrealized appreciation (depreciation)

    (2,699        1,104  

Purchases

             6,174  

Sales

             (2,676

Amortization/Accretion of premium/discount

             8  

Transfers into Level 3 during the period

    2,779           

Transfers out of Level 3 during the period

    (66         
 

 

 

 

Ending Balance 9-30-21

  $ 5,036        $ 7,801  
 

 

 

 

Net change in unrealized appreciation (depreciation) for all Level 3 investments still held as of 9-30-21

  $ (3,208      $ 768  
 

 

 

 

Transfers from Level 2 to Level 3 occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2 occurred primarily due to the increased availability of observable market data due to increased market activity or information.

Information about Level 3 fair value measurements:

 

      Fair Value at
9-30-21
     Valuation Technique(s)    Unobservable Input(s)    Input
value(s)
 

Assets

           

Common Stocks

   $ 1,383      Market approach    Revenue multiple      0.67x  
         EBITDA multiple      4.62x  
     1,566      Market approach    Discount for lack of marketability      30.00%  
     2,087      Market approach    Financials      N/A  
         Premium      20.00%  

Loans

     7,801      Third-party valuation service    Broker quotes      N/A  

The following acronyms are used throughout this schedule:

ADR = American Depositary Receipt

GTD = Guaranteed

ICE = Intercontinental Exchange

LIBOR = London Interbank Offered Rate

PIK = Payment in kind

REIT = Real Estate Investment Trust

 

 

See Accompanying Notes to Financial Statements.

 

12   ANNUAL REPORT   2021  
     


STATEMENT OF ASSETS AND LIABILITIES   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND(1)

 

 

 

AS OF SEPTEMBER 30, 2021

 

(In thousands, except per share amounts)         

ASSETS

 

Investments in unaffiliated securities at value+^

    334,718  

Investments in affiliated securities at market value+

    4,981  

Investments at Value

    339,699  

Cash

    112  

Due to Morgan Stanley

    14  

Investment securities sold receivable

    1,759  

Dividends and interest receivable

    4,192  

Variation margin receivable

   

Receivable from securities lending income – net

    8  

Prepaid and other assets

    1  

Total Assets

    345,785  

LIABILITIES

 

Cash collateral on securities loaned at value

    5,880  

Investment securities purchased payable

    5,197  

Independent Trustees and Chief Compliance Officer fees payable

    8  

Shareholder servicing payable

    2  

Investment management fee payable

    9  

Accounting services fee payable

    8  

Variation margin payable

   

Payable for borrowing

    87,000  

Interest payable for borrowing

    24  

Other liabilities

    292  

Total Liabilities

    98,420  

Commitments and Contingencies (See Note 2 and Note 11)

       

Total Net Assets

  $ 247,365  

NET ASSETS

 

Capital paid in

  $ 315,694  

Accumulated earnings loss

    (68,329

Total Net Assets

  $ 247,365  

CAPITAL SHARES OUTSTANDING

    16,570  

NET ASSET VALUE PER SHARE

    $14.93  

+COST

 

Investments in unaffiliated securities at cost

  $ 332,979  

Investments in affiliated securities at cost

  $ 14,411  

 

^Securities loaned at value

  $ 5,755  

 

*

Not shown due to rounding.

 

(1)

Effective July 1, 2021, the Fund’s name changed from Ivy High Income Opportunities Fund to Delaware Ivy High Income Opportunities Fund.

 

See Accompanying Notes to Financial Statements.

 

     
    2021       ANNUAL REPORT       13  


STATEMENT OF OPERATIONS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND(1)

 

 

 

FOR THE YEAR ENDED SEPTEMBER 30, 2021

 

(In thousands)        

INVESTMENT INCOME

 

Dividends from unaffiliated securities

   $ 507  

Interest and amortization from unaffiliated securities

     20,329  

Interest and amortization from affiliated securities

     129  

Securities lending income – net

     66  

Total Investment Income

     21,031  

EXPENSES

  

Investment management fee

     3,311  

Interest expense for borrowing

     765  

Shareholder servicing

     42  

Custodian fees

     8  

Independent Trustees and Chief Compliance Officer fees

     19  

Accounting services fee

     96  

Professional fees

     137  

Other

     57  

Total Expenses

     4,435  

Net Investment Income

     16,596  

REALIZED AND UNREALIZED GAIN (LOSS)

  

Net realized gain (loss) on:

  

Investments in unaffiliated securities

     (1,923

Futures contracts

     (41

Net change in unrealized appreciation (depreciation) on:

  

Investments in unaffiliated securities

     28,147  

Investments in affiliated securities

     (4,258

Futures contracts

     16  

Net Realized and Unrealized Gain

     21,941  

Net Increase in Net Assets Resulting from Operations

   $ 38,537  

 

(1)

Effective July 1, 2021, the Fund’s name changed from Ivy High Income Opportunities Fund to Delaware Ivy High Income Opportunities Fund.

 

See Accompanying Notes to Financial Statements.

 

14   ANNUAL REPORT   2021  
     


STATEMENTS OF CHANGES IN NET ASSETS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND(1)

 

 

 

 

(In thousands)    Year ended
9-30-21
     Year ended
9-30-20
 

INCREASE (DECREASE) IN NET ASSETS

     

Operations:

     

Net investment income

   $ 16,596      $ 18,602  

Net realized loss on investments

     (1,964      (7,697

Net change in unrealized appreciation (depreciation)

     23,905        (14,972

Net Increase (Decrease) in Net Assets Resulting from Operations

     38,537        (4,067

Distributions to Shareholders From:

     

Accumulated Earnings

     

(combined net investment income and net realized gains)

     (16,156      (20,381

Total Distributions to Shareholders

     (16,156      (20,381

Capital Share Transactions:

     

Net proceeds from the sale of shares

             

Net Increase in net assets from share transactions

             

Net Increase (Decrease) in Net Assets

     22,381        (24,448

Net Assets, Beginning of Period

     224,984        249,432  

Net Assets, End of Period

   $ 247,365      $ 224,984  

 

(1)

Effective July 1, 2021, the Fund’s name changed from Ivy High Income Opportunities Fund to Delaware Ivy High Income Opportunities Fund.

 

See Accompanying Notes to Financial Statements.

 

     
    2021       ANNUAL REPORT       15  


STATEMENT OF CASH FLOWS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND(1)

 

 

 

FOR THE YEAR ENDED SEPTEMBER 30, 2021

 

(In thousands)          

Cash flows provided by operating activities:

  

Net increase in net assets resulting from operations

   $ 38,537  

Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:

  

Purchases of long-term investment securities

     (167,898

Proceeds from sales of long-term investment securities

     194,037  

Purchases of short-term portfolio investment securities, net

     (33,040

Due to Morgan Stanley

     (14

Decrease in dividends and interest receivable

     647  

Increase in receivable from securities lending income

     (7

Decrease in prepaid and other assets

     6  

Increase in cash collateral on securities loaned at value

     5,565  

Decrease in independent trustees and chief compliance officer fees

     (2

Increase in investment management fee payable

     1  

Increase in interest payable for borrowing

     2  

Increase in other liabilities

     244  

Net realized loss on investments in unaffiliated securities

     1,923  

Net change in unrealized appreciation on investments in unaffiliated securities

     (28,147

Net change in unrealized depreciation on investments in affiliated securities

     4,258  

Net change in unrealized appreciation on futures contracts

     (16

Net accretion and payment in kind income on investment securities

     (605

Net cash provided by operating activities

     15,491  

Cash flows used for financing activities:

  

Cash dividends paid+

     (16,156

Net cash used for financing activities

     (16,156

Net decrease in cash and foreign currency

     (665

Cash and foreign currency, at beginning of period

     777  

Cash and foreign currency, at end of period

   $ 112  

Supplemental disclosure of cash flow information:

  

Interest expense paid during the period

   $ 767  

 

(1)

Effective July 1, 2021, the Fund’s name changed from Ivy High Income Opportunities Fund to Delaware Ivy High Income Opportunities Fund.

 

See Accompanying Notes to Financial Statements.

 

16   ANNUAL REPORT   2021  
     


FINANCIAL HIGHLIGHTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND^

 

 

 

FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD

 

      Year ended
9-30-2021
    Year ended
9-30-2020
    Year ended
9-30-2019
    Year ended
9-30-2018
    Year ended
9-30-2017
 

Net Asset Value, Beginning of Period

   $ 13.58     $ 15.05     $ 15.96     $ 16.34     $ 15.65  

Net Investment Income(1)

     1.00       1.12       1.25       1.36       1.51  

Net Realized and Unrealized Gain (Loss) on Investments

     1.32       (1.36     (0.84     (0.46     0.66  

Total from Investment Operations

     2.32       (0.24     0.41       0.90       2.17  

Distributions From Net Investment Income

     (0.97     (1.23     (1.32     (1.28     (1.48

Net Asset Value, End of Period

   $ 14.93     $ 13.58     $ 15.05     $ 15.96     $ 16.34  

Market Price, End of Period

   $ 13.67     $ 11.90     $ 13.71     $ 14.26     $ 15.97  

Total Return(2) — Net Asset Value

     18.29     (0.24 )%      4.10     6.68     15.14

Total Return(2) — Market Price(3)

     23.59     (4.04 )%      6.07     (2.47 )%      22.55

Net Assets, End of Period (in millions)

   $ 247     $ 225     $ 249     $ 264     $ 271  

Ratio of Expenses to Average Net Assets(4)

     1.82     2.60     3.16     2.77     2.35

Ratio of Expenses to Average Net Assets Excluding Interest Expense(5)

     1.50     1.82     1.73     1.59     1.58

Ratio of Net Investment Income to Average Net Assets(6)

     6.80     8.18     8.27     8.50     9.31

Portfolio Turnover Rate

     55     45     34     46     39

 

(1)

Based on average weekly shares outstanding.

 

(2)

Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total returns for periods less than one year are not annualized.

 

(3)

Total investment return at market price will differ from results at NAV. Returns at market price can be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s stock, or changes in the Fund’s dividends.

 

(4)

The ratio of expenses to adjusted average net assets (excluding debt outstanding) for the years ended September 30, 2021, 2020, 2019, 2018 and 2017 are 1.34%, 1.82%, 2.17%, 1.90% and 1.62%, respectively.

 

(5)

The ratio of expenses to adjusted average net assets excluding interest expense (excluding debt outstanding) for the years ended September 30, 2021, 2020, 2019, 2018 and 2017 are 1.11%, 1.27%, 1.19%, 1.09% and 1.09%, respectively.

 

(6)

The ratio of net investment income to adjusted average net assets (excluding debt outstanding) for the years ended September 30, 2021, 2020, 2019, 2018 and 2017 are 5.01%, 5.71%, 5.69%, 5.81% and 6.43%, respectively.

 

^

Effective July 1, 2021, the Fund’s name changed from Ivy High Income Opportunities Fund to Delaware Ivy High Income Opportunities Fund.

 

See Accompanying Notes to Financial Statements.

 

     
    2021       ANNUAL REPORT       17  


NOTES TO FINANCIAL STATEMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

SEPTEMBER 30, 2021

 

1.   ORGANIZATION

Delaware Ivy High Income Opportunities Fund (formerly known as Ivy High Income Opportunities Fund) (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, closed-end management investment company. The Fund was organized as a Delaware statutory trust on January 30, 2013, pursuant to an Agreement and Declaration of Trust, as amended and restated on March 28, 2013, governed by the laws of the State of Delaware. The Fund commenced operations on May 29, 2013. Prior to that date, the Fund had no operations other than matters relating to its organization and the sale and issuance of 5,236 common shares of beneficial interest to Ivy Investment Management Company (“IICO” or the “Adviser”), the Fund’s former investment adviser. Effective April 30, 2021, the Fund’s investment adviser is Delaware Management Company (“DMC” or the “Adviser”). The Fund’s common shares are listed on the New York Stock Exchange (the “NYSE”) and trade under the ticker symbol “IVH”.

The Fund’s investment objective is to seek to provide total return through a combination of a high level of current income and capital appreciation. The Fund will seek to achieve its investment objective by investing primarily in a portfolio of high yield corporate bonds of varying maturities and other fixed income instruments of predominantly corporate issuers, including secured and unsecured loan assignments, loan participations and other loan instruments (“Loans”). Under normal circumstances, the Fund will invest at least 80% of its Managed Assets (as defined herein) in a portfolio of U.S. and foreign bonds, loans and other fixed income instruments, as well as other investments (including derivatives) with similar economic characteristics. The Fund will invest primarily in instruments that are, at the time of purchase, rated below investment grade (below Baa3 by Moody’s Investors Service, Inc. (“Moody’s”) or below BBB- by either Standard & Poor’s Rating Services (“S&P”) or Fitch, Inc. (“Fitch”), or comparably rated by another nationally recognized statistical rating organization (“NRSRO”)), or unrated but judged by the Adviser to be of comparable quality.

 

2.   SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund.

Security Transactions and Related Investment Income. Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Realized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and includes paydown gain (loss) and accretion of discounts and amortization of premiums. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. All or a portion of the distributions received from a real estate investment trust or publicly traded partnership may be designated as a reduction of cost of the related investment or realized gain. The financial statements reflect an estimate of the reclassification of the distribution character.

Foreign Currency Translation. The Fund’s accounting records are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars daily, using foreign exchange rates obtained from an independent pricing service approved by the Board of Trustees of the Fund (the “Board”). Purchases and sales of investment securities and accruals of income and expenses are translated at the rate of exchange prevailing on the date of the transaction. For assets and liabilities other than investments in securities, net realized and unrealized gains and losses from foreign currency translation arise from changes in currency exchange rates. The Fund combines fluctuations from currency exchange rates and fluctuations in value when computing net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments. Foreign exchange rates are typically valued as of the close of the NYSE, normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.

Dividends and Distributions to Shareholders. Dividends to shareholders are declared monthly. Distributions from net realized capital gains from investment transactions, if any, are declared and distributed to shareholders at least annually. Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations, which may differ from accounting principles generally accepted in the United States of America (“U.S. GAAP”). If the total dividends and distributions made in any tax year exceed net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a return of capital for tax purposes.

Income Taxes. It is the policy of the Fund to distribute all of its taxable income and capital gains to its shareholders and to otherwise qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In addition, the Fund intends to pay distributions as required to avoid imposition of excise tax. Accordingly, no provision has been made for Federal income taxes. The Fund files income tax returns in U.S. federal and applicable state jurisdictions. The Fund’s tax returns are subject to examination by the relevant taxing authority until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax returns. Management of the Fund periodically reviews all tax positions to assess whether it is more likely than not that the position would be sustained upon examination by the relevant tax authority based on the technical merits of each position. As of the date of these financial statements, management believes that no liability for unrecognized tax positions is required.

 

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Segregation and Collateralization. In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”), the Dodd Frank Wall Street Reform and Consumer Protection Act, or the interpretive rules and regulations of the U.S. Commodities Futures Trading Commission require that the Fund either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, financial futures contracts, foreign currency exchange contracts, options written, securities with extended settlement periods, and swaps), the Fund will segregate collateral or designate on its books and records, cash or other liquid securities having a value at least equal to the amount that is required to be physically segregated for the benefit of the counterparty. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party has requirements to deliver/deposit cash or securities as collateral for certain investments. Certain countries require that cash reserves be held while investing in companies incorporated in that country. These cash reserves and cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately on the Statement of Assets and Liabilities as “Restricted cash”. Securities collateral pledged for the same purpose, if any, is noted on the Schedule of Investments.

Concentration of Market and Credit Risk. In the normal course of business, the Fund invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Fund may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Fund; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Fund may be exposed to counterparty credit risk, or the risk that an entity with which the Fund has unsettled or open transactions may fail to or be unable to perform on its commitments. The Fund manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded on the Fund’s Statement of Assets and Liabilities, less any collateral held by the Fund.

The Fund may hold high-yield or non-investment-grade bonds, that may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. While the Fund may not invest in issues (such as secured debt issues or corporate debt issues) that are in default at the time of purchase, issuers in which the Fund may invest may become subject to a bankruptcy reorganization proceeding, subject to some other form of a public or private debt restructuring or otherwise become in default or in significant risk of default in the payment of interest or repayment of principal or trading at prices substantially below other below-investment grade debt securities of companies in similar industries.

The Fund may enter into financial instrument transactions (such as swaps, futures, options and other derivatives) that may have off-balance sheet market risk. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the value of such financial instrument, as reflected on the Statement of Assets and Liabilities.

If the Fund invests directly in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in financial derivatives that provide exposure to foreign currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad.

The risk that changes related to the use of the London Interbank Offered Rate (“LIBOR”) or similar interbank offered rates (“IBORs,” such as the Euro Overnight Index Average (“EONIA”)) could have adverse impacts on financial instruments that reference LIBOR or a similar rate. While some instruments may contemplate a scenario where LIBOR or a similar rate is no longer available by providing for an alternative rate setting methodology, not all instruments have such fallback provisions and the effectiveness of replacement rates is uncertain. The abandonment of LIBOR and similar rates could affect the value and liquidity of instruments that reference such rates, especially those that do not have fallback provisions. The use of alternative reference rate products may impact investment strategy performance.

An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in

 

     
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emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Leverage Risk. The Fund’s use of leverage creates the possibility of higher volatility for the Fund’s Net Asset Value (“NAV”), market price and distributions. Leverage risk can be introduced through structural leverage (borrowings) or portfolio leverage through the use of certain derivative instruments held in the Fund’s portfolio. Leverage typically magnifies the total return of the Fund’s portfolio, whether that return is positive or negative. The use of leverage creates an opportunity for increased net income per share, but there is no assurance that the Fund’s leveraging strategy will be successful.

Loans. The Fund may invest in loans, the interest rates of which float or adjust periodically based upon a specified adjustment schedule, benchmark indicator, or prevailing interest rates, the debtor of which may be a domestic or foreign corporation, partnership or other entity (“Borrower”). Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates generally include prime rates of one or more major U.S. banks, the LIBOR or certificates of deposit rates. Loans often require prepayments from excess cash flow or permit the Borrower to repay at its election. The degree to which Borrowers repay cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturities. Loans are exempt from registration under the Securities Act of 1933, as amended, may contain certain restrictions on resale, and cannot be sold publicly. The Fund’s investment in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties.

When the Fund purchases assignments, it acquires all the rights and obligations under the loan agreement of the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than those held by the assigning lender. When the Fund purchases a participation of a loan interest, the Fund typically enters into a contractual agreement with the lender or other third party selling the participation. A participation interest in loans includes the right to receive payments of principal, interest and any fees to which it is entitled from the lender and only upon receipt by the lender of payments from the Borrower, but not from the Borrower directly. When investing in a participation interest, if a Borrower is unable to meet its obligations under a loan agreement, the Fund generally has no direct right to enforce compliance with the terms of the loan agreement. As a result, the Fund assumes the credit risk of the Borrower, the selling participant, and any other persons that are interpositioned between the Fund and the Borrower. If the lead lender in a typical lending syndicate becomes insolvent, enters Federal Deposit Insurance Corporation (“FDIC”) receivership or, if not FDIC insured, enters into bankruptcy, the Fund may incur certain costs and delays in receiving payment or may suffer a loss of principal and interest.

Payment In-Kind Securities. The Fund may invest in payment in-kind securities (“PIKs”). PIKs give the issuer the option at each interest payment date of making interest payments in cash or in additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro-rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statement of Assets and Liabilities.

Securities on a When-Issued or Delayed Delivery Basis. The Fund may purchase securities on a “when-issued” basis, and may purchase or sell securities on a “delayed delivery” basis. “When-issued” or “delayed delivery” refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis normally take place within six months and possibly as long as two years or more after the trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The purchase of securities on a when-issued basis may increase the volatility of the Fund’s NAV to the extent the Fund executes such transactions while remaining substantially fully invested. When the Fund engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Fund to lose the opportunity to obtain or dispose of the security at a price and yield DMC considers advantageous. The Fund maintains internally designated assets with a value equal to or greater than the amount of its purchase commitments. The Fund may also sell securities that it purchased on a when-issued or delayed delivery basis prior to settlement of the original purchase.

Custodian Fees. “Custodian fees” on the Statement of Operations may include interest expense incurred by the Fund on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities. The Fund pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Fund. The “Earnings credit” line item, if shown, represents earnings on cash balances maintained by the Fund during the period. Such interest expense and other custodian fees may be paid with these earnings.

 

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Indemnification. The Fund’s organizational documents provide current and former Trustees and Officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown and is dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Basis of Preparation. The Fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 (“ASC 946”). The accompanying financial statements were prepared in accordance with U.S. GAAP, including but not limited to ASC 946. U.S. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.

Statement of Cash Flows. U.S. GAAP requires entities providing financial statements that report both financial position and results of operations to also provide a statement of cash flows for each period for which results of operations are provided, but exempts investment companies meeting certain conditions. One of the conditions is that the enterprise had little or no debt, based on the average debt outstanding during the period, in relation to average total assets. Funds with certain degrees of borrowing activity, typically through the use of borrowing arrangements, have been determined to be at a level requiring a Statement of Cash Flows. The Statement of Cash Flows has been prepared using the indirect method which requires net increase/decrease in net assets resulting from operations to be adjusted to reconcile to net cash flows from operating activities.

Subsequent Events. On September 13, 2021, the Board approved the appointment of the portfolio manager team of Adam H. Brown and John P. McCarthy of DMC as new Fund portfolio managers that took effect on November 15, 2021.

 

3.   INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

The Fund’s investments are reported at fair value. Fair value is defined as the price that the Fund would receive upon selling an asset or would pay upon satisfying a liability in an orderly transaction between market participants at the measurement date. The Fund calculates the NAV of its shares as of the close of the NYSE, normally 4:00 P.M. Eastern time, on each day the NYSE is open for trading.

For purposes of calculating the NAV, the portfolio securities and financial instruments are valued on each business day using pricing and valuation methods as adopted by the Board. Where market quotes are readily available, fair value is generally determined on the basis of the last reported sales price, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or pricing services.

Prices for fixed-income securities are typically based on quotes that are obtained from an independent pricing service approved by the Board. To determine values of fixed-income securities, the independent pricing service utilizes such factors as current quotations by broker/dealers, coupon, maturity, quality, type of issue, trading characteristics, and other yield and risk factors it deems relevant in determining valuations. Securities that cannot be valued by the independent pricing service may be valued using quotes obtained from dealers that make markets in the securities.

Short-term securities with maturities of 60 days or less are valued based on quotes that are obtained from an independent pricing service approved by the Board as described in the preceding paragraph above.

Because many foreign markets close before the NYSE, events may occur between the close of the foreign market and the close of the NYSE that could have a material impact on the valuation of foreign securities. Waddell & Reed Services Company (“WRSCO”), pursuant to procedures adopted by the Board, evaluates the impact of these events and may adjust the valuation of foreign securities to reflect the fair value as of the close of the NYSE. In addition, all securities for which values are not readily available or are deemed unreliable are appraised at fair value as determined in good faith under the supervision of the Board.

Where market quotes are not readily available, portfolio securities or financial instruments are valued at fair value, as determined in good faith by the Board or Valuation Committee pursuant to procedures approved by the Board.

Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the NYSE close, that materially affect the values of the Fund’s securities or financial instruments. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available.

The Board has delegated to WRSCO the responsibility for monitoring significant events that may materially affect the values of the Fund’s securities or financial instruments and for determining whether the value of the applicable securities or financial instruments should be re-evaluated in light of such significant events. DMC, pursuant to authority delegated by the Board, has established a Valuation Committee to administer and oversee the valuation process, including the use of third party pricing vendors.

 

     
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The Board has adopted methods for valuing securities and financial instruments in circumstances where market quotes are not readily available. For instances in which daily market quotes are not readily available, investments may be valued, pursuant to procedures established by the Board, with reference to other securities or indices. In the event that the security or financial instrument cannot be valued pursuant to one of the valuation methods established by the Board, the value of the security or financial instrument will be determined in good faith by the Valuation Committee in accordance with the procedures adopted by the Board.

When the Fund uses these fair valuation methods applied by WRSCO that use significant unobservable inputs to determine its NAV, securities will be priced by a method that the Board or persons acting at its direction believe accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. These methods may require subjective determinations about the value of a security. The prices used by the Fund may differ from the value that will ultimately be realized at the time the securities are sold.

WRSCO is responsible for monitoring the implementation of the pricing and valuation policies through a series of activities to provide reasonable comfort of the accuracy of prices including: 1) periodic vendor due diligence meetings to review methodologies, new developments, and process at vendors, 2) daily and monthly multi-source pricing comparisons reviewed and submitted to the Valuation Committee, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by management and the Valuation Committee.

Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements 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 factors that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs which are significant to the overall valuation.

The three-tier hierarchy of inputs is summarized as follows:

 

 

Level 1 – Observable inputs such as quoted prices, available in active markets, for identical assets or liabilities.

 

 

Level 2 – Significant other observable inputs, which may include, but are 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.

 

 

Level 3 – Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at its direction that are used in determining the fair value of investments.

A description of the valuation techniques applied to the Fund’s major classes of assets and liabilities measured at fair value on a recurring basis follows:

Corporate Bonds. The fair value of corporate bonds, as obtained from an independent pricing service, is estimated using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads, fundamental data relating to the issuer, and credit default swap spreads adjusted for any basis difference between cash and derivative instruments. While most corporate bonds are categorized in Level 2 of the fair value hierarchy, in instances where lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3 of the fair value hierarchy.

Derivative Instruments. Forward foreign currency contracts are valued based upon the closing prices of the forward currency rates determined at the close of the NYSE, which values are provided by an independent pricing service. Forward contract values are categorized in Level 2 of the fair value hierarchy. Swaps derive their value from underlying asset prices, indices, reference rates and other inputs or a combination of these factors. Swaps are valued by an independent pricing service unless the price is unavailable, in which case they are valued at the price provided by a dealer in that security. Swap values are categorized in Level 2 of the fair value hierarchy.

Loans. Loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3.

 

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Municipal Bonds. Municipal bonds are fair valued based on pricing models used by and obtained from an independent pricing service that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-wants lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable and timely, the fair values of municipal bonds would be categorized as Level 2; otherwise the fair values would be categorized as Level 3.

Restricted Securities. Restricted securities that are deemed to be Rule 144A securities and illiquid, as well as restricted securities held in non-public entities, are included in Level 3 of the fair value hierarchy to the extent that significant inputs to valuation are unobservable, because they trade infrequently, if at all and, therefore, the inputs are unobservable. Restricted securities that are valued at a discount to similar publicly traded securities may be categorized as Level 2 of the fair value hierarchy to the extent that the discount is considered to be insignificant to the fair value measurement in its entirety; otherwise they may be categorized as Level 3.

Transfers from Level 2 to Level 3, if any, occurred primarily due to the lack of observable market data due to decreased market activity or information for these securities. Transfers from Level 3 to Level 2, if any, occurred primarily due to the increased availability of observable market data due to increased market activity or information. Transfers between levels represent the values as of the beginning of the reporting period.

For fair valuations using unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in or out of the Level 3 category during the period. In accordance with the requirements of U.S. GAAP, a fair value hierarchy and Level 3 reconciliation, if any, have been included in the Notes to the Schedule of Investments for the Fund.

Net realized gain (loss) and net unrealized appreciation (depreciation), shown on the reconciliation of Level 3 investments, if applicable, are included on the Statement of Operations in net realized gain (loss) on investments in unaffiliated securities and in net change in unrealized appreciation (depreciation) on investments in unaffiliated securities, respectively.

 

4.   DERIVATIVE INSTRUMENTS ($ amounts in thousands unless indicated otherwise)

The following disclosures contain information on why and how the Fund uses derivative instruments, the associated risks of investing in derivative instruments, and how derivative instruments affect the Fund’s financial positions and results of operations.

Futures Contracts. The Fund is authorized to engage in buying and selling futures contracts. Upon entering into a futures contract, the Fund is required to deposit, in a segregated account, an amount equal to a varying specified percentage of the contract amount. This amount is known as the initial margin. Subsequent amounts, known as variation margin, are paid or received by the Fund each day, dependent on the daily fluctuations in the value of the underlying debt security or index. Options on futures contracts may also be purchased or sold by the Fund.

Futures contracts are reported on a schedule following the Schedule of Investments. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are identified on the Schedule of Investments. Cash held by the broker to cover initial margin requirements on open futures contracts and the receivable and/or payable for the daily mark to market for the variation margin are noted on the Statement of Assets and Liabilities. The net change in unrealized appreciation (depreciation) is reported on the Statement of Operations. Realized gains (losses) are reported on the Statement of Operations at the closing or expiration of futures contracts.

Risks of entering into futures contracts include the possibility of loss of securities or cash held as collateral, that there may be an illiquid market where the Fund is unable to close the contract or enter into an offsetting position and, if used for hedging purposes, the risk that the price of the contract will correlate imperfectly with the prices of the Fund’s securities.

The Fund invests in long and/or short positions in futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk).

Collateral and rights of offset. The Fund mitigates credit risk with respect to over-the-counter (“OTC”) derivative counterparties through credit support annexes (“CSA”) included with an International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreement which is the standard contract governing all OTC derivative transactions between the Fund and each of its counterparties. Although it is not possible to eliminate credit risk entirely, the CSA allows the Fund and its counterparty to reduce their exposure to the risk of payment default by the other party by holding an amount in collateral equivalent to the realized and unrealized amount of exposure to the counterparty, which is generally held by the Fund’s custodian. An amount of collateral is moved to/from applicable counterparties only if the amount of collateral required to be posted surpasses both the threshold and the minimum transfer amount pre-agreed in the CSA between the Fund and the counterparty. See Note 2 “Segregation and Collateralization” for additional information with respect to collateral practices.

 

     
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Additional Disclosure Related to Derivative Instruments

Fair values of derivative instruments as of September 30, 2021:

 

Type of Risk
Exposure
  

Assets

    

Liabilities

 
   Statements of Assets & Liabilities Location    Value      Statements of Assets & Liabilities Location    Value  
Interest rate    Unrealized appreciation on futures contracts*    $ 16           $  

 

*

The value presented includes cumulative gain (loss) on open futures contracts; however, the value reflected on the accompanying Statements of Assets and Liabilities is only the unsettled variation margin receivable (payable) as of year ended September 30, 2021.

Amount of realized gain (loss) on derivatives recognized on the Statements of Operations for the year ended September 30, 2021:

 

    Net realized gain (loss) on:        
Type of Risk
Exposure
  Investments in
unaffiliated
securities*
    Swap
agreements
    Futures
contracts
    Written
options
    Forward foreign
currency
contracts
    Total  
Interest rate   $     $       (41   $     $     $ (41

 

*

Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.

Change in unrealized appreciation (depreciation) on derivatives recognized on the Statements of Operations for the year ended September 30, 2021:

 

    Net change in unrealized appreciation (depreciation) on:        
Type of Risk
Exposure
  Investments in
unaffiliated
securities*
    Swap
agreements
    Futures
contracts
    Written
options
    Forward foreign
currency
contracts
    Total  
Interest rate   $     $     $ 16     $     $     $ 16  

 

*

Purchased options are reported as investments in unaffiliated securities and are reflected on the accompanying Schedule of Investments.

During the year ended September 30, 2021, the average derivative volume was as follows:

 

Forward foreign
currency contracts(1)
  Long futures
contracts(2)
  Short futures
contracts(2)
  Swap
agreements(3)
  Purchased
options(2)
  Written
options(2)
    $—       $     $ 242     $     $     $

 

(1)

Average absolute value of unrealized appreciation/depreciation during the period.

 

(2)

Average value outstanding during the period.

 

(3)

Average notional amount outstanding during the period.

 

5.   INVESTMENT MANAGEMENT AND PAYMENTS TO AFFILIATED PERSONS ($ amounts in thousands unless indicated otherwise)

Management Fees. Prior to April 30, 2021, IICO served as the Fund’s investment manager. Effective April 30, 2021, DMC serves as the Fund’s investment manager. The Fund has agreed to pay the Adviser a management fee at an annual rate of 1.00% of the average daily value of the Fund’s ”Managed Assets.” The term Managed Assets means the Fund’s total assets, including the assets attributable to the proceeds from any borrowings or other forms of structural leverage, minus liabilities, other than the aggregate indebtedness entered into for purposes of leverage.

Independent Trustees and Chief Compliance Officer Fees. Through April 30, 2021, fees paid to the Independent Trustees can be paid in cash or deferred to a later date, at the election of the Trustees according to the Trust’s Deferred Fee Agreement entered into between the Fund and the Trustee(s). The Fund records the deferred fees as a liability on the Statement of Assets and Liabilities. All fees paid in cash plus any appreciation (depreciation) in the underlying deferred plan are shown on the Statement of Operations. Additionally, fees paid to the Chief Compliance Officer of the Fund are shown on the Statement of Operations.

Accounting Services Fees. The Fund has an Accounting and Administrative Services Agreement with WRSCO, doing business as WI Services Company (“WISC”). Under the agreement, WISC acts as the agent in providing bookkeeping and accounting services and assistance to the Fund, including maintenance of Fund records, pricing of Fund shares and

 

24   ANNUAL REPORT   2021  
     


           

 

 

 

preparation of certain shareholder reports. For these services, the Fund pays WISC a monthly fee of one-twelfth of the annual fee based on the average managed asset levels shown in the following table:

 

(M - Millions)    $0 to
$10M
     $10 to
$25M
     $25 to
$50M
     $50 to
$100M
     $100 to
$200M
     $200 to
$350M
     $350 to
$550M
     $550 to
$750M
     $750 to
$1,000M
     Over
$1,000M
 

Annual Fee Rate

   $ 0.00      $ 11.50      $ 23.10      $ 35.50      $ 48.40      $ 63.20      $ 82.50      $ 96.30      $ 121.60      $ 148.50  

The Fund also pays WISC a monthly administrative fee at the annual rate of 0.01%, or one basis point, for the first $1 billion of managed assets with no fee charged for managed assets in excess of $1 billion. This fee is voluntarily waived by WISC until the Fund’s managed assets are at least $10 million and is included in “Accounting services fee” on the Statement of Operations.

Other Fees. The Fund pays all costs and expenses of its operations, including, but not limited to, compensation of its Trustees (other than those affiliated with the Adviser), custodian, administrator, leveraging expenses, transfer and dividend disbursing agent expenses, legal fees, rating agency fees, listing fees and expenses, expenses of independent auditors, expenses of repurchasing shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if any.

 

6.   AFFILIATED COMPANY TRANSACTIONS (All amounts in thousands)

A summary of the transactions in affiliated companies during the year ended September 30, 2021 follows:

 

      9-30-20
Value
     Gross
Additions
     Gross
Reductions
     Realized
Gain/(Loss)
     Net Change in
Unrealized
Depreciation
    9-30-21
Value
     Distributions
Received
     Capital Gain
Distributions
 

Larchmont Resources LLC(1)(3)

   $ 66      $      $      $      $ (64   $ 2      $      $  

New Cotai Participation Corp., Class B(1)(2)(3)

     4,838                             (2,751     2,087                

True Religion Apparel, Inc.(1)

     N/A        1,049                      (731     318                

True Religion Apparel, Inc.(1)(2)

     N/A        2,780                      (1,397     1,383                
  

 

 

          

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
   $ 4,904            $      $ (4,943   $ 3,790      $      $  
  

 

 

          

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
      9-30-20
Value
                             Net Change in
Unrealized
Appreciation
            Interest
Received
         

Larchmont Resources LLC (9.000% Cash or 9.000% PIK), 9.000%, 8-7-22(2)(4)

   $ 500        36        30             $ 685     $ 1,191      $ 129      $  

 

(1)

No dividends were paid in the preceding 12 months.

 

(2)

Securities whose value was determined using significant unobservable inputs.

 

(3)

Restricted securities.

 

(4)

Payment-in-kind bond.

 

7.   INVESTMENT SECURITIES TRANSACTIONS ($ amounts in thousands)

The cost of purchases and the proceeds from maturities and sales of investment securities (excluding short-term securities) for the year ended September 30, 2021, were as follows:

 

Purchases

 

Sales

U.S. Government   Other Issuers   U.S. Government   Other Issuers
$—   $165,479   $—   $195,020

 

8.   BORROWINGS

The Fund entered into a $160 million (“Facility Limit”) prime brokerage facility (“Borrowings”) with Pershing LLC as a means of financial leverage. Interest was charged on the Borrowings at one month LIBOR plus 0.75% on the amount borrowed. There are no other fees associated with this borrowing arrangement. During the year ended September 30, 2021, the average daily balance outstanding and weighted interest rate on the Borrowings were $87,000,000 and 0.871%, respectively.

In order to maintain the Borrowings, the Fund must meet certain collateral, asset coverage and other requirements. Borrowings outstanding are secured by securities held by the Fund as noted in the Schedule of Investments.

Borrowings outstanding are recognized as “Payable for borrowing” on the Statement of Assets and Liabilities. Interest charged on the amount borrowed is recognized as a component of “Interest expense for borrowing” on the Statement of Operations.

 

     
    2021       ANNUAL REPORT       25  


           

 

 

 

9.   LOANS OF PORTFOLIO SECURITIES ($ amounts in thousands)

The Fund may lend its portfolio securities only to borrowers that are approved by the Fund’s securities lending agent, The Bank of New York Mellon (“BNYM”). The borrower pledges and maintains with the Fund collateral consisting of cash or securities issued or guaranteed by the U.S. government. The collateral received by the Fund is required to have a value of at least 102% of the market value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% of the market value for all other securities, except in the case of loans of foreign securities which are denominated and payable in U.S. dollars, in which case the collateral is required to have a value of at least 102% of the market value of the loaned securities. The market value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund and any excess collateral is returned by the Fund on the next business day. During the term of the loan, the Fund is entitled to all distributions made on or in respect of the loaned securities but does not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.

Cash received as collateral for securities on loan may be reinvested in the Dreyfus Institutional Preferred Government Money Market Fund—Institutional Shares or certain other registered money market funds and are disclosed in the Fund’s Schedule of Investments and are reflected in the Statement of Assets and Liabilities as cash collateral on securities loaned at value. Non-cash collateral, in the form of securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, is not disclosed in the Fund’s Statement of Assets and Liabilities as it is held by the lending agent on behalf of the Fund and the Fund does not have the ability to re-hypothecate these securities. The securities on loan for the Fund are also disclosed in its Schedule of Investments. The total value of any securities on loan as of September 30, 2021 and the total value of the related cash collateral are disclosed in the Statement of Assets and Liabilities. Income earned by the Fund from securities lending activity is disclosed in the Statements of Operations.

The following is a summary of the Fund’s securities lending positions and related cash and non-cash collateral received as of September 30, 2021:

 

Value of Securities on Loan   Cash Collateral Received   Non-Cash Collateral Received   Total Collateral Received
$5,755   $5,880   $—   $5,880

The cash collateral received amounts presented in the table above are transactions accounted for as secured borrowings and have an overnight and continuous maturity. The proceeds from the cash collateral received is invested in registered money market funds.

The Board has approved the Fund’s participation in a securities lending program, whereby the Fund lends certain of its portfolio securities to borrowers to receive additional income and increase the rate of return of its portfolio. BNYM serves as the securities lending agent for the program. As securities lending agent, BNYM is responsible for (i) selecting borrowers from a pre-approved list of borrowers and executing a securities lending agreement as agent on behalf of the Fund with each such borrower; (ii) negotiating the terms of securities loans, including the amount of fees or rebates; (iii) receiving and investing collateral in connection with any loaned securities in pre-approved investment vehicles; (iv) monitoring the daily value of the loaned securities and demanding the payment of additional collateral, as necessary; (v) terminating securities loans and arranging for the return of loaned securities and collateral at such termination; and (vi) in the event of default by a borrower with respect to any securities loan, using the collateral or the proceeds of the liquidation of collateral to purchase replacement securities. The following table shows the dollar amounts of income and fees/compensation related to the securities lending activities of the Fund during the year ended September 30, 2021.

 

      Securities Lending Activities  

Gross income from securities lending activities

   $ 1  

Securities lending income paid to BNYM for services as securities lending agent

     6  

Cash collateral management fees not included in securities lending income paid to BNYM

     0  

Administrative fees not included in securities lending income paid to BNYM

     0  

Indemnification fees not included in securities lending income paid to BNYM

     0  

Rebates received from borrowers

     (71

Other fees not included in securities lending income paid to BNY

     0  

Aggregate fees/compensation for securities lending activities

     (65

Net income from securities lending activities

   $ 66  

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Fund benefits from a borrower indemnity provided by BNYM. BNYM’s indemnity allows for full replacement of securities lent wherein BNYM will purchase the unreturned loaned securities on the open market by applying the proceeds of the collateral or to the extent such proceeds are insufficient or the collateral is unavailable, BNYM will purchase the unreturned loan securities at BNYM’s expense. However, the Fund could suffer a loss if the value of the investments purchased with cash collateral falls below the value of the cash collateral received.

 

26   ANNUAL REPORT   2021  
     


           

 

 

 

10.   CAPITAL SHARE TRANSACTIONS

The Fund has authorized 18,750,000 of $0.001 par value common shares of beneficial interest. There were no transactions in shares of beneficial interest during the year ended September 30, 2021.

 

11.   COMMITMENTS

Bridge loan 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. Such fee income is included in interest income on the Statement of Operations. At year ended September 30, 2021, the Fund did not have any bridge loan commitments outstanding.

 

12.   OTHER FUND INFORMATION

At a meeting held on January 12, 2021, the Trustees, upon recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP (“PwC”), contingent on PwC finalizing their independence assessment, to serve as the independent registered public accounting firm for the Trust for the fiscal year ending September 30, 2021. PwC affirmed their independence as an independent registered public accounting firm on February 18, 2021. During the fiscal year ended September 30, 2020, Deloitte & Touche LLP’s (“Deloitte”) audit report on the financial statements of each Fund in the Trust did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no disagreements between the Trust and Deloitte on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of Deloitte, would have caused them to make reference to the disagreement in their reports. Neither the Trust nor anyone on its behalf has consulted with PwC at any time prior to their selection with respect to the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on each Fund’s financial statements.

 

13.   FEDERAL INCOME TAX MATTERS ($ amounts in thousands)

For Federal income tax purposes, cost of investments owned at September 30, 2021 and the related unrealized appreciation (depreciation) were as follows:

 

Cost of
Investments
  Gross
Appreciation
  Gross
Depreciation
  Net
Unrealized
Depreciation
$357,296   $10,309   $27,906   $(17,597)

For Federal income tax purposes, the Fund’s undistributed earnings and profit for the year ended September 30, 2021 and the post-October and late-year ordinary activity were as follows:

 

Undistributed
Ordinary Income
  Undistributed
Long-Term
Capital Gains
  Tax Return
of Capital
  Post-October
Capital Losses
Deferred
  Late-Year
Ordinary
Losses
Deferred
$88   $—   $—   $—   $—

Internal Revenue Code regulations permit the Fund to elect to defer into its next fiscal year capital losses and certain specified ordinary items incurred between each November 1 and the end of its fiscal year. The Fund is also permitted to defer into its next fiscal certain ordinary losses that are generated between January 1 and the end of its fiscal year.

The tax character of dividends and distributions paid during the two fiscal years ended September 30, 2021 and 2020 were as follows:

 

September 30, 2021

 

September 30, 2020

Distributed
Ordinary
Income(1)
  Distributed
Long-Term
Capital Gains
  Distributed
Ordinary
Income(1)
  Distributed
Long-Term
Capital Gains
$16,156   $—   $20,381   $—

 

(1)

Includes short-term capital gains distributed, if any.

Dividends from net investment income and short-term capital gains are treated as ordinary income dividends for federal income tax purposes.

 

     
    2021       ANNUAL REPORT       27  


           

 

 

 

Accumulated capital losses represent net capital loss carryovers as of September 30, 2021 that may be available to offset future realized capital gains and thereby reduce future capital gain distributions. As of September 30, 2021, the capital loss carryovers were as follows:

 

Short-Term Capital
Loss Carryover
  Long-Term Capital
Loss Carryover
$5,779   $44,952

Net investment income dividends and capital gains distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. These differences are due to differing treatments for items such as deferral of wash sales, post-October losses, late-year ordinary losses, foreign currency transactions, net operating losses, income from passive foreign investment companies (PFICs) and partnership transactions. At September 30, 2021, the following reclassifications were made:

 

Accumulated Earnings
Gain (Loss)
  Paid-In Capital
$—*   $—*

 

*

Not shown due to rounding.

 

28   ANNUAL REPORT   2021  
     


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

To the Board of Trustees of Delaware Ivy High Income Opportunities Fund and Shareholders of Delaware Ivy High Income Opportunities Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Delaware Ivy High Income Opportunities Fund (formerly known as Ivy High Income Opportunities Fund) (hereafter referred to as the “Fund”) as of September 30, 2021, and the related statements of operations, changes in net assets and cash flows, including the related notes, and the financial highlights for the year then ended (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 September 30, 2021, and the results of its operations, changes in its net assets, its cash flows and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Fund as of and for the year ended September 30, 2020 and the financial highlights for each of the periods ended on or prior to September 30, 2020 (not presented herein, other than the statements of changes in net assets and the financial highlights) were audited by other auditors whose report dated November 24, 2020 expressed an unqualified opinion on those financial statements and financial highlights.

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 audit. 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 audit 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 audit 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 audit 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 June 30, 2021 by correspondence with the custodian, transfer agents, agent banks, brokers and portfolio company investees; when replies were not received from agent banks or brokers, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

November 29, 2021

We have served as the auditor of one or more investment companies in Delaware Funds by Macquarie since 2010.

 

     
    2021       ANNUAL REPORT       29  


INCOME TAX INFORMATION   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

(UNAUDITED)

 

The Fund hereby designates the following amounts of dividends paid from net ordinary income as dividends qualifying for the 70% dividends received deduction and Section 163(j) interest dividends eligible to be treated as interest income for purposes of Section 163(j) for corporations or as qualified dividend income for individuals for the tax period ended September 30, 2021:

 

Dividends Received Deduction
for Corporations
  Section 163(j) Interest
Dividends for Corporations
  Qualified Dividend Income for
Individuals
$—   $11,682,015   $—

Shareholders are advised to consult with their tax advisors concerning the tax treatment of dividends and distributions from the Fund.

The tax status of dividends paid will be reported to you on Form 1099-DIV after the close of the applicable calendar year.

 

30   ANNUAL REPORT   2021  
     


OTHER FUND INFORMATION   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

(UNAUDITED)

 

Fund   strategies and risks

 

What   are the Fund’s principal investment strategies?

The Fund will seek to achieve its investment objective by investing primarily in a portfolio of high yield corporate bonds of varying maturities and other fixed income instruments of predominantly corporate issuers, including first- and second-lien secured loans (“Secured Loans”). Under normal circumstances, the Fund will invest at least 80% of its Managed Assets (as defined below) in a portfolio of U.S. and foreign bonds, loans and other fixed income instruments, as well as other investments (including derivatives) with similar economic characteristics. The Fund will invest primarily in instruments that are, at the time of purchase, rated below investment grade (below Baa3 by Moody’s Investors Service, Inc. (“Moody’s”) or below BBB- by either Standard & Poor’s Rating Services (“S&P”) or Fitch, Inc. (“Fitch”), or comparably rated by another nationally recognized statistical rating organization (“NRSRO”)), or unrated but judged by the Adviser, to be of comparable quality. “Managed Assets” means the Fund’s total assets, including the assets attributable to the proceeds from any borrowings or other forms of structural leverage (as defined below), minus liabilities other than the aggregate indebtedness entered into for purposes of leverage. The Fund may invest an unlimited amount of its assets in foreign securities that are denominated in U.S. dollars or foreign currencies. The Fund will seek to dynamically adjust and hedge its duration depending on the market opportunities available. Under normal circumstances, the dollar-weighted average portfolio duration of the Fund will generally range between zero and seven years.

The Fund may invest without limit in corporate fixed income instruments, and may focus its investments in one or more types of corporate fixed income instruments to seek to adapt to market conditions. For example, if the Adviser believes that market conditions are favorable for a particular type of fixed income instrument, such as high yield bonds, most or all of the fixed income instruments in which the Fund invests may be high yield bonds. Similarly, if the Adviser believes that market conditions are favorable for Secured Loans, most or all of the fixed income instruments in which the Fund invests may be Secured Loans. Under normal circumstances, the Adviser expects the Fund’s investments in corporate fixed income instruments will consist predominantly of high yield bonds and/or Secured Loans; however, the Fund’s investments in fixed income instruments also may include, to a lesser extent, debentures, notes, commercial paper, investment grade bonds, loans other than Secured Loans, including unsecured loans and mezzanine loans, and other similar types of debt instruments, as well as derivatives related to or referencing these types of securities and instruments. The Fund will not invest in collateralized loan obligations or collateralized debt obligations.

Under normal circumstances, the Fund may invest up to 100% of its Managed Assets in fixed income instruments and securities issued by foreign issuers, and up to 25% of its Managed Assets in fixed income instruments and securities of issuers in emerging markets. Such foreign instruments may be U.S. currency denominated or foreign currency denominated.

The Fund may not invest more than 25% of its Managed Assets in instruments that, at the time of investment, are illiquid (determined using the Securities and Exchange Commission’s (“SEC”) standard applicable to registered investment companies, i.e., securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities). The Fund also may not invest more than 25% of its Managed Assets in restricted securities, including private placement securities that are unregistered (but are eligible for purchase and sale by certain qualified institutional buyers) or are held by control persons of the issuer and securities that are subject to contractual restrictions on their resale (“restricted securities”). For purposes of this limitation, restricted securities do not include securities sold pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), that have been deemed to be liquid by the Adviser.

The Fund may invest in assignments or participations of Secured Loans made to U.S., and non-U.S., corporations, partnerships and other business entities (“Borrowers”) which operate in various industries and geographical regions. Most Secured Loans pay interest at rates that are determined periodically on the basis of a floating base lending rate, primarily the London-Interbank Offered Rate (“LIBOR”), plus a premium. Secured Loans are secured by collateral. The Fund also may invest in unsecured loans and mezzanine loans.

The Fund may use derivatives for investment or hedging purposes, or as a form of effective leverage (as defined below). The Fund’s principal investments in derivative instruments may include investments in total return swaps and credit default swaps, but the Fund also may invest in futures transactions, options and options on futures as well as certain currency instruments such as foreign currency forward contracts, currency exchange transactions on a spot basis (i.e., cash), put and call options on foreign currencies and interest rate instruments such as interest rate swaps. The market value of the Fund’s investments in derivatives will be included under the 80% policy noted above so long as the underlying assets of such derivatives are one or more corporate fixed income instruments.

 

 

     
    2021       ANNUAL REPORT       31  


           

 

 

 

As part of its investments in corporate fixed income instruments, the Fund may not invest more than 20% of its Managed Assets in fixed income instruments of distressed issuers. Such instruments may be rated in the lower rating categories (Caa1 or lower by Moody’s, or CCC+ or lower by S&P or Fitch, or comparably rated by another NRSRO) or unrated but judged by the Adviser to be of comparable quality. Such instruments are subject to very high credit risk. The Fund may not invest in issues (such as secured debt and/or corporate debt) that are in default at the time of purchase.

The Fund may invest up to 10% of its Managed Assets in credit-linked notes.

The Fund may invest up to 10% of its total assets in other investment companies, including other closed-end funds, open-end funds and exchange traded funds (“ETFs”), to the extent permitted by the Investment Company Act of 1940, as amended (the “1940 Act”) and the rules thereunder.

The Fund may invest in fixed income instruments that are, at the time of purchase, rated investment grade (Baa3 or higher by Moody’s, BBB- or higher by S&P or Fitch, or comparably rated by another NRSRO) or unrated but judged by the Adviser to be of comparable quality.

From time to time, the Fund may invest in or hold common stock, preferred stock, convertible securities and other equity securities or warrants incidental to the purchase or ownership of a fixed income instrument or in connection with a reorganization of an issuer. These investments could arise from time to time in connection with a corporate action or the restructuring of a debt instrument. Depending upon, among other things, the Adviser’s evaluation of the potential value of such securities in relation to the price that could be obtained by the Fund at any given time upon sale thereof, the Fund may determine to hold these equity securities in its portfolio.

Leverage — The Fund anticipates using leverage as part of its investment strategy. Depending on market conditions, the Fund currently intends to incur leverage of up to 33 1/3% of its Managed Assets primarily through borrowings in one or more credit facilities (including prime brokerage facilities). The Fund intends to enter into a prime brokerage facility with one or more financial institutions. Although the Fund has no current intention to do so, it also may issue preferred shares, debt securities or commercial paper, or enter into similar transactions to add leverage to its portfolio (collectively, together with borrowing money, “structural leverage”). The Fund also may incur leverage through derivative instruments including total return swaps, securities lending arrangements, credit default swaps or other derivative transactions (collectively, “effective leverage”). The Fund’s use of effective leverage will not comprise more than 25% of its Managed Assets. Although certain forms of effective leverage the Fund may use may not be considered senior securities under the 1940 Act, such effective leverage would be considered leverage for the Fund’s total leverage limit noted below. The Fund’s total leverage, through structural leverage and effective leverage, will not comprise more than 40% of the Fund’s Managed Assets.

 

What   are the principal risks of investing in the Fund?

Investing in any closed-end fund involves the risk that you may lose part or all of the money you invest. Over time, the value of your investment in the Fund will increase and decrease according to changes in the value of the securities in the Fund’s portfolio. An investment in the Fund may not be appropriate for all investors. The Fund’s principal risks include:

Net asset value discount risk — The risk that a closed-end investment company will trade at a discount from its net asset value (NAV).

Market risk — The risk that all or a majority of the securities in a certain market — such as the stock or bond market — will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling. For additional information, see Note 2 in “Notes to Financial Statements.”

Active management and selection risk — The risk that the securities selected by a fund’s management will underperform the markets, the relevant indices, or the securities selected by other funds with similar investment objectives and investment strategies. The securities and sectors selected may vary from the securities and sectors included in the relevant index.

High yield (junk bond) risk — The risk that high yield securities, commonly known as “junk bonds,” are subject to reduced creditworthiness of issuers, increased risk of default, and a more limited and less liquid secondary market. High yield securities may also be subject to greater price volatility and risk of loss of income and principal than are higher-rated securities. High yield bonds are sometimes issued by municipalities that have less financial strength and therefore have less ability to make projected debt payments on the bonds.

Distressed securities risk — The risk that a fund may lose a substantial portion or all of its investment in distressed securities or may be required to accept cash, securities or other property with a value less than its original investment. Distressed debt securities are speculative and involve substantial risks in addition to the risks of investing in lower-grade debt securities. In certain periods, there may be little or no liquidity in the markets for distressed securities. The prices of such securities may be subject to periods of abrupt and erratic market movements and above average price volatility and it may be difficult to value such securities.

 

 

32   ANNUAL REPORT   2021  
     


           

 

 

 

Fixed income risk — The risk that bonds may decrease in value if interest rates increase; an issuer may not be able to make principal and interest payments when due; a bond may be prepaid prior to maturity; and, in the case of high yield bonds (“junk bonds”), such bonds may be subject to an increased risk of default, a more limited secondary market than investment grade bonds, and greater price volatility. Interest rate changes are influenced by a number of factors, such as government policy, monetary policy, inflation expectations, and the supply and demand of bonds. Bonds and other fixed income securities with longer maturities or duration generally are more sensitive to interest rate changes. A fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates.

Credit risk — The risk that an issuer of a debt security, including a governmental issuer or an entity that insures a bond, may be unable to make interest payments and/or repay principal in a timely manner. For additional information, see Note 2 in “Notes to Financial Statements.”

Issuer risk — The risk that the value of an issuer’s securities may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage, and reduced demand for the issuer’s goods and services

Interest rate risk — The risk that the prices of bonds and other fixed income securities will increase as interest rates fall and decrease as interest rates rise. Interest rate changes are influenced by a number of factors, such as government policy, monetary policy, inflation expectations, and the supply and demand of bonds. Bonds and other fixed income securities with longer maturities or duration generally are more sensitive to interest rate changes. A fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates.

Prepayment risk — The risk that the principal on a bond that is held by a fund will be prepaid prior to maturity at a time when interest rates are lower than what that bond was paying. A fund may then have to reinvest that money at a lower interest rate.

Loans and other indebtedness risk — The risk that a 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 and the lending institution. A fund’s ability to sell its loans or to realize their full value upon sale may also be impaired due to the lack of an active trading market, irregular trading activity, wide bid/ask spreads, contractual restrictions, and extended trade settlement periods. In addition, certain loans in which a fund invests may not be considered securities. A fund therefore may not be able to rely upon the anti-fraud provisions of the federal securities laws with respect to these investments.

Duration risk — The risk that longer-duration debt securities are more likely to decline in price than shorter duration debt securities in a rising interest rate environment. Duration is a measure of the price sensitivity of a debt security or portfolio to interest rate changes.

Leveraging risk — The risk that certain fund transactions using leveraging techniques may give rise to leverage, causing a fund to be more volatile than if it had not been leveraged, which may result in increased losses to a fund. Leveraging techniques, such as borrowing, will pose certain risks for shareholders, including the possibility of higher volatility of both the NAV and market value of the shares. There can be no assurance that a fund would be able to realize a higher net return on its investment portfolio than the then current dividend interest rate on any senior securities. In such event, the fund leveraged capital structure would result in a lower yield to the shareholders than if the fund were not leveraged. Accordingly, the effect of leverage in a declining market is likely to be a greater decline in the NAV of shares than if a fund were not leveraged, which may be reflected in a greater decline in the market price of the shares. For additional information, see Note 2 in “Notes to Financial Statements.”

Derivatives risk — Derivatives contracts, such as futures, forward foreign currency contracts, options, and swaps, may involve additional expenses (such as the payment of premiums) and are subject to significant loss if a security, index, reference rate, or other asset or market factor to which a derivatives contract is associated, moves in the opposite direction from what the portfolio manager anticipated. When used for hedging, the change in value of the derivatives instrument may also not correlate specifically with the currency, rate, or other risk being hedged, in which case a fund may not realize the intended benefits. Derivatives contracts are also subject to the risk that the counterparty may fail to perform its obligations under the contract due to, among other reasons, financial difficulties (such as a bankruptcy or reorganization).

Counterparty risk — The risk that a counterparty to a derivatives contract (such as a swap, futures, or options contract) or a repurchase agreement may fail to perform its obligations under the contract or agreement due to, among other reasons, financial difficulties (such as a bankruptcy or reorganization).

Liquidity risk — The possibility that investments cannot be readily sold within seven calendar days at approximately the price at which a fund has valued them. Where registration is required to sell a security, a fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell and the time the fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities for which no market exists and other illiquid investments are valued at fair value as determined in accordance with procedures approved and periodically reviewed by the Trustees of the fund.

 

     
    2021       ANNUAL REPORT       33  


           

 

 

 

Industry and sector risk — The risk that the value of securities in a particular industry or sector (such as communication services) will decline because of changing expectations for the performance of that industry or sector.

Nondiversification risk — Nondiversified investment companies have the flexibility to invest as much as 50% of their assets in as few as two issuers, with no single issuer accounting for more than 25% of the fund. The remaining 50% of the fund must be diversified so that no more than 5% of a fund’s assets are invested in the securities of a single issuer. Because a nondiversified fund may invest its assets in fewer issuers, the value of fund shares may increase or decrease more rapidly than if the fund were fully diversified

IBOR risk — The risk that changes related to the use of the London Interbank Offered Rate (LIBOR) or similar interbank offered rates (“IBORs,” such as the Euro Overnight Index Average (EONIA)) could have adverse impacts on financial instruments that reference LIBOR or a similar rate. While some instruments may contemplate a scenario where LIBOR or a similar rate is no longer available by providing for an alternative rate setting methodology, not all instruments have such fallback provisions and the effectiveness of replacement rates is uncertain. The abandonment of LIBOR and similar rates could affect the value and liquidity of instruments that reference such rates, especially those that do not have fallback provisions. The use of alternative reference rate products may impact investment strategy performance.

Foreign risk — The risk that foreign securities (particularly in emerging markets) may be adversely affected by political instability, changes in currency exchange rates, inefficient markets and higher transaction costs, foreign economic conditions, the imposition of economic or trade sanctions, or inadequate or different regulatory and accounting standards.

Foreign government/supranational risk — The risk that a foreign government or government-related issuer may be unable to make timely payments on its external debt obligations.

Emerging markets risk — The risk associated with international investing will be greater in emerging markets than in more developed foreign markets because, among other things, emerging markets may have less stable political and economic environments. In addition, there often is substantially less publicly available information about issuers and such information tends to be of a lesser quality. Economic markets and structures tend to be less mature and diverse and the securities markets may also be smaller, less liquid, and subject to greater price volatility.

Currency risk — The risk that fluctuations in exchange rates between the US dollar and foreign currencies and between various foreign currencies may cause the value of an investment to decline.

Credit-linked notes risk — The risk that the value of a credit-linked note may be impacted by its underlying reference obligation. Risks associated with underlying reference obligations, include but are not limited to market risk, interest rate risk, credit risk, default risk and foreign currency risk. The buyer of a credit-linked note assumes the risk of default by the issuer and the underlying reference asset or entity. If the underlying investment defaults, the payments and principal received by the Fund will be reduced or eliminated. Also, in the event the issuer defaults or there is a credit event that relates to the reference asset, the recovery rate generally is less than a fund’s initial investment, and a fund may lose money.

Investment company securities risk — Investment in other investment companies typically reflects the risks of the types of securities in which the investment companies invest. When the Fund invests in another investment company, shareholders of the Fund bear their proportionate share of the other investment company’s fees and expenses as well as their share of the Fund’s fees and expenses, which could result in the duplication of certain fees.

 

34   ANNUAL REPORT   2021  
     


DIVIDEND REINVESTMENT PLAN   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

(UNAUDITED)

 

Pursuant to the Fund’s Dividend Reinvestment Plan (the “DRIP”), unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends, on your common shares will be automatically reinvested by Computershare Trust Company, N.A., as agent for the shareholders (the “DRIP Agent”), in additional common shares under the DRIP. You may elect not to participate in the DRIP by contacting the DRIP Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare, Inc. as dividend paying agent.

If you participate in the DRIP, the number of common shares you will receive will be determined as follows:

(1) If the market price of the common shares on the record date (or, if the record date is not a New York Stock Exchange (“NYSE”) trading day, the immediately preceding trading day) for determining shareholders eligible to receive the relevant dividend or distribution (the “determination date”) is equal to or exceeds 98% of the net asset value per share of the common shares, the Fund will issue new common shares at a price equal to the greater of:

(a) 98% of the net asset value per share at the close of trading on the NYSE on the determination date or

(b) 95% of the market price of the common shares on the determination date.

(2) If 98% of the net asset value per share of the common shares exceeds the market price of the common shares on the determination date, the DRIP Agent will receive the dividend or distribution in cash and will buy common shares in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the record date for the next succeeding dividend or distribution to be made to the shareholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds 98% of the net asset value per share of the common shares at the close of trading on the NYSE on the determination date before the DRIP Agent has completed the open market purchases, or (ii) if the DRIP Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the DRIP Agent will cease purchasing common shares in the open market and the Fund shall issue the remaining common shares at a price per share equal to the greater of (a) 98% of the net asset value per share at the close of trading on the NYSE on the determination date, or (b) 95% of the then-current market price per share.

Common shares in your account will be held by the DRIP Agent in non-certificated form. Any proxy you receive will include all shares of common shares you have received under the DRIP.

You may withdraw from the DRIP (i.e., opt-out) by notifying the DRIP Agent in writing at P.O. Box 43078, Providence, Rhode Island 02940-3078. Such withdrawal will be effective immediately if notice is received by the DRIP Agent prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the DRIP Agent’s investment of the most recently declared dividend or distribution on the common shares. The DRIP may be amended or supplemented by the Fund upon notice in writing mailed to shareholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination is to be effective. Upon any termination, the DRIP Agent will continue to hold whole shares for you in non-certificated form until otherwise notified by you, and will cause a cash adjustment for any fractional shares to be delivered to you after deducting brokerage commissions actually incurred. You may elect to notify the DRIP Agent in advance of such termination, or at any time following termination, to have the DRIP Agent sell part or all of your common shares on your behalf. You will be charged a service charge and the DRIP Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.

There is no service charge for reinvestment of your dividends or distributions in common shares. However, all participants will pay a per share processing fee, which includes any brokerage commissions incurred by the DRIP Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional common shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your common shares over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.

Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the DRIP.

The Fund reserves the right to amend or terminate the DRIP if, in the judgment of the Board, the change is warranted. There is no direct service charge to participants in the DRIP; however, the Fund reserves the right to amend the DRIP to include a service charge payable by the participants.

Additional information about the DRIP and your account may be obtained from the DRIP Agent at P.O. Box 43078, Providence, Rhode Island 02940-3078 or by calling the DRIP Agent at (800)-426-5523.

 

     
    2021       ANNUAL REPORT       35  


BOARD OF TRUSTEES / DIRECTORS AND OFFICERS ADDENDUM   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

(UNAUDITED)

 

Name, Address, and
Birth Date
  Position(s) Held
with the Fund
  Length of Time
Served
  Principal Occupation(s)
During the Past
Five Years
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee
  Other Directorships Held
by Trustee or Officer
Interested Trustee                    

Shawn K. Lytle1

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

February 1970

  President, Chief Executive Officer, and Trustee  

President and Chief Executive Officer since April 2021

 

Trustee since April 2021

  Global Head of Macquarie Investment Management2 (January 2019-Present); Head of Americas of Macquarie Group (December 2017-Present); Deputy Global Head of Macquarie Investment Management (2017-2019); Head of Macquarie Investment Management Americas (2015-2017)   150   Trustee — UBS Relationship Funds, SMA Relationship Trust, and UBS Funds (May 2010- April 2015)
Independent Trustees                    

Jerome D. Abernathy3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

July 1959

  Trustee   Since April 2021   Managing Member, Stonebrook Capital Management, LLC (financial technology: macro factors and databases) (January 1993-Present)   150   None

Thomas L. Bennett3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

October 1947

  Chair and Trustee  

Trustee since April 2021

 

Chair since April 2021

  Private Investor (March 2004-Present)   150   None

Ann D. Borowiec3

100 Independence,

610 Market Street Philadelphia, PA 19106-2354

 

November 1958

  Trustee   Since April 2021   Chief Executive Officer, Private Wealth Management (2011-2013) and Market Manager, New Jersey Private Bank (2005-2011) — J.P. Morgan Chase & Co.   150  

Director — Banco Santander International (October 2016-December 2019)

Director — Santander Bank, N.A. (December 2016- December 2019)

Joseph W. Chow3

100 Independence,

610 Market Street
Philadelphia, PA 19106-2354

 

January 1953

  Trustee   Since April 2021   Private Investor (April 2011-Present)   150   Director and Audit Committee Member — Hercules Technology Growth Capital, Inc. (July 2004-July 2014)

H. Jeffrey Dobbs

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

May 1955

  Trustee   Since April 2019   Global Sector Chairman, Industrial Manufacturing, KPMG LLP (2010-2015)   89  

Director, Valparaiso University (2012-Present)

 

Director, TechAccel LLC (2015-Present) (Tech R&D)

 

Board Member, Kansas City Repertory Theatre (2015-Present)

 

Board Member, PatientsVoices, Inc. (Healthcare) (2018-Present)

 

Kansas City Campus for Animal Care (2018-Present)

 

36   ANNUAL REPORT   2021  
     


           

 

 

 

Name, Address, and
Birth Date
  Position(s) Held
with the Fund
  Length of Time
Served
  Principal Occupation(s)
During the Past
Five Years
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee
  Other Directorships Held
by Trustee or Officer
                   

Director, National Association of Manufacturers (2010-2015)

 

Director, The Children’s Center (2003-2015)

 

Director, Metropolitan Affairs Coalition (2003-2015)

 

Director, Michigan Roundtable for Diversity and Inclusion (2003-2015)

Trustee, Ivy NextShares (2019)]

John A. Fry3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

May 1960

  Trustee   Since April 2021  

President — Drexel University (August 2010-Present)

 

President — Franklin & Marshall College (July 2002-June 2010)

  150  

Director; Compensation Committee and Governance Committee Member — Community Health Systems (May 2004-Present)

 

Director — Drexel Morgan & Co. (2015-December 2019)

 

Director, Audit and Compensation Committee Member — vTv Therapeutics Inc. (2017-Present)

 

Director and Audit Committee Member — FS Credit Real Estate Income Trust, Inc. (2018-Present)

 

Director and Audit Committee Member — Federal Reserve Bank of Philadelphia (January 2020-Present)

Joseph Harroz, Jr.

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

January 1967

  Trustee   Since May 2013   President (2020-Present), Interim President (2019-2020), Vice President (2010-2019) and Dean (2010-2019), College of Law, University of Oklahoma; Managing Member, Harroz Investments, LLC, (commercial enterprises) (1998-2019); Managing Member, St. Clair, LLC (commercial enterprises) (2019-Present)   89  

Director, OU Medicine, Inc. (2020 to present); Director and Shareholder, Valliance Bank (2007-Present)

 

Director, Foundation Healthcare (formerly Graymark HealthCare) (2008-2017)

 

Trustee, the Mewbourne Family Support Organization (2006-Present) (non-profit)

 

Independent Director, LSQ Manager, Inc. (real estate) (2007-2016)

 

 

     
    2021       ANNUAL REPORT       37  


           

 

 

 

Name, Address, and
Birth Date
  Position(s) Held
with the Fund
  Length of Time
Served
  Principal Occupation(s)
During the Past
Five Years
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee
  Other Directorships Held
by Trustee or Officer
                   

Director, Oklahoma Foundation for Excellence (non-profit) (2008-Present)

 

Independent Chairman and Trustee, Waddell & Reed Advisors Funds (WRA Funds) (Independent Chairman: 2015-2018; Trustee: 1998-2018)

 

Independent Chairman and Trustee, Ivy NextShares (2016-2019)

Sandra A.J. Lawrence

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

September 1957

  Trustee   Since April 2019   Retired; formerly, Chief Administrative Officer, Children’s Mercy Hospitals and Clinics (2016-2019); CFO, Children’s Mercy Hospitals and Clinics (2005-2016)   89  

Director, Hall Family Foundation (1993-Present)

Director, Westar Energy (utility) (2004-2018)

Trustee, Nelson-Atkins Museum of Art (non-profit) (2007-2020)

Director, Turn the Page KC (non-profit) (2012-2016)

 

Director, Kansas Metropolitan Business and Healthcare Coalition (non-profit) (2017-2019)

 

Director, National Association of Corporate Directors (non-profit) (2017-Present)

 

Director, American Shared Hospital Services (medical device) (2017-Present)

 

Director, Evergy, Inc., Kansas City Power & Light Company, KCP&L Greater Missouri Operations Company, Westar Energy, Inc. and Kansas Gas and Electric Company (related utility companies) (2018-Present)

 

Director, Stowers (research) (2018)

 

CoChair, Women Corporate Directors (director education) (2018-2020)

 

Trustee, Ivy NextShares (2019)

 

38   ANNUAL REPORT   2021  
     


           

 

 

 

Name, Address, and
Birth Date
  Position(s) Held
with the Fund
  Length of Time
Served
  Principal Occupation(s)
During the Past
Five Years
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee
  Other Directorships Held
by Trustee or Officer

Frances A. Sevilla-Sacasa3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

January 1956

  Trustee   Since April 2021  

Private Investor (January 2017-Present)

 

Chief Executive Officer — Banco Itaú International (April 2012-December 2016)

 

Executive Advisor to Dean (August 2011-March 2012) 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)

  150  

Trust Manager and Audit Committee Chair — Camden Property Trust (August 2011-Present)

 

Director; Audit & Compensation Committee Member — Callon Petroleum Company (December 2019-Present)

 

Director; Audit Committee Member — New Senior Investment Group Inc. (January 2021-September 2021)

 

Director; Audit Committee Member — Carrizo Oil & Gas, Inc. (March 2018- December 2019)

Thomas K. Whitford3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

March 1956

  Trustee   Since April 2021   Vice Chairman (2010-April 2013) — PNC Financial Services Group   150  

Director — HSBC North America Holdings Inc. (December 2013-Present)

 

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)

Christianna Wood3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

August 1959

  Trustee   Since April 2021   Chief Executive Officer and President — Gore Creek Capital, Ltd. (August 2009-Present)   150  

Director; Finance Committee and Audit Committee Member — H&R Block Corporation (July 2008-Present)

 

Director; Investments Committee, Capital and Finance Committee and Audit Committee Member — Grange Insurance (2013-October 2021)

 

Trustee; Chair of Nominating and Governance Committee and Member of Audit Committee — The Merger Fund (2013-October 2021), The Merger Fund VL (2013-October 2021), WCM Alternatives: Event-Driven Fund (2013-Present), and WCM Alternatives: Credit Event Fund (December 2017-October 2021)

 

     
    2021       ANNUAL REPORT       39  


           

 

 

 

Name, Address, and
Birth Date
  Position(s) Held
with the Fund
  Length of Time
Served
  Principal Occupation(s)
During the Past
Five Years
  Number of
Portfolios in
Fund Complex
Overseen by
Trustee
  Other Directorships Held
by Trustee or Officer
                    Director; Chair of Governance Committee and Audit Committee Member — International Securities Exchange (2010-2016)

Janet L. Yeomans3

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

 

July 1948

  Trustee   Since April 2021   Vice President and Treasurer (January 2006-July 2012) Vice President — Mergers & Acquisitions (January 2003-January 2006), and Vice President and Treasurer (July 1995-January 2003) — 3M Company   150   Director; Personnel and Compensation Committee Chair; Member of Nominating, Investments, and Audit Committees for various periods throughout directorship — Okabena Company (2009-2017)

Officers

 

     Position(s) Held
with the Trust
  Length of Time
Served
  Principal Occupation(s)
During the Past Five Years

David F. Connor4

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

December 1963

  Senior Vice President, General Counsel, and Secretary   Senior Vice President, General Counsel, and Secretary since April 2021   David F. Connor has served in various capacities at different times at Macquarie Investment Management.

Daniel V. Geatens4

100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

October 1972

  Senior Vice President and Treasurer   Senior Vice President and Treasurer since April 2021   Daniel V. Geatens has served in various capacities at different times at Macquarie Investment Management.

Richard Salus 100 Independence,

610 Market Street

Philadelphia, PA 19106-2354

October 1963

  Senior Vice President and Chief Financial Officer   Senior Vice President and Chief Financial Officer since April 2021   Richard Salus has served in various capacities at different times at Macquarie Investment Management.

 

1

Shawn K. Lytle is considered to be an “Interested Trustee” because he is an executive officer of the Manager. Mr. Lytle was appointed as Trustee of the Trust effective April 30, 2021.

2

Macquarie Investment Management is the marketing name for certain companies comprising the asset management division of Macquarie Group, including the Funds’ Manager, principal underwriter, and transfer agent.

3

Messrs. Abernathy, Bennett, Chow, Fry, Whitford, and Mss. Borowiec, Sevilla-Sacasa, Wood, Yeomans were appointed as Trustees of the Trust effective April 30, 2021.

4

David F. Connor serves as Senior Vice President and Secretary, and Daniel V. Geatens serves as Senior Vice President, Treasurer and Chief Financial Officer, for the six portfolios of the Optimum Fund Trust, which have the same investment manager as the Fund. Mr. Geatens also serves as the Senior Vice President, Chief Financial Officer and Treasurer for Macquarie Global Infrastructure Total Return Fund Inc., which has the same investment manager as the Fund.

 

40   ANNUAL REPORT   2021  
     


BOARD CONSIDERATIONS IN APPROVING DMC/SUB-ADVISORY AGREEMENTS   DELAWARE IVY HIGH INCOME OPPORTUNITIES FUND

 

 

 

(UNAUDITED)

 

Background for the Board Approvals

At a meeting held on December 17, 2020, representatives of Waddell & Reed Financial, Inc. (“WDR”), Ivy Investment Management Company, a subsidiary of WDR and the Fund’s then current investment adviser (“IICO”), and Delaware Management Company, a series of Macquarie Investment Management Business Trust (“DMC”), met with the Board1 to discuss the merger agreement with Macquarie Group (“Macquarie”), pursuant to which Macquarie would acquire WDR (the “Transaction”). The Independent Trustees were advised that the Transaction, if completed, would constitute a change of control event and result in the termination of the Fund’s current investment advisory agreement with IICO (the “Current Investment Advisory Agreement”). The Independent Trustees were also advised that it was proposed that DMC, a wholly-owned subsidiary of Macquarie, would serve as the investment adviser to the Fund after the closing of the Transaction and that the Board would be asked to consider approval of the terms and conditions of the proposed investment advisory agreement between the Fund and DMC (the “DMC Advisory Agreement”) and thereafter to submit the proposed DMC Advisory Agreement to the Fund’s shareholders for approval. In addition, the Board was asked to consider the approval of the terms and conditions of the proposed sub-advisory agreements between DMC and each of the following affiliated sub-advisers: Macquarie Investment Management Austria Kapitalanlage AG (“MIMAK”), Macquarie Investment Management Global Limited (“MIMGL”) and Macquarie Investment Management Europe Limited (“MIMEL”) (collectively, the “Sub-Advisory Agreements” and together with the DMC Advisory Agreement, the “Advisory Agreements”) and thereafter submit the proposed Sub-Advisory Agreements to the Fund’s shareholders for approval.

In anticipation of the Transaction, the Trustees met at a series of subsequent meetings on January 6, 2021, January 9, 2021, and January 12, 2021, which included meetings of the full Board and separate meetings of the Independent Trustees for the purposes of considering, among other things: whether it would be in the best interests of the Fund and its shareholders to approve the proposed Advisory Agreements; and the anticipated impacts of the Transaction on the Fund and its shareholders (each, a “Board Meeting”). During each of these Board Meetings, the Board sought additional and clarifying information as they deemed necessary or appropriate. The Independent Trustees worked with their independent legal counsel to prepare formal due diligence requests (the “Diligence Requests”) that were submitted to DMC and Delaware Distributors, L.P. (“DDLP”). The Diligence Requests sought information relevant to the Board’s consideration of the proposed Advisory Agreements and distribution arrangements, and other anticipated impacts of the Transaction on the Fund and its shareholders. DMC and DDLP provided documents and information in response to the Diligence Requests (the “Response Materials”). Senior management representatives of DMC, WDR and IICO participated in a portion of each Board Meeting and addressed various questions raised by the Board. Throughout the process, the Independent Trustees were assisted by their independent legal counsel, who advised them on, among other things, their duties and obligations relating to their consideration of the proposed Advisory Agreements.

The Board’s evaluation of the proposed Advisory Agreements reflected the information provided specifically in connection with its review of the proposed Advisory Agreements, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Current Investment Advisory Agreement on August 11-12, 2020 (“2020 15(c) Board Meeting”) and at other subsequent Board meetings in 2020. The Board’s evaluation of the proposed Advisory Agreements also reflected its knowledge gained as Trustees of the Fund with respect to services provided by IICO and its affiliates.

The Board’s approvals and recommendations were based on its determination, within its business judgment, that it would be in the best interests of the Fund and the Fund’s respective shareholders, for DMC to provide investment advisory services to the Fund and for MIMAK, MIMGL and MIMEL (the “Affiliated Sub-Advisers”) to provide sub-advisory services to the Fund, following the closing of the Transaction.

Factors Considered in Approving the Proposed DMC Advisory Agreement

In connection with the Board’s consideration of the proposed DMC Advisory Agreement, DMC and IICO advised the Board about a variety of matters, including the following:

The nature, extent, and quality of the services to be provided to the Fund by DMC post-Transaction are expected to be of at least the same level as the services currently provided to the Fund by IICO.

 

 

DMC’s stated commitment to maintaining and enhancing the Fund shareholder experience.

 

 

DMC does not propose changes to the investment objective of the Fund.

 

 

The proposed DMC Advisory Agreement does not change the Fund’s contractual advisory fee rate.

 

     
    2021       ANNUAL REPORT       41  


           

 

 

 

 

The portfolio manager and portfolio management team at IICO that manage the Fund are expected to continue to do so post-Transaction as employees of Macquarie, if they choose to become employees of Macquarie.

 

 

DMC’s intended use of the Affiliated Sub-Advisers to leverage Macquarie’s global fixed income investment platform in providing advisory, trading and other services to the Fund.

 

 

DDLP’s distribution capabilities, including its significant network of intermediary relationships, which may provide additional opportunities for the Fund to grow assets and lower fees and expenses through increased economies of scale.

 

 

The support expressed by the current senior management team at IICO for the Transaction and IICO’s recommendation that the Board approve the proposed DMC Advisory Agreement.

 

 

The commitments of Macquarie and WDR to bear all of the direct expenses of the Transaction, including all legal costs and costs associated with the proxy solicitation, regardless of whether the Transaction is consummated.

 

 

In addition to the matters noted above, in their deliberations regarding approval of the proposed DMC Advisory Agreement, the Board considered the factors discussed below, among others.

The Nature, Extent, and Quality of Services Expected to be Provided by DMC. The Board received and considered information regarding the nature, extent and quality of services expected to be provided by DMC. In evaluating the nature, extent and quality of services to be provided by DMC, the Board considered information provided by DMC regarding its advisory services, investment philosophy and process, investment management capabilities, business and operating structure, scale of operations, leadership and reputation, distribution capabilities, and financial condition (both pre- and post-closing of the Transaction). The Board also considered the capabilities, resources, and personnel of DMC, including senior and other personnel of IICO who had been extended offers to join DMC, in order to determine whether DMC is capable of providing the same level of investment management services currently provided to the Fund, and also considered the transition and integration plans to move management of the Fund to DMC. The Board recognized that the IICO personnel who had been extended offers may not accept such offers and personnel changes may occur in the future in the ordinary course of business. The Board considered the resources and infrastructure that DMC intends to devote to its compliance program to ensure compliance with applicable laws and regulations as well as DMC’s commitment to those programs. The Board also considered the policies and practices of DMC regarding the selection of broker/dealers and the execution of portfolio transactions. The Board considered the resources that DMC has devoted to its risk management program and cybersecurity program. The Board also reviewed information provided by DMC related to its business, legal, and regulatory affairs. This review considered the resources available to DMC to provide the services specified under the proposed DMC Advisory Agreement. The Board considered DMC’s financial condition, including the financing of the Transaction, and noted that DMC is expected to be able to provide a high level of service to the Fund and continuously invest and re-invest in its business. Finally, the Board considered that following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to the Fund, and its shareholders by DMC compared to those currently provided by IICO.

The Board considered that, while it was proposed that DMC would become the investment adviser to the Fund, the same portfolio manager and portfolio management team at IICO that manage the Fund are expected to continue to do so after the Transaction as employees of Macquarie, if they choose to become employees of Macquarie. The Board determined that they had considered the qualifications of the portfolio manager at IICO at the 2020 15(c) Board Meeting.

The Board considered that DMC’s experience in allocating assets to, and overseeing the advisory services of, its sub-advisers, was similar to IICO’s role in allocating assets to and overseeing the advisory services provided by its sub-advisers. The Board considered that DMC may utilize certain Affiliated Sub-Advisers to leverage Macquarie’s global fixed income investment platform in providing advisory, trading and other services to the Fund.

The Board considered that the terms and conditions of the proposed DMC Advisory Agreement are substantially similar to the terms and conditions of the Current Investment Advisory Agreement.

After review of these and other considerations, the Board concluded that DMC will be capable of providing investment advisory services of the same high quality as the investment advisory services provided to the Fund by IICO, and that these services are appropriate in nature and extent in light of the Fund’s operations and investor needs.

Performance of the Fund. With respect to the performance of the Fund, the Board considered their review at the 2020 15(c) Board Meeting of peer group and benchmark investment performance comparison data relating to the Fund’s long-term performance record for similar accounts. The Board considered that information reviewed at the 2020 15(c) Board Meeting would be relevant given that the Fund is expected to retain its current portfolio manager and portfolio management team. Based on information presented to the Board at the 2020 15(c) Board Meeting and its discussions with DMC, the Board concluded that DMC is capable of generating a level of long-term investment performance that is appropriate in light of the Fund’s investment objective, strategy and restrictions.

 

42   ANNUAL REPORT   2021  
     


           

 

 

 

Fees to Be Paid to DMC and Expenses of the Fund.