Delaware Healthcare Fund

Objective

Delaware Healthcare Fund seeks maximum long-term capital growth through capital appreciation.

Strategy

The Fund typically invests in companies that develop, produce, or distribute products related to the healthcare or medical industries and derive a substantial portion of their sales from products and services in the healthcare industry. The fund invests in U.S. and non-U.S. companies across all market capitalizations.

Fund information
Inception date09/28/2007
Dividends paid*Annually
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDLHAX
CUSIP24610E101
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of month-end (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)7.38%37.65%21.92%30.60%n/a20.18%09/28/2007
Max offer pricen/a29.72%19.53%29.08%n/a19.09%
Russell 3000 Healthcare Index5.77%30.56%23.36%22.68%n/an/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)7.38%7.38%37.65%21.92%30.60%n/a20.18%09/28/2007
Max offer price1.20%1.20%29.72%19.53%29.08%n/a19.09%
Russell 3000 Healthcare Index5.77%5.77%30.56%23.36%22.68%n/an/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 5.75% and are subject to an annual distribution fee.

Prior to January 28, 2010, the Fund had not engaged in a broad distribution effort of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and which may have been lower than the Fund's current expenses. The returns would have been lower without expense limitations.

Expense ratio
Gross1.38%
Net1.38%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20147.38%n/an/an/an/a
201317.55%8.75%9.83%7.32%50.69%
201218.59%-5.63%3.29%2.92%18.96%
20119.17%4.50%-15.99%7.24%2.78%
20107.96%-12.50%10.98%10.50%15.84%
2009-2.72%20.44%22.95%11.97%61.31%
2008-7.00%1.91%4.63%-12.08%-12.81%
2007n/an/an/a2.66%n/a
Portfolio characteristics - as of 03/31/2014
Share assets$213.3 million
Number of holdings67
Market cap (median)$8.36 billion
Market cap (weighted average)$44.89 billion
Portfolio turnover (last fiscal year)29%
P/E ratio (weighted average FY1) (view definition)19.66x
Beta (relative to Russell 3000 Healthcare Index) (view definition)1.14
Annualized standard deviation, 3 years (view definition)15.46
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Domestic equities72.2%
International equities & depository receipts31.0%
Cash and cash equivalents-3.2%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Eli Lilly & Co.8.1%
Teva Pharmaceutical Industries Ltd.6.9%
WellPoint Inc.5.6%
UCB S.A.5.0%
Quest Diagnostics Inc.4.5%
Pfizer Inc.3.3%
Bristol-Myers Squibb Co.3.3%
Chugai Pharmaceutical Co. Ltd.3.1%
SINA Corp/China3.0%
News Corp.3.0%
Total % Portfolio in Top 10 holdings45.8%

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

Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Blue Chip Medical Products45.4%
Healthcare Services22.8%
Other16.1%
Biotechnology13.1%
Small/Mid - Cap Medical Products5.6%
Medical Distributors0.2%

Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund's sector designations.

Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.000
20130.4200.000
20120.0000.037
20110.7550.002
20100.6510.009
20091.2800.022
20080.3400.007
20070.3010.000
20060.0000.000
20050.0000.000
20040.0000.000
Liu-Er Chen

Liu-Er Chen, CFA

Chief Investment Officer — Emerging Markets and Healthcare

Start date on the Fund: September 2007

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information under the section entitled "Purchasing shares."

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering price5.75%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.85%
Distribution and service (12b-1) fees0.25%
Other expenses0.28%
Total annual fund operating expenses1.38%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.38%

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Delaware Healthcare Fund Quarterly commentary December 31, 2013 Class A (DLHAX)

Within the Fund

Delaware Healthcare Fund (Class A shares at net asset value) posted a positive return for the fourth quarter of 2013 but trailed its benchmark, the Russell 3000 Healthcare Index.

In terms of performance attribution across the Fund’s portfolio as a whole, sector allocation weights resulted in underperformance versus the index. These effects were combined with the mildly negative effects of security selection.

At the sector level, softness was recorded in small-to-mid-cap medical products, as well as in the unclassified segment. In the medical products category, Avon Products was among the notable detractors, as its shares declined by more than 15%. The stock underperformed after the company announced worse-than-expected quarterly sales, leading investors to question the effectiveness of implementing Avon’s proposed turnaround program, which aimed to cut costs and improve operations. In addition, outstanding regulatory investigations into the company’s past practices remain an overhang. While we did not position the size of our holding in Avon well, we believe the fundamentals of the company are intact and the business is inherently defensive. The stock is trading at a significant discount to its intrinsic value, based on our estimations of its earnings power. In the unclassified group, underperformance was posted by Sohu.com, a top Chinese Internet company that has leading products in gaming, news, entertainment, search, and video. Sohu’s websites and mobile apps are an important part of Chinese internet users’ daily lives. Sohu shares began feeling pressure in October when the company announced weaker-than-expected fourth quarter earnings guidance for its gaming business. Nonetheless, we believe that Sohu continues to trade at a significant discount to the sum of its parts and that the market is not fully appreciating the value of its individual assets, particularly the rapidly growing video business.

The underperformance noted above was partially offset by the positive effects of the Fund’s holdings in the biotechnology sector. The Fund’s slight underweight allocation versus the benchmark, together with the positive effects of stock selection, contributed to positive results. Individual holdings that made substantial contributions included Idenix Pharmaceuticals and Ligand Pharmaceuticals. Both companies saw their shares advance by double digits, and the Fund’s overweight in both positions amplified their contributions. Idenix shares moved higher after the company reported promising results (as well as good momentum) during research trials for its compound to treat hepatitis C. Ligand’s stock rose as the company received regulatory approval to market a therapy to treat hot flashes and osteoporosis.

Outlook

Healthcare equities have ended a year of strong performance. Within the S&P 500® Index, for instance, the healthcare sector was the second-strongest performer for 2013. This run-up in prices wasn’t the only news, of course. Other events transpired that shape our view as we head into the first quarter of 2014:

  • The rollout of the Affordable Care Act (ACA) began in earnest. The legislation remained controversial as many would-be subscribers were unable to enroll for coverage, and the program’s shortcomings created much noise and media attention. There are still plenty of unknowns related to the ACA, and we will be monitoring developments closely, paying close attention to any implications for asset prices.
  • Manufacturers of brand-name drugs were challenged as patents expired. Patent expiration meant that successful brand-name drugs have started losing ground to generic formulations. This was an important shift, because brand-name drugs produced by companies like Pfizer and Merck (to name just two) have long enjoyed impressive sales records and a significant share of their respective markets. Such firms will continue to face so-called “patent cliffs” in 2014.

In light of factors like those above, we continue putting a premium on disciplined, intensive research when analyzing investment opportunities for the Fund’s portfolio. We favor companies that exhibit such traits as:

  • proven competitiveness
  • seasoned management teams
  • stock valuations that are discounted meaningfully from our estimates of intrinsic value.

These characteristics are part of our daily considerations as we follow our conservative, stock-by-stock approach to portfolio management.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

[11998]

The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

Healthcare companies are subject to extensive government regulation and their profitability can be affected by restrictions on government reimbursement for medical expenses, rising costs of medical products and services, pricing pressure, and malpractice or other litigation.

International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

“Nondiversified” funds may allocate more of their net assets to investments in single securities than “diversified” Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/17/2014)

Class APriceNet changeYTD
NAV$18.550.032.88%
Max offer price$19.68n/an/a

Total net assets (as of 03/31/2014)

$397.7 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2014)

Load waivedWith loadNo. of funds
Overall43122
3 Yrs32122
5 Yrs54110
Morningstar categoryHealth

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking16 / 88
1 year39 / 86
3 years43 / 77
5 years5 / 70
10 yearsn/a
Lipper classificationHealth/Biotech Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

Russell 3000® Healthcare Index (view)

Lipper Health/Biotechnology Funds Average (view)

Additional information