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Delaware Focus Global Growth Fund Quarterly commentary December 31, 2015

Within the Fund

For the fourth quarter of 2015, Delaware Focus Global Growth Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the MSCI World Index (net). Strong relative performance in the information technology and consumer discretionary sectors was partially offset by weak relative performance in the healthcare and consumer staples sectors.

Baidu contributed to the Fund’s performance during the quarter. The company reported relatively strong financial results, and also announced its plan to enter China’s online banking industry through a strategic partnership to potentially capitalize on Baidu’s massive existing user base. While the company continues to show progress in its mobile-related services, its heavy capital investments into various business segments and its attempt to expand geographically should continue to affect margins and earnings in the near term. We agree with Baidu’s heavy investment spending strategy and continue to believe the company stands to benefit significantly from the proliferation of wireless and streaming technologies in China, making the company’s services even more accessible. We feel the company has upside potential given the sheer size of the Chinese market population, along with ancillary businesses that are becoming significant drivers of growth (including social media, multimedia sharing services, and mobile search).

TripAdvisor was a contributor to performance during the quarter, despite reporting financial results that fell short of consensus estimates. This was driven, in part, by headwinds that resulted from the launch of its new “instant booking” platform. The stock rose sharply after a deal was announced between the company and Priceline to integrate a portion of Priceline’s hotel inventory into TripAdvisor’s “instant booking” platform. While the company has a massive amount of user traffic that has been historically under-monetized, it is making a strategic push to better monetize this business through an “instant booking” button that allows consumers to reserve directly on TripAdvisor’s site rather than losing customers to competitor sites. We feel this strategic push and the announced partnership with Priceline (amongst others) could create meaningful growth for the company going forward.

Kakaku.com also contributed to performance during the quarter. The company continued to report relatively strong financial results. While there are some concerns about decelerating growth rates and revenues in its restaurant reservation site, Tabelog, it continues to be a strong revenue and growth driver for the company. As we continue to closely monitor Tabelog’s progress, we remain convinced of its growth trajectory but believe that incremental costs associated with adding new restaurants are increasing as the competitive environment has intensified. The company also announced a share buyback plan and reinforced its commitment to strong corporate governance polices that seemed to be viewed favorably by shareholders. Our thesis for owning Kakaku.com is largely predicated on our belief that Japan is entering a multiyear e-commerce growth acceleration and that the company should be a beneficiary of this growth. We continue to believe the company’s entrepreneurial approach to testing and rolling out new verticals, combined with a capital-light model and a superior management team, could create an attractive investment opportunity for the Fund.

Valeant Pharmaceuticals detracted from the Fund’s performance during the quarter. The company was meaningfully effected by allegations of wrongdoing at its specialty pharmacy partner, Philidor. Investors’s lack of familiarity with this relationship left the stock vulnerable when questions were raised, and a short seller’s analogy to Enron put incremental pressure on the stock and raised investor scrutiny. Our best assessment at this point is that Philidor was a relatively small part of Valeant’s total business. Furthermore, third-quarter cash generation was positive and seems to indicate the company is what we thought it was — a cash-generating business with solid medium-term growth prospects. It is now trading at a very high free cash-flow-yield on our 2016 projections, despite revising those projections downward to reflect the transition away from Philidor and to its new pharmacy partner, Walgreens. We also note that the shareholder base — and board — include large owners with an interest in reaching the right economic outcome. Considering both risk and reward, and the remaining unknowns, we believe we have the stock appropriately weighted.

Qualcomm was a detractor from performance during the quarter. The company’s patent licensing business reported lingering negotiating issues with handset makers in China and a new flare-up in South Korea. While these issues continue to affect sentiment, we do not believe they materially threaten the company’s business model over the long term. We also believe its mobile chip business should rebound, as it recovers from 2015 product cycle issues that are unlikely to recur. Additionally, we are encouraged by the aggressive steps that management is taking to run the business in a much more efficient way, which should positively affect not only free cash generation but also capital structure.

Zebra Technologies also detracted from performance during the quarter. After strong price appreciation during the first half of the year, the stock continued to experience weakness as the company reported somewhat mixed financial results and forward guidance. While costs associated with the acquisition of the Motorola Solutions enterprise business continue to weigh down current financial results, we believe this acquisition, which was the catalyst for our initial purchase of the company, should lead to meaningful cost and product synergies. The acquisition gives Zebra a more diversified product offering, helps strengthen its competitive position, and increases its market share. Additionally, we continue to believe the acquired technology from this business should allow the company to offer enhanced next-generation products.

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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.

Performance

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

Performance data current to the most recent month end may be obtained by calling 800 523-1918 or visiting delawareinvestments.com/performance.

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 quarter-end (12/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)8.48%-0.66%-0.66%7.71%7.49%n/a15.19%12/29/2008
Class A (at offer)2.25%-6.36%-6.36%5.59%6.22%n/a14.22%
Institutional Class shares8.52%-0.45%-0.45%7.96%7.73%n/a15.39%12/29/2008
MSCI World Index (Gross)5.62%-0.32%-0.32%10.23%8.19%n/an/a
MSCI World Index (Net)5.50%-0.87%-0.87%9.63%7.59%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 Dec. 29, 2010, the Fund had not engaged in a broad distribution of its shares and had been subject to limited redemption requests. The returns reflect expense limitations that were in effect during certain periods and that may have been lower than the Fund's current expenses. The returns would have been lower without the expense limitations.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

MSCI World Index (view definition)

Expense ratio
Class A (Gross)1.40%
Class A (Net)1.40%
Institutional Class shares (Gross)1.15%
Institutional Class shares (Net)1.15%
Top 10 holdings as of 01/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Celgene Corp.3.9%
Novo Nordisk A/S3.8%
Visa Inc.3.7%
PayPal Holdings Inc.3.5%
QUALCOMM Inc.3.5%
Experian PLC3.4%
Allergan plc3.3%
Intercontinental Exchange Inc.3.3%
MasterCard Inc.3.3%
NXP Semiconductors NV3.2%
Total % Portfolio in Top 10 holdings34.9%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

All third-party marks cited are the property of their respective owners.

Jackson Square Partners, LLC (JSP), a U.S. registered investment advisor, is the sub-advisor to the Fund. As sub-advisor, JSP is responsible for day-to-day management of the Fund’s assets. Although JSP serves as sub-advisor, the investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, has ultimate responsibility for all investment advisory services.

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.

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.

All third-party marks cited are the property of their respective owners.

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