Delaware Small Cap Core Fund

Delaware Small-Cap Core Fund

Objective

Delaware Small Cap Core Fund seeks long-term capital appreciation.

Strategy

The Fund invests in stocks of small companies believed to have a combination of attractive valuations, growth prospects, and strong cash flows.

Fund information
Inception date12/29/1998
Dividends paid (if any)Annually
Capital gains paid (if any)December
Fund identifiers
NASDAQDCCAX
CUSIP24610B883
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 (01/31/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-3.55%7.89%17.58%18.07%8.35%10.87%12/29/1998
Max offer price-9.10%1.69%15.29%16.67%7.71%10.46%
Russell 2000 Index-3.22%4.41%15.27%15.66%7.87%n/a
Average annual total return as of quarter-end (12/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)9.54%8.58%8.58%21.38%18.18%8.31%11.18%12/29/1998
Max offer price3.26%2.36%2.36%19.01%16.80%7.66%10.77%
Russell 2000 Index9.73%4.89%4.89%19.21%15.55%7.77%n/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 Aug. 1, 2005, the Fund had not engaged in a broad distribution effort of its shares and had been subject to limited redemption requests. 12b-1 fees were waived for this period. Had 12b-1 fees been applied, performance would have been lower. Expense waivers were in effect for the periods shown. Performance would have been lower if waivers did not apply.

Expense ratio
Gross1.31%
Net1.31%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20141.39%3.30%-5.36%9.54%8.58%
201313.06%2.47%13.00%9.12%42.86%
201212.48%-3.23%5.01%0.88%15.30%
20117.79%1.54%-22.05%17.59%0.33%
20109.13%-9.34%10.73%17.28%28.49%
2009-12.40%20.77%15.92%3.52%26.95%
2008-12.55%0.20%0.10%-26.16%-35.24%
20071.04%6.86%-3.84%-8.27%-4.76%
200613.24%-3.42%-0.41%7.30%16.87%
2005-4.37%5.15%5.18%-0.47%5.26%
Portfolio characteristics - as of 01/31/2015
Number of holdings132
Market cap (median)$1.65 billion
Market cap (weighted average)$2.10 billion
Portfolio turnover (last fiscal year)30%
Beta - (relative to Russell 2000 Index) (view definition)0.91
Annualized standard deviation, 3 years (view definition)12.34
Portfolio composition as of 01/31/2015Total may not equal 100% due to rounding.
Domestic equities95.2%
Cash and cash equivalents3.2%
International equities & depositary receipts1.6%
Top 10 holdings as of 01/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Casey's General Stores Inc.1.4%
Cepheid1.3%
DexCom Inc.1.3%
Akorn Inc.1.2%
NPS Pharmaceuticals Inc.1.2%
Jack in the Box Inc.1.2%
Proofpoint Inc.1.2%
XPO Logistics Inc.1.1%
Steven Madden Ltd.1.1%
West Pharmaceutical Services Inc.1.1%
Total % Portfolio in Top 10 holdings12.1%

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

Top sectors as of 01/31/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Technology15.9%
Finance15.7%
Health Care15.0%
Capital Goods8.3%
Reit7.3%
Basic Materials7.3%
Business Services6.0%
Consumer Services4.9%
Consumer Discretionary3.5%
Energy2.9%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20150.0000.000
20140.9760.000
20130.4980.000
20120.0000.011
20110.0000.000
20100.0000.044
20090.0000.000
20080.0000.008
20070.4920.000
20060.4200.000
20050.2300.000

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions (if any) is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Francis X. Morris

Francis X. Morris 

Senior Vice President, Chief Investment Officer — Core Equity

Start date on the Fund: November 2004

Years of industry experience: 31

(View bio)


Chris Adams

Christopher S. Adams, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

Years of industry experience: 26

(View bio)


Mike Morris

Michael S. Morris, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

Years of industry experience: 22

(View bio)


Donb Padilla

Donald G. Padilla, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

Years of industry experience: 28

(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 (SAI) under the section entitled "Purchasing Shares."

The table below 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 fees0.75%
Distribution and service (12b-1) fees0.25%
Other expenses0.31%
Total annual fund operating expenses1.31%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.31%

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Delaware Small Cap Core Fund Quarterly commentary December 31, 2014

Within the Fund

Delaware Small Cap Core Fund (Class A shares at net asset value and Institutional Class shares) posted strong returns but failed to keep pace with its benchmark, the Russell 2000 Index, during the fourth quarter of 2014. Stock selection in the energy, technology, and consumer discretionary sectors detracted the most from the Fund’s relative performance. Contributions to relative returns were driven by stock selection in the capital goods, basic materials, and consumer services sectors. The Fund ended the quarter with the largest overweights to the finance, communications services, and consumer services sectors and the largest underweights to the consumer discretionary, utilities, and credit cyclicals sectors.

A number of stocks contributed to the Fund’s excess return during the quarter. The strongest contributor was WageWorks, a provider of consumer-directed benefit programs to employees including flexible spending accounts. The stock appreciated 42% during the quarter, a result of better-than-expected earnings and revenue growth. We believe the company may be positioned well to benefit from the expanding market opportunity and secular shift towards consumer-directed healthcare plans. NPS Pharmaceuticals, a biopharmaceutical company, rose 38% during the quarter as there is growing conviction that the Food and Drug Administration (FDA) will approve its new drug, Natpara, which is intended to treat a niche orphan disease, hypoparathyroidism. Popeyes Louisiana Kitchen appreciated 39% during the quarter as the company continues to outperform its peers in same-store sales, both domestically and internationally. The company indicated at its investor day a plan for international growth and shareholder friendly actions such as additional share repurchases.

During the second half of 2014, the precipitous drop in energy prices resulted in dramatic underperformance across the sector. The decline in the price of oil can be attributed first to the strengthening dollar and then to the unwillingness of the Organization of the Petroleum Exporting Countries (OPEC) to reduce production following its November meeting. In general, the biggest declines were exhibited in the oil and gas equipment and services industry, followed by oil and gas exploration and production companies. We saw the companies with higher leverage experience more dramatic declines than those exhibiting stronger financial characteristics.

The stocks in held in the Fund were not immune to the decline in energy prices. Jones Energy is a Texas-based exploration and production company with resources in Texas and Oklahoma — the stock was down 45% during the quarter. We sold the Fund’s position in Jones Energy during the quarter. However, we continue to own Rosetta Resources (which declined 50% during the quarter), an exploration and production company — in our view, the company has good acreage and is making efforts to improve its capital spending budget. Exploration and production companies are engaging in conversations with their service providers to make the best of this depressed price environment. We believe this should result in pricing pressure for service providers like C&J Energy Services (which declined 53%) — therefore, we exited the Fund’s position during the quarter.

Outlook

Both the earnings and sales growth outlook remain strong for small-cap stocks. We continue to believe small-caps are the most favorable way to leverage the strength of the U.S. economy, since small-cap companies derive a higher percentage of their sales in the United States than mid- or large-cap companies.

The market pullback that occurred in the third quarter was reversed by strong performance in the fourth quarter, allowing small-cap stocks to end the year in positive territory. After a year of good earnings, we enter 2015 with lower valuations than where they were when the year began. We will keep a close eye on top-line growth and leading economic indicators for signs of weakening in the economy. The U.S. Federal Reserve is expected to raise rates in 2015 and will most likely do so if it thinks the economy is strong enough to stand on its own. If it comes as a result of an economic expansion, we would view a move in the fed funds rate as a net-positive development, particularly given small-cap stocks’ close ties to the domestic economy.

The increase in mergers-and-acquisitions activity this year has met our expectations and we anticipate that this trend should continue given the healthy levels of cash on corporate balance sheets, as well as favorable credit market conditions. Capacity utilization is back at its long-term average, which should instill business confidence and potentially lead to increased capital expenditures.

Our research continues to favor companies with what we view as strong balance sheets and cash flow, sustainable competitive advantages, and high-quality management teams, which we believe have the potential to outperform over the cycle.

[13895]

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.

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

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 03/02/2015)

Class APriceNet changeYTD
NAV$20.570.172.90%
Max offer price$21.82n/an/a

Total net assets (as of 01/31/2015)

$527.1 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 01/31/2015)

Load waivedWith loadNo. of funds
Overall43624
3 Yrs43624
5 Yrs54567
10 Yrs33364
Morningstar categorySmall Blend

(View Morningstar disclosure)

Lipper ranking (as of 01/31/2015)

YTD ranking452 / 846
1 year106 / 801
3 years48 / 704
5 years31 / 622
10 years118 / 389
Lipper classificationSmall-Cap Core Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 2000® Index (view)

Lipper Small-Cap Core Funds Average (view)

Additional information