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 (06/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)4.74%29.16%16.51%21.69%9.43%11.31%12/29/1998
Max offer pricen/a21.70%14.22%20.26%8.78%10.88%
Russell 2000 Index3.19%23.64%14.57%20.21%8.70%n/a
Average annual total return as of quarter-end (06/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.30%4.74%29.16%16.51%21.69%9.43%11.31%12/29/1998
Max offer price-2.63%-1.26%21.70%14.22%20.26%8.78%10.88%
Russell 2000 Index2.05%3.19%23.64%14.57%20.21%8.70%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%n/an/an/a
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%
20045.81%-0.15%0.92%13.87%21.39%
Portfolio characteristics - as of 06/30/2014
Share assets$109.0 million
Number of holdings139
Market cap (median)$1.66 billion
Market cap (weighted average)$1.93 billion
Portfolio turnover (last fiscal year)38%
Beta - (relative to Russell 2000 Index) (view definition)0.99
Annualized standard deviation, 3 years (view definition)16.94
Portfolio composition as of 06/30/2014Total may not equal 100% due to rounding.
Domestic equities94.3%
Cash and cash equivalents3.9%
International equities & depository receipts1.8%
Top 10 holdings as of 06/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Tenneco Inc.1.3%
InterMune Inc.1.2%
G-III Apparel Group Ltd.1.2%
Jack in the Box Inc.1.1%
Iconix Brand Group Inc.1.1%
Carrizo Oil & Gas Inc.1.1%
RigNet Inc.1.1%
ICON PLC1.1%
Buffalo Wild Wings Inc.1.0%
Popeyes Louisiana Kitchen Inc.1.0%
Total % Portfolio in Top 10 holdings11.2%

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

Top sectors as of 06/30/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Finance16.3%
Technology15.3%
Health Care13.0%
Capital Goods8.9%
Basic Materials6.5%
Energy6.2%
Reit5.8%
Business Services5.5%
Consumer Services4.4%
Consumer Discretionary3.8%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.000
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
20044.2520.025

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 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

(View bio)


Chris Adams

Christopher S. Adams, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

(View bio)


Mike Morris

Michael S. Morris, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

(View bio)


Donb Padilla

Donald G. Padilla, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2004

(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 June 30, 2014 Class A (DCCAX)

Within the Fund

Delaware Small Cap Core Fund (Class A shares at net asset value) posted a positive return and outperformed its benchmark, the Russell 2000® Index, in the second quarter of 2014.

Excess returns during the quarter were driven by stock selection in the energy, consumer staples, and business services sectors. Stock selection in the finance and technology sectors detracted from performance. The Fund’s underweight to utilities also detracted from relative performance.

The Fund ended the quarter with top overweights in the finance sector (where we added three new names), consumer services, and communications services. The portfolio has the largest underweights in the utilities, real estate investment trusts (REITs), and credit cyclicals sectors.

Among the top contributors to performance this quarter was technology company Synaptics. The company is engaged in developing and supplying custom-designed human interface solutions that enable people to interact more easily and intuitively with a wide variety of mobile and electronic devices. The stock gained 51% during the quarter as a result of a raise in guidance and the announced acquisition of Renesas RP Drivers (a Japanese display drive company). The acquisition is expected to be accretive to Synaptics earnings and could potentially provide future revenue synergies.

Another strong performer was long-term holding Susser Holdings which agreed to be acquired by Energy Transfer Partners at a healthy 40% premium (at the time of the announcement). We are pleased with the growth that the Texas-based convenience store and wholesale fuel distributor has provided to the portfolio over the years.

InterMune is a biotechnology company focused on the research, development, and commercialization of innovative therapies in pulmonology and fibrotic diseases. The company continued its strong performance in the second quarter, gaining 32%, as investors continued to react positively to the success of its pivotal U.S. Phase 3 trial for Esbriet, a treatment for idiopathic pulmonary fibrosis (IPF), a progressive and fatal lung disease. We continue to own the stock as we see further upside potential from a successful commercial launch of Esbriet next year.

Detractors from performance during the quarter included Rocket Fuel, a digital advertising company that provides solutions for the management and evaluation of advertising campaigns. The stock declined 27% during the quarter amid concerns about slowing revenue growth. We continue to hold the stock as we believe these fears are overblown and the stock’s valuation remains attractive to us.

In the healthcare sector, Auxilium Pharmaceuticals is a specialty pharmaceutical company focused on the development and commercialization of therapeutics for urology and sexual health. Auxilium performed poorly during the second quarter, declining 26% — the company pre-announced lower revenue guidance on the back of significantly lowered sales expectations for Testim, its topical testosterone replacement therapy gel for hypogonadism (or low testosterone). We continue to own the stock as we think expectations are too pessimistic at current price levels, and see meaningful upside from both the company’s suite of existing products and its new drug pipeline.

KEYW Holding offers cyber security solutions to the defense, intelligence, and national security agencies, as well as commercial enterprises. After appreciating 39% during the first quarter of 2014, the stock gave back some of those gains, falling 33% in the second quarter. The decline was a result of concerns regarding the growth potential in the company’s recently launched commercial business. We remain confident in the company’s strategy and continue to hold the stock.

Outlook

Looking forward, we believe small-cap stocks could continue to benefit from many of the conditions that contributed to growth in 2013. Inflation remains low, the Federal Reserve remains accommodative, and consumer confidence continues to expand. While we were concerned with the weak economic data from earlier in the year, recent reports have indicated that many of these figures are rebounding positively.

We continue to keep a close eye on economic indicators, as we believe improving conditions in the U.S. could provide further tailwinds to small-cap equities. We have begun to see an increase in mergers-and-acquisitions activity this year, and we believe this trend should continue given the healthy levels of cash on corporate balance sheets and favorable credit market conditions.

We believe that falling correlations in the market provide a positive backdrop for the Fund. 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.

[12841]

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 07/25/2014)

Class APriceNet changeYTD
NAV$19.48-0.300.36%
Max offer price$20.67n/an/a

Total net assets (as of 06/30/2014)

$310.5 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 06/30/2014)

Load waivedWith loadNo. of funds
Overall43596
3 Yrs43596
5 Yrs43545
10 Yrs33338
Morningstar categorySmall Blend

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2014)

YTD ranking262 / 782
1 year46 / 750
3 years101 / 667
5 years106 / 589
10 years128 / 360
Lipper classificationSmall-Cap Core Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 2000® Index (view)

Lipper Small-Cap Core Funds Average (view)

Additional information