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Delaware Select Growth Fund* Quarterly commentary March 31, 2014 Class A (DVEAX)

Within the Fund

For the first quarter of 2014, Delaware Select Growth Fund (Class A shares at net asset value) posted a negative return and underperformed its benchmark, the Russell 3000® Growth Index. Strong relative performance in the consumer staples sector was unable to overcome weak relative performance in the consumer discretionary and energy sectors.

VeriFone Systems was a strong contributor to performance during the quarter. The company reported financial results that beat consensus expectations and continues to recover after a period of fundamental difficulty. We believe management is showing solid execution in the company’s international expansion as well as realizing synergies from recent strategic initiatives. Additionally, the company could see some upside as the industry moves towards more secure payment methods in the wake of several high profile credit card “hacking” incidents that could require customers to upgrade point of sale terminals with tighter security standards and capabilities.

CommonWealth REIT was a strong contributor to performance during the quarter. The company is a unique "special situation" holding in the Fund’s portfolio. It is in the throes of a management battle over control of the company and we believe the pending significant change in management personnel and corporate governance should create significant shareholder value. During the quarter, there were further developments as shareholders voted to unseat the current board, which was generally viewed favorably by the market. In addition, we believe the suboptimal governance structure has resulted in poor management of the company’s assets and therefore understates the value of the company’s earning potential and value.

EOG Resources also contributed strongly to performance during the quarter. In our view, the company is well positioned to provide exposure to the North American shale oil and gas industry, which we believe is an attractive secular growth area in energy. While the stock benefited from natural gas prices rising to a four-year high during the period, it's important to note that although the stock can, at times, be affected by fluctuations in the price of oil and natural gas, we don't believe that the company's long-term intrinsic business value is dependent solely on commodity prices. Rather, we believe the company’s management team has a unique capital allocation discipline relative to other energy companies that increases its potential to perform and add value through a variety of commodity prices and economic environments.

NeuStar detracted from performance during the quarter. The stock declined as the approval process allowing the company to remain the sole database provider of cell phone numbers and other related information for the North American wireless carrier industry is still in negotiations. We believe NeuStar will likely get approval to renew its contract in the first half of 2014 but there is more uncertainty surrounding the process than investors originally expected. We believe the company has attractive business model characteristics and an attractive cash flow-based valuation; however, we trimmed the Fund’s weight in the position to account for a higher risk profile.

Celgene also detracted from the Fund’s performance during the quarter. The company is a leading player in the treatment of blood cancers, and has a growing product pipeline in breast, lung, and pancreatic cancer. The stock experienced weakness as investors may have looked to lock in gains after the company reported somewhat underwhelming fourth quarter financial results and forward guidance. Additionally, the company received an unfavorable preliminary decision from British regulators for expanded use of one of the company’s drug products as well as the prospect of an early patent expiration on that same drug. We feel investors may have overreacted to recent developments — we continue to believe Celgene should benefit from large growth prospects driven by additional indications of their drugs, by increased usage of existing drugs, and by international growth opportunities.

Finally, Pearson, a U.K.-based publisher of education textbooks and learning materials, detracted from performance during the quarter. The stock fell as the company reported financial results that showed decreases in operating profits and margins. The company is currently undergoing a long-term strategic transformation from all paper-based products to an increasing percentage of digital content. We believe the transition should, in time, result in more attractive financial characteristics and also move them in-line with long-term secular trends in the education industry. However, the transition may take longer than originally anticipated — therefore, we exited the Fund’s position in order to allocate to what we viewed as more attractive opportunities.

Outlook

Despite positive absolute returns in the equity market during the past few years, we believe the many short-term swings in market sentiment demonstrate that there are more than just fundamental factors affecting stock prices. Rather, recent equity market volatility suggests to us that many investors appear to be struggling with accurately predicting the pace of global economic recovery and are assessing factors that threaten economic fundamentals (for example, central bank actions and fiscal policy debates across the globe). While some fundamentals in various geographies may be trending in a positive direction (from a very low base during the global financial crisis in 2008-2009), we don’t believe we are entering into a typical post-recessionary global boom cycle. Rather, we believe the lingering effects of the credit crisis years ago could lead to moderate growth, at best. In such a tenuous environment, we believe the quality of a company’s business model, competitive position, and management may prove to be of utmost importance.

Regardless of the economic outcome, we remain consistent in our long-term investment philosophy: We want to own what we view as strong secular-growth companies with solid business models and competitive positions that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.

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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 (03/31/2014)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)-1.23%-1.23%20.09%13.59%25.98%9.18%10.81%05/16/1994
Class A (at offer)-6.90%-6.90%13.19%11.38%24.51%8.54%10.48%
Institutional Class shares-1.16%-1.16%20.41%13.89%26.31%9.46%11.05%08/28/1997
Russell 3000 Growth Index1.07%1.07%23.53%14.53%21.94%7.95%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.

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

Russell 3000® Growth Index (view)

Expense ratio
Class A (Gross)1.25%
Class A (Net)1.25%
Institutional Class shares (Gross)1.00%
Institutional Class shares (Net)1.00%
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
CommonWealth REIT5.3%
Microsoft Corp.5.3%
DineEquity Inc.3.8%
EOG Resources Inc.3.7%
VeriFone Systems Inc.3.7%
QUALCOMM Inc.3.6%
K12 Inc.3.2%
Adobe Systems Inc.3.1%
Celgene Corp.3.0%
Crown Castle International Corp.2.8%
Total % Portfolio in Top 10 holdings37.5%

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.

*Effective after the close of business on June 8, 2012, Delaware Select Growth Fund was closed to new investors. Existing shareholders of the Fund; certain retirement plans and IRA transfers and rollovers from these plans; and certain advisory or fee-based programs sponsored by and/or controlled by financial intermediaries where the financial intermediary has entered into an arrangement with the Fund’s Distributor or transfer agent (mutual fund wrap accounts) may continue to purchase shares. Please read the latest prospectus and the summary prospectus for more information concerning this event.

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.

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

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.

Because the Fund expects to hold a concentrated portfolio of a limited number of securities, the Fund's risk is increased because each investment has a greater effect on the Fund's overall performance.

Not FDIC Insured | No Bank Guarantee | May Lose Value