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Delaware Select Growth Fund* Quarterly commentary September 30, 2014

Within the Fund

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

Ulta Salon Cosmetics & Fragrance was a strong contributor to the Fund’s performance during the quarter. The company appreciated sharply after it reported better-than-expected financial results driven, in part, by strong same-store sales growth. Additionally, the company unveiled a five-year plan with impressive growth estimates that was generally viewed favorably by the market. We continue to believe ULTA should continue to take share from department stores and mass-merchants through its unique one-stop shop model, access to prestige brands, and strong customer service levels from brand agnostic employees.

Microsoft was a contributor to performance during the quarter. The company reported solid financial results early on in the quarter driven, in part, by strong data-center software and commercial cloud results. The company continues to make meaningful progress towards gradually shifting to cloud based technology, which should be beneficial as the company’s software could be better utilized across multiple platforms. Furthermore, this shift to more cloud-based products moves customers from a “seat license” software model to a ”subscription” cloud-based model and therefore could lead to more consistent, stable revenue streams with increased recurring revenues.

Celgene contributed to performance during the quarter. The stock appreciated, in part, because the United Kingdom’s cost agency reversed course and gave positive draft guidance for use of one of Celgene’s drugs that was rejected the prior year. Celgene continues to be a leading player in the treatment of blood cancers with a growing product pipeline in breast, lung, and pancreatic cancer treatments. Additionally, the company continues to benefit from large growth prospects driven by additional indications of its drugs, by increased usage of existing drugs, and by international growth opportunities.

Coupons.com was a detractor from the Fund’s performance during the quarter. The stock declined after the company reported financial results that missed consensus expectations, as well as issuing relatively light future guidance. We understand that the stock has the potential to be volatile at times given the relatively low number of shares trading in the market as a new public company. However, we continue to hold the stock given the company’s established position as a key player in the secular growth trend of paper coupons moving toward mobile coupon distribution.

K12 detracted from performance during the quarter. While the company reported strong financial results that exceeded consensus estimates, the stock declined over concerns of weaker-than-expected student enrollment rates. We believe this technology-based provider of education products will participate in the secular growth of complementary services within education, such as online and advanced courses and related materials, enhancing the traditional teaching experience in the classroom.

Walgreen was a large detractor from performance during the quarter. The stock fell sharply after the company announced it would not pursue a corporate tax inversion through its acquisition of Alliance Boots, but rather will combine and form a holding company based in the United States. Despite the news of no tax inversion — which we had assigned a low probability — the partnership with Alliance Boots is already creating synergies and leading to upside in certain financial metrics. Additionally, we believe recent activist activity surrounding the company should ensure management’s focus and urgency in unlocking additional value for shareholders.

Outlook

Despite positive absolute returns in the equity market during the past few years, we believe the relatively tepid market sentiment demonstrates that there are more than just fundamental factors affecting stock prices. A lack of significant bull market sentiment 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, for the intermediate term.  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 (09/30/2014)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)-3.16%-1.06%7.74%17.41%17.44%10.14%10.54%05/16/1994
Class A (at offer)-8.73%n/a1.55%15.12%16.06%9.49%10.22%
Institutional Class shares-3.10%-0.86%8.02%17.71%17.73%10.42%10.78%08/28/1997
Russell 3000 Growth Index0.88%6.91%17.87%22.41%16.43%8.95%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 10/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Microsoft Corp.5.2%
Celgene Corp.4.6%
Zebra Technologies Corp.4.1%
Equity Commonwealth4.0%
DineEquity Inc.3.8%
Allergan Inc.3.2%
QUALCOMM Inc.3.2%
EOG Resources Inc.3.0%
Walgreen Co.2.8%
eBay Inc.2.8%
Total % Portfolio in Top 10 holdings36.7%

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.

Jackson Square Partners, LLC (JSP) 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, a series of Delaware Management Business Trust, has ultimate responsibility for all investment advisory services with JSP.

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