Delaware Smid Cap Growth Fund*

Objective

Delaware Smid Cap Growth Fund seeks long-term capital appreciation.

Strategy

The Fund invests primarily in common stocks of growth-oriented companies that the team believes have long-term capital appreciation potential and expects to grow faster than the U.S. economy. The team particularly seeks small to mid-sized companies.

Fund information
Inception date03/27/1986
Dividends paid (if any)Annually
Capital gains paid (if any)December
Fund identifiers
NASDAQDFCIX
CUSIP245906102
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

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 (11/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.87%5.39%15.35%19.41%10.35%13.68%03/27/1986
Max offer price-3.98%-0.69%13.10%18.00%9.69%13.44%
Russell 2500 Growth Index5.71%8.54%19.48%18.72%9.74%n/a
Average annual total return as of quarter-end (09/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-2.02%-6.16%4.19%16.66%17.89%10.42%13.43%03/27/1986
Max offer price-7.64%n/a-1.81%14.38%16.50%9.77%13.20%
Russell 2500 Growth Index-4.21%-0.41%8.05%22.68%16.85%10.10%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.

Expense ratio
Gross1.19%
Net1.19%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
2014-4.38%0.17%-2.02%n/an/a
201310.34%4.01%10.53%11.02%40.84%
201216.94%-6.06%2.51%-1.98%10.38%
201114.33%3.20%-15.92%8.83%7.96%
20104.74%-1.78%14.64%14.49%35.03%
20090.52%14.84%16.90%7.07%44.49%
2008-13.93%6.15%-13.80%-25.85%-41.61%
20074.91%7.85%2.86%-3.52%12.28%
20069.03%-6.02%-3.05%5.66%4.97%
2005-3.66%3.42%5.24%4.89%9.98%
20042.88%-0.30%-5.61%15.85%12.17%
Portfolio characteristics - as of 11/30/2014
Share assets$826.2 million
Number of holdings26
Market cap (median)$3.26 billion
Market cap (weighted average)$4.18 billion
Portfolio turnover (last fiscal year)26%
Beta - (relative to Russell 2500 Growth Index) (view definition)0.87
Annualized standard deviation, 3 years (view definition)12.49
Portfolio composition as of 11/30/2014Total may not equal 100% due to rounding.
Domestic equities91.7%
International equities & depository receipts7.1%
Cash and cash equivalents1.2%
Top 10 holdings as of 11/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
DineEquity Inc.6.2%
Heartland Payment Systems Inc.6.2%
MSCI Inc.5.8%
j2 Global Inc.5.5%
Sally Beauty Holdings Inc.5.5%
Ulta Salon Cosmetics & Fragrance Inc.5.3%
Graco Inc.5.3%
Bio-Techne Corp.5.0%
Affiliated Managers Group Inc.4.5%
Zebra Technologies Corp.4.4%
Total % Portfolio in Top 10 holdings53.7%
Top sectors as of 11/30/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Consumer Discretionary25.4%
Financial Services20.8%
Producer Durables17.1%
Technology16.0%
Health Care10.0%
Utilities5.5%
Energy4.0%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20144.1220.000
20131.0790.000
20121.5820.000
20110.9460.000
20100.9380.205
20090.0000.000
20081.6920.000
20072.7520.000
20061.6040.000
20051.0250.000
20040.0000.000

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.

Investment manager

Delaware Management Company, a series of Delaware Management Business Trust

Sub-advisors

Jackson Square Partners, LLC


Chris Bonavico

Christopher J. Bonavico, CFA

Portfolio Manager, Equity Analyst — Jackson Square Partners, LLC

Start date on the Fund: January 2010

Years of industry experience: 26

(View bio)


Ken Broad

Kenneth F. Broad, CFA

Portfolio Manager, Equity Analyst — Jackson Square Partners, LLC

Start date on the Fund: January 2010

Years of industry experience: 20

(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 under the section entitled "Purchasing shares."

The following table 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 fees0.71%
Distribution and service (12b-1) fees0.25%
Other expenses0.23%
Total annual fund operating expenses1.19%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.19%

1The Fund's Class A shares are subject to a blended rate of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Board of Trustees. 

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Delaware Smid Cap Growth Fund* Quarterly commentary September 30, 2014

Within the Fund

For the third quarter of 2014, Delaware Smid Cap Growth Fund (Class A and Institutional Class shares at net asset value) posted a negative return but outperformed its benchmark, the Russell 2500Growth Index. Strong relative performance in the financial services and technology sectors was partially offset by weak relative performance in the producer durables and healthcare 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.

Heartland Payment Systems was a contributor to performance during the quarter. The company recently announced it would acquire TouchNet Information Systems, a payment/processing company that serves higher-education institutions. The acquisition makes Heartland Payment Systems the largest provider of payment/processing services to the higher-education market and further diversifies the company’s business. We feel this acquisition should be accretive to shareholder value over the long term. We continue to believe the company is well-positioned to potentially benefit from the secular global trend of payment transactions moving from paper-based currency to electronic transactions.

Sally Beauty Holdings also contributed to performance during the quarter. The stock rose after the company reported relatively solid financial results driven, in part, by strong same-store sales growth, a favorable foreign currency translation, and positive net new store openings. Recently launched marketing initiatives and senior management changes are already leading to better execution within the business. Additionally, the company announced further plans to buy back additional shares.

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.

Core Laboratories was also a detractor from performance during the quarter. While the company reported financial results that were relatively in-line, the stock fell as investors became increasingly concerned about future utilization of Core Laboratories services by North American clients in the near term. We are willing to live with a certain degree of cyclicality in the energy cycle given that this company’s solutions to site analysis are valuable in various parts of the cycle. In our view, this is a well-owned stock with little historical controversy and volatility, and therefore we believe that investors may have overreacted to a reasonable conservative assessment to industry conditions.

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.

Diversification may not protect against market risk.

[13397]

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.

*As of Feb. 24, 2012, Delaware Smid Cap Growth Fund is 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 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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 12/24/2014)

Class APriceNet changeYTD
NAV$28.050.023.84%
Max offer price$29.76n/an/a

Total net assets (as of 11/30/2014)

$1.3 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 11/30/2014)

Load waivedWith loadNo. of funds
Overall43635
3 Yrs21635
5 Yrs54583
10 Yrs44427
Morningstar categoryMid-Cap Growth

(View Morningstar disclosure)

Lipper ranking (as of 11/30/2014)

YTD ranking380 / 423
1 year371 / 419
3 years296 / 367
5 years26 / 330
10 years40 / 226
Lipper classificationMid-Cap Growth Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 2500 Growth Index (view)

Lipper Mid-Cap Growth Funds Average (view)

Additional information