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*Annually
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDFCIX
CUSIP245906102
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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-4.38%22.04%11.96%25.51%9.96%13.77%03/27/1986
Max offer pricen/a15.02%9.77%24.03%9.31%13.53%
Russell 2500 Growth Index1.04%26.66%13.93%25.82%9.64%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-4.38%-4.38%22.04%11.96%25.51%9.96%13.77%03/27/1986
Max offer price-9.87%-9.87%15.02%9.77%24.03%9.31%13.53%
Russell 2500 Growth Index1.04%1.04%26.66%13.93%25.82%9.64%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%n/an/an/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 03/31/2014
Share assets$969.2 million
Number of holdings27
Market cap (median)$3.11 billion
Market cap (weighted average)$4.54 billion
Portfolio turnover (last fiscal year)14%
P/E ratio (weighted average FY1) (view definition)20.24x
Beta (relative to Russell 2500 Growth Index) (view definition)0.82
Annualized standard deviation, 3 years (view definition)14.85
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Domestic equities93.0%
International equities & depository receipts6.2%
Cash and cash equivalents0.7%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
MSCI Inc.5.4%
Core Laboratories NV5.3%
SBA Communications Corp.5.3%
j2 Global Inc.5.0%
DineEquity Inc.4.9%
Heartland Payment Systems Inc.4.8%
Graco Inc.4.7%
TECHNE Corp.4.7%
VeriFone Systems Inc.4.7%
Affiliated Managers Group Inc.4.6%
Total % Portfolio in Top 10 holdings49.4%
Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Technology26.2%
Consumer Discretionary22.7%
Financial Services18.8%
Producer Durables11.3%
Health Care10.0%
Energy5.3%
Utilities5.0%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.000
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
Chris Bonavico

Christopher J. Bonavico, CFA

Senior Portfolio Manager, Equity Analyst

Start date on the Fund: January 2010

(View bio)


Ken Broad

Kenneth F. Broad, CFA

Senior Portfolio Manager, Equity Analyst

Start date on the Fund: January 2010

(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 March 31, 2014 Class A (DFCIX)

Within the Fund

For the first quarter of 2014, Delaware Smid Cap Growth Fund (Class A shares at net asset value) posted a negative return and underperformed its benchmark, the Russell 2500TM Growth Index. Stock selection decisions, particularly in the technology sector, were the main drivers of relative underperformance.

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, which 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.

Athenahealth was a strong contributor to performance during the quarter as the company reported better-than-expected financial results, driven by expanding profit margins and continued growth from its core product offerings. We believe Athenahealth has an attractive competitive position within the healthcare services industry where the company provides cloud-based billing services for physician groups. Its products offer an attractive solution for managing costs and information in this market segment.

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.

Heartland Payment Systems also detracted from performance during the quarter. Despite its reports of financial results relatively in-line with consensus expectations, there are some concerns regarding the company’s ability to further increase operating margins in the near term as well as slowing macroeconomic growth. We continue to hold the company as we believe it is well-positioned to benefit from the secular global trend of payment transactions moving from paper-based currency to electronic transactions.

Finally, NIC detracted from performance during the quarter. The company is a provider of eGovernment services that assist government’s use of the Internet. While the company continues to increase new government-client relationships and renew current contracts, the stock experienced some weakness after mixed earnings news and forward guidance by management during the quarter caused downward pressure on the stock. We believe the mixed results were nothing more than the reasonable machinations and volatility of a relatively small company in a high growth era of its business life cycle. We continue to believe NIC is in a good position to benefit from the secular growth opportunities to bring expertise and the operational efficiencies enhanced by the Internet to government agencies (who are increasingly suffering budget cuts and employee cutbacks).

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.

[12437]

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.

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 04/17/2014)

Class APriceNet changeYTD
NAV$28.920.13-6.80%
Max offer price$30.68n/an/a

Total net assets (as of 03/31/2014)

$1.3 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2014)

Load waivedWith loadNo. of funds
Overall43641
3 Yrs32641
5 Yrs54556
10 Yrs43420
Morningstar categoryMid-Cap Growth

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking410 / 416
1 year253 / 376
3 years146 / 343
5 years27 / 289
10 years44 / 208
Lipper classificationMid-Cap Growth Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

Russell 2500 Growth Index (view)

Lipper Mid-Cap Growth Funds Average (view)

Additional information