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Delaware Smid Cap Growth Fund** Quarterly commentary December 31, 2013 Class A (DFCIX)

Within the Fund

For the fourth quarter of 2013, Delaware Smid Cap Growth Fund (Class A shares at net asset value) posted a positive return and outperformed its benchmark, the Russell 2500 Growth Index. Strong relative performance in the healthcare and financial services sectors was partially offset by weak relative performance in the producer durables and utilities sectors.

Heartland Payment Systems, a bankcard payment processing service, was a strong contributor to performance during the quarter. The company reported earnings that beat analyst expectations during the period, supported by improving card processing volumes. We believe the company continues to be well positioned to benefit from the secular global trend of payment transactions moving from paper-based currency to electronic transactions.

DineEquity was a strong contributor to performance during the quarter. Despite a difficult restaurant industry environment, the company recently reported stronger-than-expected financial results and lifted future guidance driven, in part, by additional cost-cutting efforts. We feel the company’s completed transition from a restaurant owner-operator model to a pure franchise holding company should continue to create additional shareholder value and opportunities for further expansion.

Abiomed was also a contributor to performance during the quarter. The stock seemed to have recovered during the period after it fell due to uncertainty stemming from a change in a Medicare/Medicaid reimbursement process. Investors likely realized such reimbursement proposals and changes are a relatively standard occurrence in the healthcare industry, and have more confidence that the changes will not materially affect the company’s revenues. While we do have some concerns regarding the company’s increased expenses associated with legal matters (which we consider to be transitory) and a newly implemented medical device excise tax, we feel the company should continue to increase shareholder value driven, in part, by the increased usage of its heart pump device.

K12 was one of the largest detractors to Fund performance during the quarter. Investors have grown concerned about whether the company can continue its growth trajectory as the company lowered its guidance for fiscal year 2014 based, in part, on lower than expected enrollment rates due to issues at its enrollment centers. We believe this was a transitory execution mistake by the company and is not indicative of a general slowing demand environment for its products and services. We believe this technology-based provider of education products will continue to participate in the secular growth of complementary services within education, such as online and advanced courses and other materials that enhance the traditional teaching experience in the classroom.

Blackbaud, a software and related services provider for the non-profit sector, also detracted from performance during the quarter. The stock declined after the company reported mixed financial results and lower-than-anticipated forward earnings guidance — the company is appropriately deploying capital towards improving infrastructure and growing the company’s sales force, marketing, and new products. We feel Blackbaud has a competitive advantage as it is one of the few companies that offer products and services specifically tailored to the non-profit sector. We believe the company should see continued growth as its products deliver an attractive return on investment by optimizing a non-profit’s effectiveness and efficiency.

Finally, j2 Global detracted from performance during the quarter. The stock was relatively flat during a strong up market period, as the company reported earnings results that missed consensus expectations. We feel the stock’s resulting performance was likely an overreaction and that, in our opinion, the company should continue to add incremental value for shareholders by making many small, strategic, and financially sound acquisitions.

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)-4.38%-4.38%22.04%11.96%25.51%9.96%13.77%03/27/1986
Class A (at offer)-9.87%-9.87%15.02%9.77%24.03%9.31%13.53%
Institutional Class shares-4.33%-4.33%22.35%12.26%25.87%10.27%14.02%11/09/1992
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.

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 2500 Growth Index (view)

Expense ratio
Class A (Gross)1.19%
Class A (Net)1.19%
Institutional Class shares (Gross)0.94%
Institutional Class shares (Net)0.94%
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%

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.

**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