Delaware Small Cap Value Fund

Objective

Delaware Small Cap Value Fund seeks capital appreciation.

Strategy

The Fund invests primarily in investments of small companies whose stock prices appear low relative to their underlying value or future potential.

Fund information
Inception date06/24/1987
Dividends paid*Annually
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDEVLX
CUSIP246097109
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)2.89%21.50%12.36%24.93%9.29%11.88%06/24/1987
Max offer pricen/a14.51%10.17%23.45%8.64%11.64%
Russell 2000 Value Index1.78%22.65%12.74%23.33%8.07%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.89%2.89%21.50%12.36%24.93%9.29%11.88%06/24/1987
Max offer price-3.01%-3.01%14.51%10.17%23.45%8.64%11.64%
Russell 2000 Value Index1.78%1.78%22.65%12.74%23.33%8.07%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
Gross1.25%
Net1.25%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20142.89%n/an/an/an/a
201311.95%0.88%7.31%9.07%32.18%
201210.74%-4.34%3.91%2.73%13.08%
20117.18%-1.94%-19.18%16.37%-1.15%
20109.57%-7.50%12.82%14.51%30.95%
2009-13.65%16.74%22.78%6.64%31.99%
2008-4.44%1.17%-4.46%-24.77%-30.51%
20072.58%4.79%-7.16%-7.25%-7.45%
200611.39%-3.05%1.18%5.57%15.35%
2005-0.66%3.43%3.91%1.73%8.61%
20045.41%-0.25%0.76%14.26%21.04%
Portfolio characteristics - as of 03/31/2014
Share assets$932.6 million
Number of holdings105
Market cap (median)$2.13 billion
Market cap (weighted average)$2.94 billion
Portfolio turnover (last fiscal year)28%
P/E ratio (weighted average FY1) (view definition)16.38x
Beta (relative to Russell 2000 Value Index) (view definition)0.91
Annualized standard deviation, 3 years (view definition)15.10
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Domestic equities96.5%
Cash and cash equivalents3.5%
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
United Rentals Inc.2.7%
Whiting Petroleum Corp.2.6%
East West Bancorp Inc.2.5%
ITT Corp.1.9%
Chemtura Corp.1.8%
HB Fuller Co.1.7%
Hancock Holding Co.1.6%
Patterson-UTI Energy Inc.1.6%
Helix Energy Solutions Group Inc.1.6%
Platinum Underwriters Holdings Ltd.1.5%
Total % Portfolio in Top 10 holdings19.5%

Holdings are as of the date indicated and subject to change.

Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Financial Services21.3%
Technology14.1%
Capital Spending10.6%
Basic Industry9.8%
Consumer Services8.9%
Energy8.5%
Reits6.5%
Health Care5.8%
Consumer Cyclical3.8%
Transportation2.7%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.000
20131.1010.055
20120.2540.092
20111.8060.000
20100.1400.000
20090.0000.017
20080.0000.060
20073.4180.000
20063.2730.000
20053.0530.000
20044.6250.000
Chris Beck

Chris Beck, CFA

Chief Investment Officer — Small-Cap Value / Mid-Cap Value Equity

Start date on the Fund: May 1997

(View bio)


Steve Catricks

Steven G. Catricks, CFA

Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

(View bio)


Kent Madden

Kent P. Madden, CFA

Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

(View bio)


Kelly McKee

Kelley A. McKee, CFA

Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

(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 (SAI) under the section entitled "Purchasing Shares."

The table below 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 fees0.70%
Distribution and service (12b-1) fees0.25%
Other expenses0.30%
Total annual fund operating expenses1.25%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements1.25%

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Delaware Small Cap Value Fund Quarterly commentary March 31, 2014 Class A (DEVLX)

Within the Fund

Delaware Small Cap Value Fund (Class A shares at net asset value) posted a positive return and outperformed its benchmark, the Russell 2000® Value Index, in the first quarter of 2014.

Stock selection in technology, capital spending, and energy contributed to the Fund's outperformance. The Fund underperformed the Index in the basic industry, real estate investment trusts (REITs), and consumer services sectors. REITs posted the highest absolute return in the Index during the quarter. The Fund's return in the REIT sector kept pace with the Index; however, the portfolio's underweight allocation to REITs detracted from relative performance.

The Fund had several stocks that contributed to the portfolio's outperformance in the quarter. Within the technology sector, stock selection in semiconductors drove performance. RF Micro Devices designs and develops proprietary radio frequency integrated circuits. In February, RF Micro Devices announced a merger agreement with Triquint Semiconductor under which the companies will combine in an all stock transaction. RF Micro Devices appreciated as a result of the news and advanced 50% during the quarter. We maintained the Fund's position as the merger should give the combined company critical mass in the industry, generate cost savings, and create the potential to bring to market products with higher levels of system integration.

Patterson-UTI Energy is an oil service company involved in drilling and pressure pumping operations. The stock advanced more than 25% during the quarter — the outlook for rig pricing and pressure pumping became favorable due to the resilience of the price of oil and the decline of natural gas inventories, given the cold winter. With the company generating significant cash flow, we maintained the Fund's position as valuation remains reasonable to us and the company continues to allocate significant capital to shareholders.

Engineering and construction firm, MasTec gained more than 30% during the quarter as the company continues to see growth in its wireless and oil and gas pipeline businesses. Incremental contract awards from AT&T and Sprint to continue supporting their network build-out was a positive for the company. We view the company's position in the wireless space positively as wireless providers will likely continue needing improved infrastructure to support increasing data usage. With respect to the company's oil and gas pipeline business, the revenue growth outlook for 2014 will moderate relative to a strong 2013; however, bidding activity remains high as pipeline infrastructure continues to grow in the United States.

Performance detractors for the Fund included Thermon Group Holdings. The company, a provider of thermal solutions (heat tracing) to process industries, fell 15% during the quarter. The stock showed weakness after releasing its fiscal third quarter earnings in February. While earnings per share results beat consensus estimates, management trimmed organic revenue guidance for fiscal year 2014 from mid-single digits to roughly flat due to delays in some large projects. Both gross and operating margins remain strong, giving us confidence to continue owning the stock.

Selective Insurance Group is a property and casualty insurance company with primary operations in New England, the Mid-Atlantic, and the Southeast. The stock declined more than 10% during the quarter as price increases on premiums may be peaking and winter storms will likely lead to above average losses and claims from policy holders. We maintained the Fund's position in the stock as the overall property and casualty market remains firm and the stock is priced at slightly above book value.

Shares of Rent-A-Center were down more than 25% during the quarter as the rent-to-own chain reported a disappointing quarter and gave a disappointing earnings outlook due to a subpar holiday season and increased competition. We sold the Fund's shares of the company during the quarter as we saw both deteriorating fundamentals and cash flow.

Outlook

We continue to believe that the outlook for small-cap equities is favorable. We believe that the U.S. economy should continue to grow at a moderate pace as employment trends, consumer spending, and bank lending continue to improve. Additionally, the Federal Reserve appears to be committed to accommodative monetary policy going forward.

We have begun to see some signs that investor sentiment is shifting from lower-quality equities to higher-quality equities. In this type of environment, we believe that stocks with strong free cash flow have the potential to outperform the more speculative areas of the market, where valuations remain stretched. The Fund's positioning remains largely the same with overweights in basic industries, capital spending, and technology, and corresponding underweights in utilities, REITs, and consumer staples.

We will continue to seek what we view as higher-quality stocks, with a particular emphasis on companies that, in our opinion, generate strong free-cash flow and are in a position to raise or initiate a dividend or buyback shares. Also in accordance with our long-held preferences, we continue to underweight companies that, in our view, are excessively levered.

Price-to-book ratio is used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.

[12375]

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.

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.

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/15/2014)

Class APriceNet changeYTD
NAV$52.700.320.40%
Max offer price$55.92n/an/a

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

$2.5 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

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

Load waivedWith loadNo. of funds
Overall43311
3 Yrs32311
5 Yrs43258
10 Yrs44162
Morningstar categorySmall Value

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking102 / 780
1 year545 / 740
3 years360 / 664
5 years185 / 591
10 years124 / 356
Lipper classificationSmall-Cap Core Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

Russell 2000® Value Index (view)

Lipper Small-Cap Core Funds Average (view)

Additional information