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 (06/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)6.67%24.85%14.46%22.00%9.71%11.92%06/24/1987
Max offer pricen/a17.66%12.22%20.56%9.07%11.67%
Russell 2000 Value Index4.20%22.54%14.65%19.88%8.23%n/a
Average annual total return as of quarter-end (06/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.67%6.67%24.85%14.46%22.00%9.71%11.92%06/24/1987
Max offer price-2.30%0.54%17.66%12.22%20.56%9.07%11.67%
Russell 2000 Value Index2.38%4.20%22.54%14.65%19.88%8.23%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%3.67%n/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 06/30/2014
Share assets$900.5 million
Number of holdings110
Market cap (median)$2.15 billion
Market cap (weighted average)$2.99 billion
Portfolio turnover (last fiscal year)28%
Beta (relative to Russell 2000 Value Index) (view definition)0.90
Annualized standard deviation, 3 years (view definition)15.05
Portfolio composition as of 06/30/2014Total may not equal 100% due to rounding.
Domestic equities97.0%
Cash and cash equivalents3.0%
Top 10 holdings as of 06/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Whiting Petroleum Corp.2.6%
East West Bancorp Inc.2.3%
ITT Corp.2.1%
Chemtura Corp.1.7%
Helix Energy Solutions Group Inc.1.7%
Patterson-UTI Energy Inc.1.6%
HB Fuller Co.1.6%
Platinum Underwriters Holdings Ltd.1.6%
Synopsys Inc.1.5%
Hancock Holding Co.1.5%
Total % Portfolio in Top 10 holdings18.2%

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

Top sectors as of 06/30/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Financial Services21.1%
Technology13.8%
Capital Spending10.8%
Basic Industry9.5%
Consumer Services8.9%
Energy8.8%
Reits6.5%
Health Care6.0%
Consumer Cyclical4.0%
Transportation2.8%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
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

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 is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Chris Beck

Christopher S. Beck, CFA

Senior Vice President, 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

Vice President, Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

(View bio)


Kent Madden

Kent P. Madden, CFA

Vice President, Portfolio Manager, Equity Analyst

Start date on the Fund: July 2012

(View bio)


Kelly McKee

Kelley A. McKee, CFA

Vice President, 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 June 30, 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 second quarter of 2014. Stock selection in the basic industry, technology, and energy sectors contributed the most to the Fund’s outperformance. While the Fund’s return in the real estate investment trusts (REITs) sector outpaced that of the Index, underexposure to that sector that was the only detractor from performance.

Several stocks within the Fund contributed to outperformance during the quarter. Whiting Petroleum is an oil and natural gas exploration and production company with primary operations in the Bakken Shale and Rocky Mountain regions. The stock rose nearly 16% as daily production exceeded expectations and the company showed success in a new area of development, the Niobrara fields in Colorado. While the Fund maintains a significant position in Whiting Petroleum, we slightly reduced its weighting late in the quarter. In our view, the company remains attractively valued versus its peers.

Within the technology sector, stock selection in semiconductors continued to drive performance. RF Micro Devices designs and develops proprietary radio frequency integrated circuits. Shares of RF Micro Devices increased 22% during the quarter. The company reported a solid first quarter as it seemed to be executing well on both revenue and margins. We continue to own the stock and believe the company should continue to realize the benefits from the increased complexity of mobile phones.

Berry Plastics is a producer of plastic consumer packaging and engineered materials. The stock advanced 11% during the quarter after the company provided a positive business outlook, which included flat or declining key raw material prices, and named a high-profile customer that is testing its new drink cup. We continued to favor the company because of its strong free cash flow generation and attractive valuation.

Among the individual stocks that detracted from performance was MasTec, a specialty engineering and construction company with a focus on serving the telecommunication, utility, and energy sectors. After posting a strong gain in the first quarter, the stock declined 29% during the second quarter. The company pre-announced a negative earnings report in early June due to lower-than-expected wireless revenues and project delays in the oil and gas segment. We added to the Fund’s position as we believe these issues should be short-term in nature. In our view, the company’s fundamentals remain strong and the stock is attractively priced.

Another detractor in the Fund was Brocade Communications Systems. The company provides switching solutions for storage area networks and Ethernet switching. After a strong first quarter, shares of Brocade declined in April and early May due to concerns over weak U.S. federal government spending, and the possible sale of part of the IBM server business to Lenovo (as that sale may cause a change in the original equipment manufacturer relationship). The Fund continues to hold shares of Brocade as the company remains committed to its capital allocation strategy of returning 60% of free cash flow to shareholders.

Finally, Stage Stores, a department store chain, declined 23% during the quarter as unseasonable weather and a promotional environment across retail weighed on the company’s gross margins during the quarter. As a result, the company lowered its full-year earnings expectations. While we reduced the Fund’s position in Stage Stores earlier in the year, we maintained its position after the second quarter sell-off based on our view of the company’s valuation and strong free cash flow profile.

Outlook

We continue to believe that the outlook for the economy and domestic equities is favorable. We believe that the U.S. economy should continue to grow at a moderate pace as employment trends, manufacturing data, consumer confidence levels, and bank lending gradually improve. Additionally, we continue to see the benefits of an accommodative Federal Reserve policy on equities.

The Fund’s positioning remains largely the same with overweights in the capital spending, basic industry, and technology sectors. We continue to maintain underweights in the traditionally defensive sectors of the market: REITs, utilities, and consumer staples. So far this year, we have seen some signs that investor sentiment is shifting from lower-quality equities to higher-quality equities. We believe that this type of environment offers the potential for outperformance from the types of stocks that we focus our efforts on — those that have the potential to generate strong free cash flow, have a healthy balance sheet, and are likely to deploy their cash in shareholder-friendly ways such as dividends or share repurchases.

[12823]

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 07/23/2014)

Class APriceNet changeYTD
NAV$55.44-0.085.62%
Max offer price$58.82n/an/a

Total net assets (as of 06/30/2014)

$2.7 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 06/30/2014)

Load waivedWith loadNo. of funds
Overall44332
3 Yrs32332
5 Yrs54256
10 Yrs44172
Morningstar categorySmall Value

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2014)

YTD ranking86 / 782
1 year269 / 750
3 years284 / 667
5 years81 / 589
10 years98 / 360
Lipper classificationSmall-Cap Core Funds

(View Lipper disclosure)

Benchmark, peer group

Russell 2000® Value Index (view)

Lipper Small-Cap Core Funds Average (view)

Additional information