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Delaware Select Growth Fund* Quarterly commentary March 31, 2015

Within the Fund

For the first quarter of 2015, Delaware Select Growth Fund (Institutional Class shares and Class A shares at net asset value) lagged its benchmark, the Russell 3000® Growth Index. Strong relative performance in the producer durables and financial services sectors was unable to overcome weak relative performance in the technology and consumer discretionary sectors.

Abiomed was a strong contributor to performance during the quarter. The stock experienced several positive events which led to significant stock appreciation. The company reported strong financial results and gained positive regulatory approval for two separate heart devices (Impella RP® catheter and Impella 2.5). Regulatory approval for its heart pump device, Impella 2.5, allows for broader access to the market and lowers regulatory restrictions on the marketing of the device. We believe these developments should further enhance the company’s ability to increase shareholder value, in part, by the increased usage of its heart pump devices.

Zebra Technologies also contributed to performance during the quarter. The company has been the market leader in barcode printers and scanners for more than 30 years and offers an assortment of products to support manufacturing and supply chain management. The company continued to experience stock strength as many investors seem to be warming to the merger with Motorola Solutions. This merger was the catalyst for us to purchase the stock as the combined cost and product synergies seemed compelling to us. We continue to believe the acquired technology from this business should allow the company to offer enhanced next-generation products to fulfil today’s needs.

WisdomTree Investments, a recent addition to the Fund’s portfolio, was a contributor to performance during the quarter. As an asset manager, the company primarily offers exchange-traded funds (ETFs). While reported financial results missed consensus estimates, the stock rose as the company’s currency hedged ETFs raised significant assets during the quarter’s rising dollar environment. We believe the company is uniquely positioned to potentially benefit from the secular trend of the ETF market that has grown regardless of the macro environment. In our view, the company possesses the type of scale and network effect characteristics that we often find attractive in companies where margins should improve as the business continues to grow.

Coupons.com detracted from performance during the quarter. The stock fell after the company reported lower-than-expected financial results and guided lower in the future. We understand that the stock can be volatile at times given the yet unknown effect of the company’s recent launch of a product that ties directly into its retailer customer’s payment system and because of the relatively low number of shares trading in the market as a new public company. However, we continue to hold the stock based on the company established position as a key player in the secular growth trend of paper coupons moving toward mobile coupon distribution. We believe the company should see continued growth as its products continue to deliver an attractive return on investment by increasing customer traffic for its clients.

LendingClub also detracted from the Fund’s performance during the quarter. The company operates an online marketplace that helps connect borrowers and lenders for a fee. The stock experienced weakness as the company lowered future growth guidance versus consensus expectations. Considering that it’s a newly public company, we are prepared for a degree of stock volatility. While the company’s capital expenditures (including R&D, marketing, and staffing) should allow the company to capture more of the lending market, it will likely affect margins in the near term. Over the long term, we believe these investments into the business should help position the company to benefit widely from the shift from local banks towards an online commoditized marketplace for lending needs.

Finally, Microsoft was a detractor from performance during the quarter. The company reported relatively strong financial results but reduced its outlook based on expected weakness in the PC business and a strong dollar’s negative affect on revenues. While the company may experience weakness in its legacy “Windows” business (that is still affected by an IT spending cycle), the company continues to make meaningful progress towards a gradual shift to cloud-based technology. We believe this transition should be beneficial as its software could be better utilized across multiple platforms. Furthermore, this shift to more cloud-based products moves customers from a “seat license” software model to a “subscription” cloud-based model — we believe this should lead to more consistent, stable revenue streams with increased recurring revenues.

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.

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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 877 693-3546 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 (03/31/2015)
Current
quarter
YTD1 year3 year5 year10 yearLifetimeInception
date
Class A (NAV)3.48%3.48%11.88%12.51%16.44%10.69%10.86%05/16/1994
Class A (at offer)-2.46%-2.46%5.44%10.32%15.07%10.04%10.55%
Institutional Class shares3.55%3.55%12.15%12.80%16.73%10.97%8.63%08/28/1997
Russell 3000 Growth Index4.05%4.05%15.76%16.45%15.71%9.41%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 3000® Growth Index (view definition)

Expense ratio
Class A (Gross)1.25%
Class A (Net)1.25%
Institutional Class shares (Gross)1.00%
Institutional Class shares (Net)1.00%
Top 10 holdings as of 04/30/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Zebra Technologies Corp.5.2%
QUALCOMM Inc.4.9%
Celgene Corp.4.0%
Microsoft Corp.4.0%
eBay Inc.3.1%
Biogen Inc.2.9%
Equinix Inc.2.9%
Priceline Group Inc.2.5%
Shutterstock Inc.2.4%
Yelp Inc.2.2%
Total % Portfolio in Top 10 holdings34.1%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

*Effective after the close of business on June 8, 2012, Delaware Select Growth Fund was 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 the 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.

All third-party marks cited are the property of their respective owners.

Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.

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 877 693-3546. 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.

International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

Not FDIC Insured | No Bank Guarantee | May Lose Value