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    Quarterly Fund Commentary


    Ivy Mid Cap Growth Fund (prospectus)
    June 30, 2016


    Manager(s):
    Kimberly A. Scott, CFA

    Market Sector Update

    • The Russell Midcap Growth Index, the Fund’s benchmark, gained in the second quarter of 2016 during a considerably less volatile market environment than we witnessed in 1Q2016.
    • Most sectors outperformed the benchmark’s overall return, including energy, telecommunications, consumer staples, health care, utilities, financials, materials and technology.
    • Consumer discretionary and industrials were weak relative to the benchmark, with consumer discretionary stocks notably weak.

    Portfolio Strategy

    • The Fund outperformed the benchmark, before the effects of sales charges, for the quarter ended June 30, 2016.
    • Performance strength came from in three key sectors – technology, health care and energy. We were overweight each of these outperforming sectors, and stock selection also helped in the case of both technology and health care.
    • Technology made the strongest contribution to returns with help from moves by Pandora Media and GrubHub, Inc., both stocks of internet-based companies that have been weak for some time.
    • In health care, all but one of our stocks generated positive returns, and our sector return handily beat that of the benchmark. Alkermes plc and Medivation, Inc. were standout performers.
    • The financials and consumer discretionary sectors were key detractors to Fund performance.
    • Consumer discretionary exposure was our largest detractor from performance despite our underweight. Global economic growth concerns as well as questions about competitive positioning weighed on many names, including BorgWarner, Inc., Polaris Industries, and DSW, Inc. This group remains difficult given uncertainties about competition, capital spending needs and consumer demand. However, considerable value has developed across this sector, as investors have abandoned many stocks.
    • Financials exposure detracted from performance. Weakness from Signature Bank and Oaktree Capital Group the main causes. Signature Bank has been weak related to concerns about its exposure to loans to the taxi sector as Uber gains share, and Oaktree Capital Group participated in the broad weakness seen in the quarter in capital markets stocks.

    Outlook

    • Our outlook for the stock market remains cautiously constructive, as it has been for much of the year. The U.S. economy is in a growth mode, albeit slow growth. Economies elsewhere in the world remain challenged, which restricts the ultimate strength of U.S. companies and the economy.
    • There have been more stresses on the earnings outlook for U.S. companies than we have seen in a considerable period of time. While much of this stress emanated from the energy sector in 2015, the negative feedback loop associated with energy-related employment and spending has had a broader impact on economic growth and corporate health across many sectors.
    • Our cautiously constructive outlook is based on our confidence that the positives we see in the economy – greater employment, an improving housing market, low energy prices, more accommodative lending, supportive demographic trends – will be enough to offset the negatives to earnings, allowing earnings and stock prices to move higher. We think these positives will outweigh the negatives as we progress through the remainder of 2016.
    • We think that the ongoing positive but slow rate of growth in the economy will drive greater demand from investors for the stocks of clearly differentiated growth companies who can deliver superior earnings performance independent of any sluggishness in the overall economy. Our preference for high-quality growth companies with stable and sustainable earnings profiles and strong balance sheets should serve our investors well if the economy struggles to regain a faster growth rate in the latter half of 2016.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through June 30, 2016. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is not a guarantee of future results.

    The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It is not possible to invest directly in an index.

    Top 10 holdings (%) as of 06/30/2016: Fastenal Co. 3.6, Intuitive Surgical, Inc. 3.0, Zoetis, Inc. 3.0, CoStar Group 2.8, Mead Johnson Nutrition 2.6, Electronic Arts, Inc. 2.5, Microchip Technology, Inc. 2.5, CME Group 2.5, Northern Trust Corp. 2.3 and Tractor Supply Co. 2.1.

    Risk factors. The value of he Fund’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established companies. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

    IVY INVESTMENTSSM refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

    Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.

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