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    Quarterly Fund Commentary


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


    Manager(s):
    Timothy J. Miller, CFA

    Market Sector Update

    • Small-cap growth stocks, as measured by the Russell 2000 Growth Index (the Fund’s benchmark), started 2016 in a bit of a freefall following the mid-December Federal Reserve interest rate hike in the face of global economic weakness, plunging oil and commodity prices, and rising credit spreads. The correction hit bottom on February 11, and a subsequent rally in crude prices helped calm some of the recession fears, along with the steady improvement in the domestic job market. The ensuing rally carried through 2Q2016 resulting in positive returns for the threemonth period.
    • Small caps outperformed both mid and large caps for the period. Small-cap value outperformed small-cap growth.
    • Within the index, utilities, telecommunications and consumer staples were the leading sectors reflecting the declining interest rate environment and characteristic of a “defensive” rally.

    Portfolio Strategy

    • The Fund outperformed the benchmark, before the effects of sales charges, for the period ended June 30, 2016 and is performing well year-to-date.
    • Health care, technology and energy were the largest contributors to the outperformance. Strong stock selection in health care contributed all of that sector’s gain, led by LDR Holding Corp. (takeover), AMN Healthcare Services, Nevro Corp. and DexCom, Inc. With two positions taken over during 2Q, we are looking for additional ideas in the health care sector, which should be resilient in a low interest rate, slow economic growth environment.
    • Technology was more of a mixed bag in 2Q, but the gains from our larger positions in software and services more than offset a few corrections in the defense technology and communications equipment names. Small-cap technology remains a very attractive sector in the market and the Fund is positioned with an overweight.
    • Energy was a major winner in 2Q, and the Fund gained from both an overweight position and successful stock selection. The “big 3” Permian names for the Fund all contributed, and initial positions in a couple of oil service companies also contributed.
    • The primary drag on performance came from banks and capital market stocks. With no end in sight for low global interest rates leaning on our yield curve, the Fund “threw in the towel” on a couple of bank positions and was gifted by a takeout of another, so the bank overweight in the portfolio has been significantly reduced.

    Outlook

    • The ebb and flow of “risk-on, risk-off” market sentiment makes the Fund’s topdown investment strategy difficult, hence the continued emphasis on stock picking.
    • We are focusing on the higher quality, sustainable growth stories in areas such as software, services and medical technology and services. We are also interested in domestic consumer and industrial growth companies that are benefiting from low interest rates, low gas prices and a strong job market.

    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 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

    The Fund invests in derivative instruments, primarily total return swaps, futures on domestic equity indexes and options, both written and purchased, in an attempt to increase exposure to various equity sectors and markets or to hedge market risk on individual equity securities.

    Such investments involve additional risks, as the fluctuations in the values of the derivatives may not correlate perfectly with the overall securities markets or with the underlying asset from which the derivative’s value is derived.

    Top 10 holdings (%) as of 06/30/2016: Ultimate Software Group 4.1, Vail Resorts 3.7, AMN Healthcare Services 3.5, Watsco, Inc. 3.0, Pool Corp. 2.3, SVB Financial Corp. 2.3, Jack Henry & Associates .2, Manhattan Assoc. 2.2, Dave & Buster’s Entertainment 2.2, and Booz Allen Hamilton Holding Corp. 2.2.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap 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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