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    Quarterly Fund Commentary

    Delaware Ivy Large Cap Growth Fund (prospectus)
    December 31, 2016

    Bradley M. Klapmeyer, CFA
    Brad Angermeier, CFA

    Market Sector Update

    • During 4Q2016 global capital markets once again experienced a sudden volatility shock, similar to that experienced earlier in 2016. The latest shock, unlike prior shocks, ignited a stock market rally that very few saw coming. For the past eight years, the global economy has gradually healed from the lingering effects of the 2008 recession, as slow and uneven growth became pervasive throughout the world.
    • The stagnating growth catalyzed aggressive global Central Bank policy coordination in an attempt to jump- start growth. Economic participants whether they be companies, investors, savers or politicians, gradually accepted that structural stagnation had no end in sight.
    • The U.S. Presidential election has drastically altered the view of long-term economic stagnation. The market rally greatly favored value over growth stocks, small stocks over large stocks, and domestic company stocks over multinational company stocks. Cyclical areas performed better than defensive sectors, while financially leveraged companies performed better than those with great balance sheets.

    Portfolio Strategy

    • In a positive market environment, the Fund meaningfully underperformed the Russell 1000 Growth Index, its benchmark for the period ended Dec. 31, 2016. The quarter also ended one of the worst periods on record for active management, most notably in the growth sectors of the market. Interest rates rose dramatically in a very short period of time creating large losses in fixed-income portfolios for the first time in many quarters.
    • Fund performance was enhanced by positions in financials and energy, but successes in these areas could not overwhelm large negative performance in technology and health care. Notable winners over the period included CME Group, Goldman Sachs and Charles Schwab, while detractors included companies such as Allergan, Shire, and Edwards Lifesciences.
    • Our large underweight in areas characterized by stability, such as REITs, consumer staples and telecom industries had no meaningful impact on our performance, which was disappointing during the quarter as we would have expected our underexposure to these areas to have generated much more positive performance after the election.
    • Within the Fund, our positions in the financial sector have been increased, positions in defensive areas have been further reduced, and we are becoming hopeful that the anomalous valuations in the bond proxies are on the verge of correcting. As we look across the economy, it appears that the U.S. was accelerating before the election, and growth should further increase in 2017. Business optimism, labor markets, global manufacturing indices, domestic auto sales and energy prices are now all moving in a positive direction.


    • As we look forward to a better economy, we have to be realistic to the extent that the current environment in the short term may not be ideal for growth stocks, as other areas may have more leverage to better U.S. economic growth. We are currently in a market that favors a value style box but given the rally already experienced in other areas we believe we could see growth stocks participate in the rally into 2017.
    • Unfortunately, there remains a wide range of outcomes associated with future government policies as they have yet to be defined or vetted. As such, if there is a policy delay or fumble, it is likely that the risk appetite in the market would reverse and valuations would come under pressure across styles and we might experience another short-term market shock, similar to those we have endured over the past several years.
    • *Top 10 holdings (%) as of 12/31/2016: Goldman Sachs Group, Inc. 4.4, Microsoft Corp. 4.4, Lam Research Corp. 4.4, MasterCard, Inc. 4.4, Home Depot, Inc. 4.0, Celgene Corp. 3.9, Facebook, Inc. 3.4, Microchip Technology 3.4, EOG Resources, Inc. 3.3 and Alphabet Inc. 3.3.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 2016. The managers' 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 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. 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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