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    Quarterly Fund Commentary


    Delaware Ivy Science and Technology Fund (prospectus)
    December 31, 2016


    Manager(s):
    Zachary H. Shafran
    Brad Warden
    Gus C. Zinn, CFA

    Market Sector Update

    • Donald Trump’s Presidential election victory created significant intra-quarter volatility. The initial negative market reaction was replaced by optimism that new fiscal policies, including more business-friendly tax policies, would bolster economic activity. We believe this optimism will lead to higher levels of economic growth across the globe, especially in domestic markets, in 2017.
    • Health care stocks rallied as concern over drug pricing pressure abated with the assumption that Trump’s administration would be more health care friendly, especially with the likely immediate repeal of Obamacare. Unfortunately, that rally was cut short as Trump began tweeting about drug price negotiations. We expect the new President’s propensity to tweet will drive more day-to-day volatility in various sectors, but the ultimate policy changes will be relatively benign.
    • The markets now expect up to three more interest rate increases in calendar year 2017. As history has shown, the U.S. Federal Reserve (Fed) will adapt to the incoming data, but with job growth and underlying confidence increasing, we expect these rate increases will occur.
    • The U.S. dollar strengthened through the quarter, as Trump spoke more about trade policy and taking a tougher stance on China.

    Portfolio Strategy

    • The Fund outperformed its benchmark (before the effects of sales charges) primarily due to strong stock selection in the information technology and consumer discretionary sectors. Sector allocation was a negative contributor as the Fund’s exposure to health care, a sector not included in the benchmark, drove virtually all of the relative underperformance. Within health care, allocations to biotechnology benefitted performance, while pharmaceuticals and health care technology detracted.
    • Despite the drag to performance stemming from the Fund’s allocation to health care, allocations to consumer discretionary, telecommunication services and materials posted relative gains over the quarter. Within in consumer discretionary, allocations to internet and direct marketing retail as well as household durables posted large relative gains.
    • Top individual contributors to performance included Microsemi Corp., Micron Technology Inc. and Ionis Pharmaceuticals.
    • At quarter end, the Fund had approximately 84% of assets in U.S. equities, 13% of assets in international stocks and the residual in cash.

    Outlook

    • We believe the Fund is positioned to perform well as we move through 2017. The health care portion of the portfolio accounted for virtually all of the underperformance in 2016, and we believe the sector is now poised to outperform. The sector seems ripe with much lower valuations and renewed growth opportunities, setting up for a potential powerful rally.
    • Semiconductors were a solid contributor during the quarter and the continued consolidation in that market, along with underlying economic growth, should drive earnings upside and stock outperformance again in 2017. Additionally, our exposure to key trends like data analytics, payments electronification and the technology revolution in automobiles, should provide significant opportunities in the next several quarters. We continue to add opportunistically to both existing and new positions, as we believe 2016 allowed for attractive entry points in stocks that were unduly punished.
    • We believe that underlying business confidence will drive higher levels of spending and hiring in 2017. These trends will accelerate capital spending and drive earnings for companies across our portfolio, which may lead to stock outperformance. We believe the Fund is well positioned for these trends, as companies levered to technology and innovation normally see the earliest acceleration in spending.

    The opinions expressed in this commentary are those of the Fund’s managers and are current through Dec. 31, 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.

    Effective Oct. 1, 2016, Brad Warden was named a portfolio manager to the Ivy Science and Technology Fund.

    Top 10 Equity Holdings as a percent of net assets as of 12/31/2016: Micron Technology, Inc. 6.1%, Microsemi Corp. 5.5%, Alliance Data Systems Corp. 5.0%, Microsoft Corp. 4.9%, Euronet Worldwide Inc. 4.1%, Ionis Pharmaceuticals, Inc. 4.0%, WNS (Holdings) Ltd. ADR 4.0%, Aspen Technology, Inc. 3.8%, ACI Worldwide, Inc. 3.8% and Facebook Inc., Class A 3.5%.

    Risk factors. The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund invests more than 25% of its total assets in the science and technology industry, the Fund’s performance may be more susceptible to a single economic, regulatory or technological occurrence than a fund that does not concentrate its investments in this industry. Securities of companies within specific industries or sectors of the economy may periodically perform differently than the overall market. In addition, the Fund’s performance may be more volatile than an investment in a portfolio of broad market securities and may underperform the market as a whole, due to the relatively limited number of issuers of science and technology related securities. Investment risks associated with investing in science and technology securities, in addition to other risks, include: operating in rapidly changing fields, abrupt or erratic market movements, limited product lines, markets or financial resources, management that is dependent on a limited number of people, short product cycles, aggressive pricing of products and services, new market entrants and obsolescence of existing technology. These and other risks are more fully described in the fund's prospectus.

    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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