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    Quarterly Fund Commentary

    Delaware Ivy Balanced Fund (prospectus)
    December 31, 2016

    Aaron D. Young
    Stefan Löwenthal, CFA
    Jürgen Wurzer, CFA

    Market Sector Update

    • Equity and fixed-income markets took divergent paths during 4Q2016. During the quarter, the S&P 500 Index (Fund’s equity benchmark) rose, led by the financials, energy and industrials sectors. Offsetting this strength were the health care and REIT sectors and modest weakness from the consumer staples sector.
    • The 10 year Treasury yield rose over the course of the quarter as the Federal Reserve (Fed) increased the Federal Funds Rate in December and reiterated its intention for further rate increases in 2017 if economic data met expectations. The Bloomberg Barclays US Government/Credit Index (Fund’s fixedincome benchmark) declined during the quarter largely due to the impact of rising Treasury yields.
    • *Top 10 holdings (%) as of 12/31/2016: Carnival Corp. 2.2, JPMorgan Chase & Co. 2.0, Apple, Inc. 1.9, Shire Pharmaceuticals Group 1.8, Applied Materials, Inc. 1.8, Johnson & Johnson 1.7, Comcast Corp. 1.7, PNC Financial Services Group, Inc. 1.6, Intercontinental Exchange, Inc. 1.5 and Johnson Controls, Inc. 1.5.

    Portfolio Strategy

    • The Fund generated a modest decline in value for 4Q2016, which trailed peers in the Lipper Mixed-Asset Target Allocation Growth Funds category.
    • The equity portfolio underperformed its benchmark and was the primary driver of the Fund’s overall underperformance. Financials, industrials and energy were the primary drivers of the Fund’s performance during the quarter. In addition, relative performance benefited from strong stock selection in the technology sector. JP Morgan, PNC Financial, Harris Corp, Cognizant, Applied Materials and Chevron exhibited strong returns.
    • Offsetting this strength was an underweight of the financials sector coupled with poor stock selection in the consumer staples and health care sectors. Positions in Teva Pharmaceutical, Shire Pharmaceuticals, Medtronic, Anheuser-Busch Inbev, Mead Johnson Nutrition and Allergan were notable detractors. Over 4Q2016, sector weights were modestly adjusted with a decrease in technology and increases in financials and industrials. In particular, the Fund’s positions in Broadcom and Microchip Technology, significant contributors to historical performance were sold.
    • The fixed-income portfolio declined on an absolute basis but outperformed the benchmark. Our relative overweight of corporate credit and short duration position helped performance in the quarter as interest rates rose meaningfully. The yield curve steepened slightly during the period as the Fed signaled a steady path of interest rate increases over the next 12 months and expectations for future economic growth and inflation rose.
    • Credit spreads narrowed in both the Investment Grade and High Yield debt markets, continuing their recovery from a dramatic widening that climaxed in February. The Fund continues to be short duration with an emphasis in high grade bonds as we look to minimize both credit and duration risk.


    • As we look ahead to 2017, the optimism of the past several months is enticing and persuasive in many respects. We think individual and corporate tax reform is a meaningful positive for the domestic economy which, along with less regulatory oversight and a generally more businessfriendly political climate, should be supportive for the growth outlook. However, the uncertainties, which at present are not an area of emphasis for asset markets, are significant.
    • In addition, benefits associated with many of the proposed political changes are more likely to be recognized in 2018, which leads us to believe that volatility is likely to remain elevated in the near term. We believe global growth should improve modestly as clarity around fiscal and monetary policy progresses; balance sheets (corporate and consumer) strengthen and confidence readings translate into higher spending; and the lagged effect of historical stimulus continues to provide a persistent tailwind to growth.
    • We are closely watching inflation rates and inflation expectations, which have been modest and must remain so in order to allow global central banks to provide support to their local economies as needed. As the domestic economy gradually improves, we expect the Fed to raise interest rates at a very modest pace.
    • While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding highquality, growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative outperformance over the next 12 months. This approach has served investors well over time, and our confidence in it has not waned.

    The opinions expressed in this commentary are those of the Fund’s manager 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.

    The S&P 500 Index is composed of 500 selected common stocks chosen for market size, liquidity, and industry grouping, among other factors. The Barclays U.S. Gov’t/Credit Index measures the performance of U.S. dollar-denominated United States Treasuries, government-related, and investment-grade U.S. corporate securities that have a remaining maturity of greater than or equal to one year. In addition, the securities have $250 million or more of outstanding face value and are fixed-rate and non-convertible securities. 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. 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. Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. The lower-rated securities in which the Fund may invest may carry greater risk of nonpayment of interest or principal then higher-rated bonds. In addition to the risks typically associated with fixed-income securities, loan participations in which the Fund may invest carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loan participations may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. The Fund’s emphasis on dividend-paying stocks involves the risk that such stocks may fall out of favor with investors and underperform non-dividend paying stocks and the market as a whole over any period of time. In addition, there is no guarantee that the companies in which the Fund invests will declare dividends in the future or that dividends, if declared, will remain at current levels or increase over time. The amount of any dividend the company may pay may fluctuate significantly. In addition, the value of dividend-paying common stocks can decline when interest rates rise as fixed-income investments become more attractive to investors. This risk may be greater due to the current period of historically low interest rates. The Fund typically holds a limited number of stocks (generally 50 to 65). As a result, the appreciation or depreciation of any one security held by the Fund will have a greater impact on the Fund’s net asset value than it would if the Fund invested in a large number of securities. The value of a security believed by the Fund’s manager to be undervalued may never reach what the manager believes to be its full value, or such security’s value may decrease. Not all funds or fund classes may be offered at all broker/dealers. 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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