Market Sector Update

• With the prospect of somewhat sounding like a broken record, we would reiterate most of the same comments we made in our first quarter’s commentary.
• 2017 has started off nicely as economic data and earnings growth has shown acceleration that should carry into the back half of the year and help markets grind higher.
• A number of surveys such as consumer confidence continue to flash positively, in some cases at record highs; this hopefully will translate into further economic activity.
• While the political landscape has become rockier than we would have liked, it is still pretty early into the new administration. As always it is important not to let personal politics leach into the investment process; it is imperative to stick to the facts and the numbers, which we remain committed to.
• While it is true that the failure to repeal and replace the Affordable Care Act presents greater challenges for future policy ahead (the first that comes to mind is tax reform), we are hopeful that this obstacle can be overcome. This is something we continue to monitor as it will heavily influence whether recent economic and market strength will be able to be sustained into 2018.

Portfolio Strategy

• The Fund slightly underperformed the Russell 2000 Index (its benchmark) in the second quarter, but still remains ahead of the index year to date, before the effects of sales charges.
• Stock selection was not the primary driver of performance in the quarter, which is somewhat out of character for the Fund. While stock selection was a positive contributor, sector allocation was not, which led to the overall underperformance. This was predominantly driven by overweight positions in energy and materials, which coincidently happened to be two of the worst performing groups in the second quarter, but was also driven by a number of other sectors that modestly underperformed.
• Many of the same trends in the first quarter continued in the second as health care and technology remained the biggest leadership groups, and consumer staples and energy remained the laggards (with energy once again being a dramatic underperformer).
• While stock selection in the quarter was a positive contributor to performance, it was a more modest contributor than it might have been if it weren’t for several meaningful disappointments in the period. Both AMC Entertainment (1.5% of net assets) and Laredo Petroleum (3.7% of net assets) were over 100 basis point drags on performance. Fortunately, the Fund had some strong performers, which more than offset these poor ones.
• In terms of individual stock performance during the quarter, we had three holdings that contributed greater than 50 basis points and five that contributed greater than 25 basis points.
• From a negative performance aspect, we had three holdings that detracted greater than 50 basis points and three that detracted by greater than 25 basis points. In total, these contributors and detractors netted to a positive contribution to performance attribution of roughly 50 basis points.

Outlook

• Heading into third quarter, we continue to be hopeful that the Trump administration will deliver on its promises, which should spur an additional leg of economic growth, but fully recognize that political promises often fall short.
• We also believe that 2017 could see some additional volatility as investors continue to get comfortable with a very unconventional/outsider in the White House, who has proven to be somewhat unpredictable. Admittedly we continue to be somewhat surprised by the lack of volatility that has been exhibited year to date.
• Regardless of how the market finishes in 2017, we remain committed to the Fund’s process of identifying quality underappreciated companies, and believe we have good balance in the portfolios construction that should stand to perform well versus our peers and benchmark regardless of the environment over time.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through June 30, 2017, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Prior to March 3, 2017, the Ivy Small Cap Core Fund was known as the Ivy Small Cap Value Fund and its benchmark was the Russell 2000 Value Index. The Fund’s benchmark is now the Russell 2000 Index. These changes were made to more closely align with the Fund’s investment objectives.

The Russell 2000 Index is an index measuring the performance approximately 2,000 small-cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. The Russell 2000 Value 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.

Class R6 shares were renamed Class N on March 3, 2017. Class T shares were added to the Fund on July 5, 2017.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in small-cap growth and value stocks may carry more risk than investing in stocks of larger, more well-established companies. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. Value stocks are stocks of companies that may have experienced adverse developments or may be subject to special risks that have caused the stocks to be out of favor and, in the opinion of the Fund’s manager, undervalued. Such security may never reach what the manager believes to be its full value, or such security’s value may decrease. The Fund typically holds a limited number of stocks (generally 40 to 60). As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s net asset value than it would if the Fund invested in a larger number of securities. 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.