Quarterly Fund Commentary

Ivy Mid Cap Growth Fund (prospectus)
June 30, 2010

Manager(s):
Kimberly A. Scott, CFA

Market Sector Update
Following solid performance in the first quarter and early in the second quarter, U.S. equities changed course abruptly, declining significantly in May and plummeting in June. The period included two robust rallies and two pronounced sell-offs. U.S. mid-cap growth equities declined sharply percent during the quarter. Among the largest factors impacting market performance were intensifying concerns that Europe would lead the world into the second global recession in three years or at least spur a double-dip recession, and anxiety about slowing economic growth in many foreign economies. The U.S. economy also remains a top concern for investors as recovery slowed perceptibly during the first half of the year, especially in the second quarter. The U.S. unemployment rate currently hovers near 10 percent, and the beleaguered housing sector continues to struggle, particularly after government stimulus ended in the second quarter. Another major event impacting the market was the April 21 oil rig explosion and subsequent massive oil spill in the Gulf of Mexico, which continues to generate ominous headlines on a daily basis. These and other factors collectively have weighed on investor confidence. As one would expect in such an environment, and with little on the horizon generating hope, investors have experienced a crisis in confidence, remaining largely on the sidelines and waiting for direction.

Portfolio Strategy
The Fund continues to be economically sensitive, with significant overweight exposure to the industrials, consumer discretionary and financials sectors, which benefited from healthy economic fundamentals despite the slowdown in economic growth that characterized the second quarter. The greatest contribution to relative performance was delivered by the Fund's underweight exposure to utilities and energy, both of which weighed on the index. The most significant changes to the Fund's holdings during the quarter were reducing exposure to consumer discretionary stocks and increased exposure to information technology, financials and health care stocks.

Outlook
While we recognize that the U.S. economic recovery has slowed in recent months, we are optimistic going forward. The market's current volatility is providing us with opportunities to invest in names in which we have high conviction in their near- and long-term outlooks. We continue to see opportunities in mid-cap equities, particularly those with exposure to the back end of the economy, such as industrials, energy and materials sectors. We firmly believe that economic health is being restored worldwide and that there's global transitioning from government-stimulus-led recoveries to self-sustaining growth. Against this backdrop, we will concentrate less on sector calls and more on stock-specific investments.