Quarterly Fund Commentary

Ivy Value Fund (prospectus)
June 30, 2010

Manager(s):
Matthew T. Norris, CFA

Market Sector Update
The U.S. market suffered a pullback during the second quarter of 2010 as fears emerged that the economic recovery was stalling. Other macro events also weighed on investors minds, such as excessive government debt in Greece and the oil spill in the Gulf of Mexico. Every major market sector was down for the quarter. Consumer-facing business and areas of financials were the hardest hit, which is consistent with fears of a weak economic rebound, especially for consumers. Areas that held up relatively better had one of two characteristics: either they offered very high dividend yields, or they were in non-economically-sensitive sectors such as utilities or consumer staples.

Portfolio Strategy
Saving capital during market downdrafts is an essential component to growing capital over time. The Fund did well because of individual stock selections. Our approach to buying stocks that we feel trade at a significant discount to the actual company's value is designed to offer protection in down markets. The Fund continues to benefit from its exposure to master limited partnerships. These are companies operating in the energy sector, typically processing natural gas and delivering it via pipeline to the end user. They offer consistent earnings with slow but steady growth and high dividend yields. Two current holdings, in particular, were up 9 and 12 percent, excellent returns in a period when the value market struggled. Weaker areas were the Fund's exposure to retail, media and other consumer-facing cyclicals. These stocks had done well as the economy recovered in late 2009, but pulled back as worries spread of softer times. The Fund continues to hold names we believe are undervalued. There were no significant changes to the Fund during the quarter other than our usual activity of adding new names we feel are undervalued and selling those which have reached our price targets. There are no changes in the management philosophy of the Fund. We continue to search diligently, one company at a time, for names that we think offer good value investment opportunities. We continue to believe this is the best way to achieve strong, consistent returns over a full market cycle.

Outlook
We feel the Federal Reserve has done all it can to stimulate the economy. Interest rates are extremely low, and various government policies have been implemented to encourage economic growth. While gross domestic product (GDP) is now positive and the economy seems stable, it is still sluggish. New job creation must come from corporate America, not the government. The Federal Reserve will raise rates when economic growth becomes strong enough to create inflation, something which doesn't seem likely in the near term. As such, we feel the market will grind higher, providing positive but not spectacular returns to investors, until such time as the economic recovery is on more solid footing.