Ivy Small Cap Core Fund

Market Sector Update

  • The Russell 2000 Index, the Fund’s benchmark, gained 2% for the second quarter and has advanced 17% year to
    date. While we are pleased with this performance, it is important to remember it has yet to fill the hole created by the
    sharp draw down (approximately 20%) in the fourth quarter of 2018. This leaves the Russell 2000 Index down just
    under 7% over the past nine months, and about 10% from its all-time high at the end of August last year.
  • During the last nine months, utilities was the best sector, and led the benchmark by a wide margin, (approximately
    20%), the 10-Year Treasury rate has declined by over 125 basis points (bps), and small caps have greatly
    underperformed large caps. None of these points would indicate as strong of a bull market as some recent headlines
    or market commentators would suggest. Considering we are more than 10 years into the current expansion and global
    growth has shown signs of waning for several quarters, we are not terribly surprised as greater volatility is often the
    case at the end of economic cycles, and would expect more volatility to come.
  • The continuation of the market recovery in the second quarter was predominantly about global central banks –
    including the U.S. Federal Reserve (Fed) – maintaining a more dovish stance, thereby improving liquidity. Futures are
    now pricing in certainty that the Fed cuts in July.
  • While nothing terribly concrete has yet to present itself, there is growing market belief that the U.S. and Chinese
    trade controversy will not see further escalation and some type of agreement can be reached. The big question going
    forward is whether it is possible to get a favorable trade agreement and sustain the Fed’s dovish stance, and if not,
    how will the market react. We believe this provides a fair bit of risk as delivering on both sets of expectations seems
    difficult to achieve.
  • Due to the Fed’s dovish stance and hopes of a trade agreement, market leadership over the first half of 2019 has
    been an interesting mix between growth, rate sensitive/defensive and in some periods, cyclicals. This held true in the
    second quarter. In the case of growth, information technology names were strong as the perception that growth has
    become scarcer increased. Rate sensitive/defensive companies with greater dividend yields, such as utilities and real
    estate, saw a lift in multiples as bond-alternative yields declined. Cyclicals, like industrials and financials, performed
    well under the belief that an accommodative Fed and a trade agreement could lead to a soft landing and increased
    prospects of growth reaccelerating
  • Looking ahead, we believe the debate whether this is just a late cycle pullback or a something much more significant,
    such as a recession, will continue to rage. Given this substantial move in the first half of the year, we believe it is harder
    to expect tremendous appreciation during the remainder of 2019. While we do not believe a recession is imminent, we
    also recognize turbulence is likely to continue for some time as the market struggles to find an answer.

Portfolio Strategy

  • The Fund posted a positive return for the quarter and outperformed its benchmark before the effect of sales charges.
  • Across the 11 sectors in our benchmark, we had positive performance attribution in seven, with information
    technology, communication services and health care performing the best. Four sectors had negative attribution;
    largest detractors were financials, followed by industrials and utilities.
  • Across our top 20 average holdings, 13 contributed positive performance relative to the benchmark, contributing
    nearly 200 bps to attribution.
  • In terms of individual stock performance during the quarter, 10 holdings contributed to performance attribution
    greater than 25 bps, and one greater than 50 bps. From a negative performance perspective, five holdings detracted
    greater than 25 bps, with one holding detracting greater than 50 bps. The net of these larger contributors and
    detractors was roughly a gain of 235 bps.
  • Due to the strong start in the first half of 2019, we have a more tempered view on market returns going forward.
    Therefore, we have maintained a slightly more defensive posture in both sector allocation and the types of stocks held
    in the portfolio. That stated, we remain opportunistic as we look to take advantage of drawdowns created by volatility.

Outlook

  • Looking toward the remainder of 2019, we remain resolute with our view at the end of the first quarter: we wouldn’t
    be terribly surprised to see the market finish in close proximity to where it ended the first quarter but cover a lot of
    territory in the process. We welcome being wrong in our assessment and feel like the portfolio could perform under
    either scenario, but also believe that having reasonable expectations is warranted after experiencing a bull market that
    is greater than a decade long.
  • The choppiness of the market during the past six months, while probably a little extreme, is more likely to resemble
    what lies ahead than the lack of volatility that has been experienced over the past several years. Aside from being
    more typical at end of cycles, continued debate about global growth and lack of clarity around a trade resolution, both
    of which are likely to extend through at least the latter part of 2019, are likely to keep volatility elevated.
  • Regardless of how the market performs in 2019, we remain committed to the Fund’s process of identifying quality
    underappreciated companies, and believe the construction of the portfolio is well balanced so as 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, 2019, 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.

    All information is based on Class I shares.

    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. 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. 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.

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Ivy Value Fund

Market Sector Update

  • 2019 started with a sharp “hockey stick” recovery in the equity markets. Throughout the second quarter, market jitters
    reemerged as mixed signals from the economy caused the Federal Reserve (Fed) to press its dovish tilt. Just six
    months ago, the market expected three interest rate hikes this year. Now, the market is anticipating the Fed will
    actually cut rates twice before year-end, as growth both inside and outside the U.S. has slowed.
  • The Institute for Supply Management (ISM) Purchasing Managers Index has gone from over 60 in the summer of 2018
    to 51.7 in July 2019. While anything above 50 is expansionary, the slowdown is apparent. Extreme weather trends have
    made noise in the numbers, but the uncertainty caused by trade wars and tariffs have started to reveal a noticeable
    impact.

Portfolio Strategy

  • The Fund posted a positive return, slightly underperforming the Russell 1000 Value Index (Fund’s benchmark) during
    the quarter. Some good stock picks in Qualcomm, Metlife and Citigroup were hampered by the weak performance of
    a few other names.
  • State Street, the worst performer in the quarter, became inexpensive in mid-2018 when investors reacted negatively
    to the company’s announced purchase of Charles River Development (maker of investment management software).
    While we believe the purchase of Charles River has a good chance of eventually adding value, the pressure in the base
    business continued at an unacceptable pace. We saw no near-term solution and thus sold the position during the
    quarter.
  • Qualcomm, the best performer in the quarter, is a developer of digital telecommunication products that enable cellular
    communications. This stock was purchased in the second half of 2018 while the company was embroiled in a lawsuit
    with Apple over cellphone chip sales. The companies reached an agreement on future business in mid-April and the
    stock quickly soared over 50%. We sold our position in early May as the stock became fully valued.
  • The worst-performing sectors were industrials, consumer discretionary and financials. Industrials performance was
    weighed down by our holdings in Spirit AeroSystems, where the Boeing 737 Max issues put pressure on exposed
    aerospace suppliers. While the Boeing concerns are ongoing, we still view Spirit as a high-quality supplier and think
    the issues should be resolved in the next few quarters.
  • The best-performing sectors overall were information technology, energy and real estate. The Fund was equal weight
    energy versus the benchmark. Energy Transfer Partners, Valero and Phillips 66 were our largest holdings in the sector.
    While we continue to believe these names are the best way to be positioned within the energy sector, sometimes
    performance comes from avoiding pitfalls. Not owning Exxon and Occidental, which underperformed in the quarter,
    added to the sector’s return relative to the benchmark.
  • Our strategy does not attempt to make sector calls, rather focusing primarily on stock selection. We overweight or
    underweight sectors based on individual stock opportunity, with some limits to control risk or volatility. The Fund is
    overweight financials and consumer discretionary, where we find value and yield. In these areas, we have been able
    to find what we believe are good companies with repeatable business models generating high rates of free cash flow,
    and low stock prices relative to our estimation of each company’s true intrinsic value. The Fund is underweight utilities
    and health care, due to lack of compelling ideas.

Outlook

  • The U.S. economy has enjoyed a long successful run from the end of the 2008 recession. There was an additional
    boost with the tax cut in early 2018. Recent economic data supports the idea of a slowing economy but does not yet
    support the concept of a recession. The ISM Purchasing Managers Index is one data point we are watching closely.
    The trends have slowed but are still indicating economic expansion. The Fed is in a difficult spot, now faced with the
    prospect of cutting interest rates to keep the economic expansion going.
  • While the economic forces listed above are clearly important factors, our first approach is from the company level.
    We seek to find quality, growing companies whose stocks are trading below what we consider their intrinsic values.
    This is often due to short-term negative factors, and we become larger owners of a company if we feel those negatives
    are about to dissipate. We continue to search for and make investments one company at a time to seek to benefit
    clients over the long run.

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, 2019, 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.

Top 10 holdings (%) as of 06/30/2019: Walmart Stores, Inc. 4.6, Citigroup, Inc. 4.5, Bank of America Corp. 4.4, Comcast Corp. 4.4, Pfizer, Inc. 4.3, Broadcom Corp. 3.8, Phillips 66 3.6, Philip Morris International, Inc. 3.3,
MetLife, Inc. 3.1 and Valero Energy Corp. 3.1.
The Russell 1000 Value Index is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. It is not possible to invest directly in an index.
All information is based on Class I shares.

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. 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. Investing in companies in anticipation of a catalyst carries the risk that certain of such catalysts may not happen or the market may react differently than expected to such catalysts, in which case
the Fund may experience losses. The securities of many companies may have significant exposure to foreign markets as a result of the company’s operations, products or services in those foreign markets. As a
result, a company’s domicile and/or the markets in which the company’s securities trade may not be fully reflective of its sources of revenue. Such securities would be subject to some of the same risks as an
investment in foreign securities, including the risk that political and economic events unique to a country or region will adversely affect those markets in which the company’s products or services are sold. 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.

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Ivy VIP Small Cap Core

Market Sector Update

  • The Russell 2000 Index, the Portfolio’s benchmark, gained 2% for the second quarter and has advanced 17% year to date. While we are pleased with this performance, it is important to remember it has yet to fill the hole created by the sharp draw down (approximately 20%) in the fourth quarter of 2018. This leaves the Russell 2000 Index down just under 7% over the past nine months, and about 10% from its all-time high at the end of August last year.
  • During the last nine months, utilities was the best sector, and led the benchmark by a wide margin, (approximately 20%), the 10-Year Treasury rate has declined by over 125 basis points (bps), and small caps have greatly underperformed large caps. None of these points would indicate as strong of a bull market as some recent headlines or market commentators would suggest. Considering we are more than 10 years into the current expansion and global growth has shown signs of waning for several quarters, we are not terribly surprised as greater volatility is often the case at the end of economic cycles, and would expect more volatility to come.
  • The continuation of the market recovery in the second quarter was predominantly about global central banks – including the U.S. Federal Reserve (Fed) – maintaining a more dovish stance, thereby improving liquidity. Futures are now pricing in certainty that the Fed cuts in July.
  • While nothing terribly concrete has yet to present itself, there is growing market belief that the U.S. and Chinese trade controversy will not see further escalation and some type of agreement can be reached. The big question going forward is whether it is possible to get a favorable trade agreement and sustain the Fed’s dovish stance, and if not, how will the market react. We believe this provides a fair bit of risk as delivering on both sets of expectations seems difficult to achieve.
  • Due to the Fed’s dovish stance and hopes of a trade agreement, market leadership over the first half of 2019 has been an interesting mix between growth, rate sensitive/defensive and in some periods, cyclicals. This held true in the second quarter. In the case of growth, information technology names were strong as the perception that growth has become scarcer increased. Rate sensitive/defensive companies with greater dividend yields, such as utilities and real estate, saw a lift in multiples as bond-alternative yields declined. Cyclicals, like industrials and financials, performed well under the belief that an accommodative Fed and a trade agreement could lead to a soft landing and increased prospects of growth reaccelerating.
  • Looking ahead, we believe the debate whether this is just a late cycle pullback or a something much more significant, such as a recession, will continue to rage. Given this substantial move in the first half of the year, we believe it is harder to expect tremendous appreciation during the remainder of 2019. While we don’t believe a recession is imminent, we also recognize that turbulence is likely to continue for some time as the market struggles to find an answer.

Portfolio Strategy

  • The Portfolio posted a positive return for the quarter and outperformed its benchmark before the effect of sales charges.
  • Across the 11 sectors in our benchmark, we had positive performance attribution in seven, with information technology, communication services and health care performing the best. Four sectors had negative attribution; largest detractors were financials, followed by industrials and utilities.
  • Across our top 20 average holdings, 13 contributed positive performance relative to the benchmark, contributing nearly 200 bps to attribution.
  • In terms of individual stock performance during the quarter, 10 holdings contributed to performance attribution greater than 25 bps, and one greater than 50 bps. From a negative performance perspective, five holdings detracted greater than 25 bps, with one holding detracting greater than 50 bps. The net of these larger contributors and detractors was roughly a gain of 235 bps.
  • Due to the strong start in the first half of 2019, we have a more tempered view on market returns going forward. Therefore, we have maintained a slightly more defensive posture in both sector allocation and the types of stocks held in the portfolio. That stated, we remain opportunistic as we look to take advantage of drawdowns created by volatility.

Outlook

  • Looking toward the remainder of 2019, we remain resolute with our view at the end of the first quarter: we wouldn’t be terribly surprised to see the market finish in close proximity to where it ended the first quarter but cover a lot of territory in the process. We welcome being wrong in our assessment and feel like the portfolio could perform under either scenario, but also believe that having reasonable expectations is warranted after experiencing a bull market that is greater than a decade long.
  • The choppiness of the market during the past nine months, while probably a little extreme, is more likely to resemble what lies ahead than the lack of volatility that has been experienced over the past several years. Aside from being more typical at end of cycles, continued debate about global growth and lack of clarity around a trade resolution, both of which are likely to extend through at least the latter part of 2019, are likely to keep volatility elevated.
  • Regardless of how the market performs in 2019, we remain committed to the Portfolio’s process of identifying quality underappreciated companies, and believe the construction of the portfolio is well balanced so as to perform well versus our peers and benchmark, regardless of the environment over time.

The opinions expressed are those of the Portfolio's managers 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, 2019, 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.

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. It is not possible to invest directly in an index.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not insured or guaranteed by the FDIC or any other government agency. 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 Portfolio'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 Portfolio 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 Portfolio may have a greater impact on the Portfolio's net asset value than it would if the Portfolio invested in a larger number of securities. These and other risks are more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

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Ivy Balanced Fund

Market Sector Update

  • Domestic markets continued to rally in the second quarter of 2019 despite a disappointing breakdown in trade negotiations between the U.S. and China which introduced some volatility intra-quarter.
  • The S&P 500 Index, the Fund’s equity benchmark, advanced 4% with financials, information technology, materials and consumer discretionary sectors leading the way. Ten of the 11 sectors posted a positive return for the quarter, with energy being the only sector with a negative return.
  • The macroeconomic data, as well as the expectations for U.S. Federal Reserve (Fed) easing, caused the 2-year yield to decline 51 basis points (bps) to 1.75% and the 10-year yield to decline 40 bps to 2%. The spread between the 10-year U.S. Treasury note and the 3-month U.S. Treasury bill, which last quarter turned negative for the first time since 2007, remains negative or inverted.Historically, an inverted yield curve has implied a forthcoming recession, but the time lag can be significant. Another yield curve measure, the spread between the 10-year U.S. Treasury Note and the 2-year U.S. Treasury Note steepened from 14 bps to 25 bps in the quarter, a small indicator that the Fed will rekindle growth expectations with rate cuts.
  • The Fund’s fixed income benchmark, the Bloomberg Barclays U.S. Government/Credit Index, increased 3.5% during the quarter, as the Treasury market rallied due to an expectation that the Fed would begin to reduce the federal funds rate. Options markets are currently pricing in a 100% probability of a 25 bps rate cut at the Fed’s July meeting and a 63% probability of another 25 bps of cuts through the remainder of 2019. In addition, investment Grade credit spreads tightened by four bps during the quarter and contributed modestly to the benchmark’s positive return.

Portfolio Strategy

  • The Fund had a positive return in the quarter that was slightly less than the return of its benchmark, but in-line with its Morningstar peer group average.
  • The Fund’s equity portfolio benefitted from an overweight position to the financials sector and strong stock selection in the information technology and financials sectors, which positively impacted relative performance.
  • With regard to the fixed income portion, the Fund’s relative underweight of corporate credit negatively impacted performance in the quarter as credit spreads tightened. The Fund’s duration now stands at approximately 93% of the benchmark.
  • Positions in Qualcomm, Blackstone, Disney, Microsoft and Autodesk exhibited particularly positive results. Partially offsetting this performance was a relative overweight of the energy sector and poor stock selection in the consumer discretionary, industrials and health care sectors with positions in Core Laboratories, Intel, Philip Morris, Lowes and Cimarex Energy being notable detractors.

Outlook

  • As we look ahead, global economic growth is very likely to decelerate over the next several months, but we expect it to remain positive. As we have previously highlighted, individual and corporate tax reform was a meaningful positive for the domestic economy which, along with lighter regulation and a generally more business-friendly political climate, was supportive for growth.
  • However, the uncertainties around political, monetary and trade policies have been stubbornly persistent and are likely to linger for most of this year. While we believe domestic economic growth will continue, the lagged effects of tighter monetary policy and waning benefits from fiscal stimulus will be a headwind.
  • As a result, we are closely watching inflation rates and inflation expectations which have been modest, and must remain so, in order to allow our central bank to respond to slower growth. We have been encouraged by the Fed’s recent shift toward an easing bias with cuts to the federal funds rate expected in the near future.
  • While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding high quality, 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 are those of the Fund’s managers 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, 2019, 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.

All information is based on Class I shares.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-cap U.S. equity market. The index includes 500 of the top companies in leading industries of the U.S. economy. It is not possible to invest directly in an index.

The Bloomberg Barclays U.S. Government/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.

Top 10 Equity Holdings as a % of net assets as of 06/30/2019: General Mills, Inc. 1.9, Microsoft Corp. 1.9, Union Pacific Corp. 1.9, Autodesk, Inc. 1.8, PPG Industries, Inc. 1.8, Zimmer Holdings, Inc. 1.8, Las Vegas Sands, Inc. 1.8, Qualcomm, Inc. 1.8, The Blackstone Group, 1.7, The Boeing Co. 1.6.

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 45 to 55). 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. 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.

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Ivy High Income Fund

Market Sector Update

  • High yield bonds posted positive gains in the second quarter by returning 2.57%, as measured by the ICE BofAML
    US High Yield Index. Year to date, the index has returned 10.16%. Meanwhile, leveraged loans underperformed high
    yield, returning 1.63% and 5.58% for the quarter and year to date, respectively.
  • The Federal Reserve (Fed), tariffs and the trade war between the U.S. and China continued to dominate the markets
    in the quarter. At the Fed’s June meeting, the interest rate forecast “dots” were lowered, indicating participants are
    looking for 50 basis point (bps) in cuts by the end of the year. This helped extend the equity and bond market rallies
    as a dovish Fed is seen as supportive of asset values. The U.S. and China agreed to continue talks after the G20
    Summit, which was viewed positively.
  • After seeing $14.1 billion of inflows in the first quarter, the high yield asset class recorded $600 million in outflows in
    the second quarter. Year to date, high yield mutual fund inflows are $12 billion compared with outflows totaling $24.5
    billion during the first six months last year.
  • Leveraged loans continued to experience outflows in the quarter with approximately $8.8B leaving the asset class
    mainly due to the Fed’s dovish pivot and high likelihood of a 25 bps rate cut at the end of July.
  • High yield new-issue volume in the second quarter was strong at $74.7 billion versus $65.4 billion last quarter. Yearto-
    date volume is up 11% over last year. Leveraged loan new-issue volume was $90.9 billion in the quarter versus $66.8
    billion in the first quarter. However, year-to-date gross loan issuance is down 38% relative to last year reflecting the
    negative sentiment and technicals in the loan market.

Portfolio Strategy

  • The Portfolio had a positive return, but underperformed the benchmark.
  • The Fund’s weighting in bonds versus loans did not change materially from quarter over quarter. Currently, the
    allocation breakdown is 71% bonds, 22% loans, 4% other and 3% cash. Our weighting by rating category is 16% BB, 50%
    B and 24% CCC, as measured by Standard & Poor’s ratings.
  • We have maintained our exposure to leveraged loans as they continue to offer attractive yields relative to their
    seniority in the capital structure. They also offer the potential for less volatility in times of stress, such as fourth quarter
    of 2018, when leveraged loans outperformed the Fund’s benchmark by 339 bps.
  • As yields have tightened and spreads compressed year to date, we have become more cautious about the risks we
    are taking. The outperformance of the BB rated bonds has mostly been rate-driven as the 10-year U.S. Treasury note
    has moved from 2.68% to start the year to 2% at the end of the quarter. We view our loan exposure as a replacement
    to our exposure to the BB rated category and has underperformed year to date. When looking at the yield pick-up we
    are getting in loans relative to that of BB rated paper, we think it continues to make sense holding loans, especially as
    the 10-year Treasury note is close to 2%.
  • Our structural underweight in high yield bonds, when compared to the all-bond benchmark, again detracted from
    performance as bank loans underperformed the ICE BofAML High Yield Index. The allocation to loans was the largest
    single detractor during the quarter, for reasons outlined above. We continued to have a meaningful underweight to the
    energy sector, but unlike the first quarter, the energy sector in the second quarter underperformed which helped our relative performance.
  • Credit selection in health care services and cable sectors contributed to performance in our bond portfolio, while
    credits in agriculture and gaming detracted. Our 3% weighting in equites also detracted from performance.

Outlook

  • Our outlook for a sharp rebound in growth in the second half of 2019 has been tempered by the continued global
    slowdown stemming from the uncertainty around U.S.-China trade. Our tempered outlook is somewhat offset by the
    fact that a global easing cycle is now in place and looks likely to build in the coming months along with growth in the
    U.S. continuing, albeit at a slower pace.
  • Longer term, “extending the cycle” depends on the stabilization of global growth which will be highly influenced by
    a resolution, or not, between the U.S. and China on trade negotiations. According to the Duke CFO survey completed
    in June, the outlook for earnings, wages, inflation and capital spending deteriorated in Q2. To be certain, trade wars
    and broad economic uncertainty are hurting the economic outlook.
  • As always, our focus when evaluating investments is on a company’s business model and competitive advantages
    in order to weather a recession and perform throughout the cycle.

The opinions expressed are those of the Fund’s managers 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, 2019, 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.

Diversification is an investment strategy that attempts to manage risk within your portfolio but it does not guarantee profits or protect against loss in declining markets.

The ICE BofAML US High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. It is not possible to invest directly in an index

All information is based on Class I shares.

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. Investing in below investment
grade securities may carry a greater risk of nonpayment of interest or principal than higher rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including
the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes trade infrequently on the secondary market.
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.

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Ivy Global Bond Fund

Market Sector Update

  • Rising political conflicts and uncertainty weighed on business sentiment leading to below trend gross domestic
    product (GDP) growth during the quarter. The macro environment softened with growth slowing in the U.S., Europe and
    China. The escalating trade war concerns between the U.S. and China left central banks set to ease policy in response
    to weakening data. Policy makers took a sharp turn from hawkish to dovish with the weakening fundamentals.
  • In the U.S., the market has priced two to three rate cuts by the Federal Open Market Committee for the remainder
    of 2019. In Europe, the European Central Bank (ECB) has signaled its willingness to cut rates and potentially restart its
    purchase of corporate bonds. And finally, in China, the government has started to implement a new round of policy
    initiatives in an effort to stimulate growth.
  • The normalization of the U.S. Federal Reserve’s (Fed) balance sheet is also winding down as the Fed slows down
    the pace of decline in the balance sheet to a level consistent with believed efficient and effective policy
    implementation.
  • The yield curve inverted as the market brought down expectations of the Fed’s tightening policy and overall
    expectations of a slower global growth environment. The 10-year U.S. Treasury declined 40 basis points while the 2-
    year U.S. Treasury declined 51 basis points.
  • By switching their focus from tight labor markets and accelerating wage growth to slowing economies and softening
    inflation expectations, policymakers are trying to create a backdrop for lower volatility.

Portfolio Strategy

  • The Fund had a positive return and performed in line with its benchmark for the quarter. The market’s reaction to
    the potential global ease in monetary policy led to a rally in both short- and long-duration Treasuries.
  • The U.S. dollar slightly weakened over the quarter against developed market currencies as the yen and euro gained
    2.79% and 1.38%, respectively. The Fund’s 97.5% U.S. dollar exposure hurt performance relative to peers.
  • We continue to seek opportunities to reduce volatility in the Fund. Additionally, we are maintaining a low duration
    strategy for the Fund as we feel it allows us a higher degree of certainty involving those companies in which we can
    invest.
  • We continue to focus on maintaining proper diversification for the Fund. We continue to hold a higher level of liquidity
    (patient capital) because of structural changes in the capital markets. We will be opportunistic in allocating that capital
    when we believe dislocations in the market arise.

Outlook

  • We expect most major economies to grow at a slower pace for the remainder of the year. Global manufacturing and
    service sector businesses report weaker conditions today than in recent times.
  • Trade war rhetoric and complicated political concerns like the ongoing Brexit saga, European auto tariffs and the
    U.S. presidential debates will likely mean that global interest rates and credit markets will continue to exhibit volatility
    in the near term. We believe trade will continue to be a risk factor going forward. There is the potential for more tariffs,
    followed by retaliatory action that might impact company capital investment plans. A negative feedback loop might
    impact markets, stocks and ultimately consumer and business confidence.
  • Fundamentals in the credit markets continue to remain stretched with balance sheets remaining levered. Softer
    global growth is concerning and leads us to be cautionary on the outlook for credit spreads. Technicals in credit can
    be supported with investors’ expectations that the ECB will resume corporate bond purchases.
  • Given our expectation for modest widening of spreads during the second half of 2019, we believe our conservative
    positioning relative to the benchmark is appropriate. We will be opportunistic about our credit selection and overall
    positioning to take advantage of perceived opportunities and dislocations as they present themselves.
  • The U.S. Federal budget deficit is expected to rise to $1.0 trillion (4.7% of GDP) in 2019 from structural forces which
    have deteriorated by a much greater amount than the offsetting cyclical improvement.
  • The opinions expressed are those of the Fund’s managers 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, 2019, 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.

    Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but they do not guarantee profits or protect against loss in declining markets.

    All information is based on Class I shares.

    Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. International investing involves additional risks including currency fluctuations, political or economic conditions
    affecting the foreign country, and differences in accounting standards and foreign regulations. 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. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Loans (including loan assignments, loan participations and other loan
    instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized may be subject to restrictions on resale and sometimes
    trade infrequently on the secondary market. These and other risks are more fully described in the Fund’s prospectus. Not all funds or classes may be offered at all broker/dealers.

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Ivy Emerging Markets Equity Fund

Market Sector Update

  • Emerging market equity returns were positive for the quarter but underperformed developed market equities. Returns were volatile with a mid-single-digit drawdown during May followed by a similar rebound in June as the U.S. Federal Reserve (Fed) signaled the beginning of a cycle of rate cuts.
  • Russia showed the strongest returns for the quarter among the major emerging markets, up 28% in U.S. dollar terms. Many key companies there announced significant hikes in dividends and or share repurchases.
  • China’s equity market had a very weak result in the quarter, posting a decline of just more than 5%. Continued concerns about trade negotiations with the U.S. were amplified when the U.S. proposed that the Chinese company Huawei – the world’s leader in 5G technology and the second-largest smartphone manufacturer – would no longer be able to purchase U.S.-supplied hardware and software. If enforced, this could cut Huawei’s revenues by tens of billions of dollars.
  • The global trade continued to worsen as the U.S. threatened to extend the imposition of tariffs to trading partners including Mexico, the European Union (EU) and Japan. The uncertainty has led to confusion about where supply chains should be located on an optimal economic basis and also is affecting business capital expenditures.

Portfolio Strategy

  • The Fund had a small negative return for the quarter and underperformed its benchmark.
  • Performance was hurt by security selections in India and Vietnam as well as in the materials sector.
  • The Fund benefitted from an overweight position relative to the benchmark in internet stocks in Latin America and Russia, and an overweight in financials in Brazil and Russia. Security selections in China and South Korea also were contributors.
  • The largest country overweight positions at quarter-end were in Brazil, Russia and India. The Fund moved from an overweight in China to a modest underweight, with a continued emphasis on domestic consumption companies.
  • The Fund’s largest sector overweights were in consumer discretionary, real estate and energy. The largest underweights were in consumer staples, materials and financials.

Outlook

  • We continue to think the Fed will begin a rate-cut cycle in the near future. Global growth has slowed and we also expect further monetary easing by the European Central Bank as well as many emerging market central banks, including those in Brazil, Russia, India and China.
  • We are fast approaching the 2020 U.S. presidential election, which we believe will be an important driver in the ongoing trade negotiations between the U.S. and China as well as with the EU. It is difficult to forecast a resolution that will be acceptable to President Donald Trump. The stakes remain high and we believe the issues could impact global growth rates for many years to come.
  • While trade is important for China, it is a diverse and complex economy. We continue to find secular themes that offer potential investment opportunities. For instance, we believe China will spend more on health care as its population ages and shifts toward innovative drugs.
  • The Fund’s overweight in Brazil assumes that the government will successfully pass a constitutional reform that brings significant savings on pensions. We think this will lead to meaningful interest rate cuts as well as a strengthening of the currency, and is likely to attract foreign direct investment in infrastructure projects, the privatization of stateowned enterprises and the energy sector.
  • Prime Minister Narendra Modi of India defended his position in recent elections and his administration is back for another term. Macro indicators continue to point toward a weak consumption environment, partially as a result of problems at companies in the non-banking financial sector. The most recent fiscal budget lacks short-term stimulus measures but emphasizes long-term initiatives such as foreign direct investment and public-sector bank recapitalization. We think it provides a good backdrop for the economy to do well over the long term, as it is less correlated with global trade tensions even as the near term outlook is weak.
  • We continue to believe valuations remain supportive for emerging market stocks. Low inflation across much of the globe allows for meaningful stimulus through fiscal and monetary initiatives. Despite macro challenges on the trade front, there are multiple long-duration themes driving emerging markets, which is where we believe investors should be focused. Trends including growth in internet/technology platforms, private banks taking market share in India, ecommerce and “fintech” reshaping commerce and innovation in health care continue to drive those industries and provide a good backdrop for stock picking.

The opinions expressed are those of the Fund’s managers 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, 2019, 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.

All information is based on Class I shares.

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. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. 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.

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Ivy Science and Technology Fund

Market Sector Update

  • Strong market performance in the first quarter of 2019 continued through the second quarter. The reasons for this
    strong continuation were the consistently dovish rhetoric by the Federal Reserve (Fed) on likely future interest rate
    cuts and late-quarter optimism around the China trade dispute as President Donald Trump made several conciliatory
    comments. While U.S. and China economic data continued to weaken through the quarter, the Fed’s actions and
    positive trade negotiation meetings supported the constructive equity environment.
  • The S&P North American Technology Index, the benchmark for the Fund, increased nearly 5% in the quarter after
    the roughly 20% increase in the first quarter of 2019.
  • The technology sector saw positive performance across the spectrum again in quarter, with the software and IT
    services sub-sectors as the stand-out performers.

Portfolio Strategy

  • Similar to the first quarter of 2019, the Fund had a positive return and significantly outperformed the benchmark
    during the second quarter. Stock selection within information technology was the primary driver of outperformance.
    Cypress Semiconductor was the top individual relative contributor, while allocations to Universal Display Corp. and
    Euronet Worldwide, Inc. also contributed to outperformance.
  • The Fund’s underweight in some of the largest benchmark constituents, namely Amazon.com, Inc., Visa Inc., and
    Mastercard Inc., was a drag during the period. The impact of the underweight positions was more than offset by the
    outperformance in the Fund.
  • The Fund’s allocation to health care, a sector absent from the benchmark, slightly detracted on a relative basis during
    the second quarter.

Outlook

  • The constant pace of innovation continues to be the key supportive factor for the technology and health care sectors.
    While we are highly cognizant of moves in the market, our three- to five-year timeline for investing allows us to take a
    longer-term approach. For example, technology is increasingly critical for companies to gain competitive advantages.
    Data aggregation, data analytics, migration towards cloud computing, semiconductors – all are key areas we are
    positioned to take advantage of going forward. We still expect cloud computing capital expenditures to bounce back
    in the remainder of 2019, though likely at a rate lower than we expected earlier in the year.
  • We continue to be optimistic on semiconductors. The space has contributed strongly to information technology
    performance over the past couple years and we believe the emergence of new secular growth opportunities, such as
    autos, machine learning and ubiquitous connectivity will continue to support above-market returns in the sector. While
    we remain constructive on semiconductors, we expect some level of volatility that we believe will create compelling
    new opportunities for the Fund over the longer term.
  • We are carefully monitoring the technology supply chain and demand signals coming from key technology endmarkets.
    Huawei’s addition to the U.S. “entity list” during the quarter created volatility within the supply chain, but
    relatively positive commentary from Trump in his meeting with President Xi Jinping of China reversed most of the initial
    negative equity reactions. The U.S.-China geopolitical risk remains, but we are optimistic on the trajectory of these
    relations along with an expected rebound in technology spending in the next few quarters.
  • Our exposure in biotechnology remains a key area of innovation within health care and an area where we expect
    our holdings to outperform over the coming quarters. Gene therapy and personalized advanced therapies are the
    areas of groundbreaking research and innovation that should provide significant opportunities for investment.

The opinions expressed are those of the Fund’s managers for Class I shares 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, 2019, 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.

Top 10 equity holdings as a percent of net assets as of 6/30/2019: Microsoft Corp. 10.2%, Euronet Worldwide, Inc. 6.4%, Aspen Technology, Inc. 5.4%, Universal Display Corp.: 5.3%, WNS (Holdings) Ltd. ADR 5.1%,
Vertex Pharmaceuticals, Inc. 4.8%, Apple, Inc. 4.7%, ACI Worldwide, Inc. 4.5%, Alibaba Group Holding Ltd. ADR 3.9%, Cerner Corporation 3.8%.

The S&P North American Technology Sector Index is a modified-capitalization weighted index representing U.S. securities classified under the GICS® technology sector and internet retail sub-industry. It is not possible
to invest directly in an index.

All information is based on Class I shares.

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. Not all funds or fund classes may be offered at all broker/dealers.

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Ivy Closed-End High Income Opportunities Fund

Market Sector Update

  • High yield bonds posted positive gains in the second quarter by returning 2.57%, as measured by the ICE BofAML US High Yield Index. Year to date, the index has returned 10.16%. Meanwhile, leveraged loans underperformed high yield, returning 1.63% and 5.58% for the quarter and year to date, respectively.
  • The Federal Reserve (Fed), tariffs and the trade war between the U.S. and China continued to dominate the markets in the quarter. At the Fed’s June meeting, the interest rate forecast “dots” were lowered, indicating participants are looking for 50 basis point (bps) in cuts by the end of the year. This helped extend the equity and bond market rallies as a dovish Fed is seen as supportive of asset values. The U.S. and China agreed to continue talks after the G20 Summit, which was viewed positively.
  • After seeing $14.1 billion of inflows in the first quarter, the high yield asset class recorded $600 million in outflows in the second quarter. Year to date, high yield mutual fund inflows are $12 billion compared with outflows totaling $24.5 billion during the first six months last year.
  • Leveraged loans continued to experience outflows in the quarter with approximately $8.8B leaving the asset class mainly due to the Fed’s dovish pivot and high likelihood of a 25 bps rate cut at the end of July.
  • High yield new-issue volume in the second quarter was strong at $74.7 billion versus $65.4 billion last quarter. Yearto- date volume is up 11% over last year. Leveraged loan new-issue volume was $90.9 billion in the quarter versus $66.8 billion in the first quarter. However, year-to-date gross loan issuance is down 38% relative to last year reflecting the negative sentiment and technicals in the loan market.

Portfolio Strategy

  • The Fund’s weighting in bonds versus loans did not change materially from quarter over quarter. Our weighting by rating category is 16% BB, 50% B and 24% CCC, as measured by Standard & Poor’s ratings.
  • We have maintained our exposure to leveraged loans as they continue to offer attractive yields relative to their seniority in the capital structure. They also offer the potential for less volatility in times of stress, such as fourth quarter of 2018, when leveraged loans outperformed the Fund’s benchmark by 339 bps.
  • As yields have tightened and spreads compressed year to date, we have become more cautious about the risks we are taking. The outperformance of the BB rated bonds has mostly been rate-driven as the 10-year U.S. Treasury note has moved from 2.68% to start the year to 2% at the end of the quarter. We view our loan exposure as a replacement to our exposure to the BB rated category and has underperformed year to date. When looking at the yield pick-up we are getting in loans relative to that of BB rated paper, we think it continues to make sense holding loans, especially as the 10-year Treasury note is close to 2%.
  • Our structural underweight in high yield bonds, when compared to the all-bond benchmark, again detracted from performance as bank loans underperformed the ICE BofAML High Yield Index. The allocation to loans was the largest single detractor during the quarter, for reasons outlined above. We continued to have a meaningful underweight to the energy sector, but unlike the first quarter, the energy sector in the second quarter underperformed which helped our relative performance.
  • Credit selection in health care services and cable sectors contributed to performance in our bond portfolio, while credits in agriculture and gaming detracted. Our weighting in equites also detracted from performance.
  • Outlook

  • We continue to think there is a favorable probability that several of the uncertainties plaguing the market will come to resolution giving investors and company executives more clarity on the macro environment. This has already begun, and spreads have tightened substantially from their widest point in December.
  • Given our expectation of a sharp rebound in growth for the second quarter of 2019 and modest above-trend growth afterwards, we view risks to spreads on the tighter side in the near-term and fairly balanced over the longer-term.
  • We continue to keep an eye on the yield curve, oil prices, improvements or lack thereof of leverage and coverage ratios across our holdings. Not all signs are indicating green lights for investors, but our base-case is that a recession is not in the foreseeable future.
  • As always, our focus when evaluating investments is a company’s business model and competitive advantages in order to weather a recession and perform throughout the cycle.

The opinions expressed are those of the Fund’s managers 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, 2019, 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.

Risk factors: The price of the Fund’s shares will fluctuate with market conditions and other factors. Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation. Closed-end funds frequently trade at a discount from their net asset values (NAVs), which may increase an investor’s risk of loss. At the time of sale, shares may have a market price that is below NAV, and may be worth less than the original investment. There is no assurance that the Fund will meet its investment objective. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than with higher-rated bonds. Loans (including loan assignments, loan participations and other loan instruments) carry other risks, including the risk of insolvency of the lending bank or other intermediary. Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and sometimes trade infrequently on the secondary market.

An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle.

Ivy Investment Management Company (IICO) serves as the Fund’s investment adviser. IICO is a wholly-owned subsidiary of Waddell & Reed Financial, Inc.

The Fund is a closed-end exchange traded investment company. This material is presented only to provide information and is not intended as investment advice or recommendations for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares of closed-end funds are sold on the open market through a stock exchange. Investment policies, management fees, risks other than those mentioned above, and other matters of interest to prospective investors may be found in the closed-end fund prospectus used in its initial public offering. For additional information, contact our sales desk at 800-532-2780.

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Ivy Energy Fund

Market Sector Update

  • Oil prices started to retreat in the quarter over concerns about rising shale oil production, a slowing global economy and escalation of the U.S.-China trade tension.
  • Brent crude oil is strongly in backwardation – meaning the current (spot) price is higher than the futures market price – which typically suggests a tight physical oil market. Concerns about deteriorating global macro sentiment versus a tight physical oil market have led to a disconnect between Brent futures and spot oil prices.
  • The Trump Administration did not extend waivers during the quarter to allow selected countries to buy Iranian crude oil and threatened penalties for anyone trading with that country.
  • Geopolitical risks around the world have increased. Tensions between the U.S. and Iran continued to rise after Iran shot down a U.S. military drone and was accused of being behind attacks on oil tankers in the Straits of Hormuz. Roughly 20% of the world oil supply travels thru the Straits every day, raising fears of additional disruptions. Geopolitical risk continues to affect production in Iran, Libya and Venezuela.
  • The OPEC member countries plus Russia agreed to extend production cuts through the first quarter of 2020. OPEC will review the cuts and could extend them again through the end of 2020, depending on global economic growth.

Portfolio Strategy

  • The Fund had a negative return for the quarter that was in line with its Morningstar category average but greater than the negative return of its benchmark.
  • Key detractors to the Fund’s performance relative to its benchmark included holdings in FTS International, Inc., Transocean Ltd., Whiting Petroleum Corp., Ensco plc-Class A and Chevron Corp.
  • Key contributors to the Fund’s relative performance included holdings in Anadarko Petroleum Corp. and WEX, Inc. The Fund also benefitted by not holding several underperforming equities that are benchmark components, including ExxonMobil Corp., Occidental Petroleum Corp. and Conocophillips.
  • About 38% of the equity holdings in the Fund were allocated to the Oil & Gas Exploration & Production industry segment, followed by about 28% to Oil & Gas Equipment & Services and about 14% to Oil & Gas Refining & Marketing. The Fund’s allocation to domestic equity was steady from the prior quarter at about 89% of net assets.
  • The focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.

Outlook

  • We expect the oil markets to continue to be tight through 2019 because of draws on inventories and the extension of OPEC’s production cuts into 2020. We think growth in U.S. shale production is likely to exceed worldwide demand growth for 2019.
  • The worldwide demand growth rate continues to be the greatest risk to oil prices. We believe it will slow in the second half of 2019. Nevertheless, demand growth has been better than the market expected despite the increased tension between U.S. and China over trade issues.
  • We expect geopolitical tensions in the Middle East to remain high and continue to be a factor in the oil market, with no sign of talks in the future.

The opinions expressed are those of the Fund’s managers 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, 2019, 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.

All information is based on Class I shares.

Top 10 equity holdings as a percent of net assets as of 06/30/2019: Concho Resources, Inc., 5.38%; Pioneer Natural Resources Co., 4.32%; Continental Resources, Inc., 4.28%; Diamondback Energy, Inc., 4.16%; Valero Energy Corp., 3.92%; Phillips 66, 3.79%; EOG Resources, Inc., 3.59%; Marathon Petroleum Corp., 3.36%; Parsley Energy, Inc., Class A, 3.34%; WEX, Inc., 3.32%.

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. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. 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.

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Article Related Management: 

David P. Ginther, CPA
Michael T. Wolverton, CFA

Article Type: 

Quarterly Fund Commentary

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