Ivy Pinebridge High Yield Fund

Market Sector Update

  • Despite extreme equity volatility in January, led by a number of heavily shorted stocks, the high yield market posted a modest positive total return. Main drivers for performance in the month were continued vaccine rollout, better than anticipated earnings, and optimism around additional fiscal stimulus due to Democrats gaining full control of Congress. In addition, central banks continued to provide support and indicated that their accommodative measures will remain in place for the foreseeable future. Investors also had to contend with technical headwinds during the month as strong primary issuance was met by the second consecutive month of outflows from high yield mutual funds and ETFs, as well as the further spread of COVID-19 and additional shutdown measures.
  • The high yield asset class provided a positive total return overall for February, but it was a tale of two halves during the month. The asset class continued January’s trend and rallied in the first half of the month before sharply higher U.S. Treasury rates trimmed some of the earlier gains. This trend continued in March with high yield bonds again providing a modest positive total return. U.S. Treasury rates continued to spike amid expectations of a declining pandemic, rising commodity prices and a larger fiscal package from Congress leading to stronger growth and inflation in 2021 and 2022. Technical headwinds continued throughout the quarter as primary issuance remained strong in February and March, while high yield mutual funds and ETFs continued to report outflows.
  • Gross new issue activity totaled $158.6 billion during the quarter, the highest total quarterly issuance on record. High yield mutual funds and ETFs reported outflows of $10.2 billion in the period. The high yield asset class has now seen four consecutive months of outflows. The par-weighted U.S. high yield default rate including distressed exchanges ended March at 5.37%, which is 139 basis points (bps) lower than the start of the year. First quarter default and distressed volume was the lowest since the third quarter of 2018.
  • 5- and 10-year U.S. Treasury rates traded 58 bps and 83 bps higher, respectively. The option-adjusted spread (OAS) on the Bloomberg Barclays U.S. Corporate High-Yield Bond Index traded 50 bps tighter during the quarter to end at 310 bps, as U.S. Treasury rates moved sharply higher in February and March. The U.S. dollar strengthened during the quarter, increasing 3.66%.

Portfolio Strategy

  • According to Barclay’s data, Ba-rated bonds returned -0.15%, while single-B rated bonds returned 1.16% and Caarated bonds returned 3.58%.
  • The Fund returned low-single digits during the quarter, outperforming its benchmark. Security selection and sector selection contributed to performance during the quarter.
  • From a security selection standpoint, holdings in the capital goods, communications and finance companies sectors were the most notable contributors, more than offsetting detractions from holdings in energy and consumer cyclical.
  • From a sector selection standpoint, overweight allocations to the transportation and energy sectors and an underweight allocation to the communications sector contributed to performance, while an overweight allocation to the electric sector and the cash position detracted from performance.

Outlook

  • Heightened inflation fears have driven U.S. Treasury rates sharply higher in March. The 5- and 10-year Treasury rates are now trading at levels not seen since early 2020. Amid rising rate concerns from retail investors, we have seen continued outflows from high yield mutual funds and ETFs.
  • From a fundamental standpoint, fourth-quarter 2020 earnings seem positive across the board, with good guidance. Many cost cuts appear permanent, and outlooks foresee decent demand. Travel and leisure and commodity-sensitive credits are outperforming expectations. Despite the potential for disappointment in the pace and quality of improvement being priced into markets, the path for fundamentals is positive.
  • Spreads are fair in the near term, though the view on 2021 is that total returns will be positive on an absolute basis and quite attractive relative to the other options. BB and single-B credits, which are more duration sensitive, still look attractive once interest rates settle. While we see the potential for U.S. Treasury rate volatility to pressure higher quality and longer duration segments of the high yield market along with the larger capital structures that make up the largest holdings in ETF vehicles, we see many attractively priced issuer specific opportunities.

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 March 31, 2021, 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 Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. It is not possible to invest directly in an index.

All information is based on Class I shares.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

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. 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 Managed International Opportunities Fund

Market Sector Update

  • It was another positive quarter for global equity markets as economic activity and employment trends continued their rebound. As highly effective vaccines increasingly inoculate populations, pent-up demand is released and more normal economic activity is resumed. Positive market action reflected this continued economic normalization and procyclical impulse.
  • Governments and central banks, globally, continue to provide unprecedented policy support to offset the negative economic effects of responses to the pandemic including monetary easing, fiscal stimulus and direct asset purchases. The U.S. Federal Reserve (Fed) continues its dovish tone with a very high bar for raising rates, which suggests monetary policy is less likely to hamper any improvements in growth. An additional stimulus bill was also passed in the U.S. in the first quarter, which included $1,400 checks and additional supplemental unemployment benefits. The Biden administration is endorsing additional fiscal spending programs.

Portfolio Strategy

  • The Fund experienced a positive return in the quarter and outperformed its benchmark index. Fund performance reflected the mix of returns in the underlying funds and their allocation weightings. The Ivy International Core Equity Fund and Ivy Pzena International Value Fund were the biggest contributors to positive relative performance followed, to a lesser extent, by the Ivy Global Equity Income Fund and Ivy International Small Cap Fund. After very, very strong relative performance in recent periods, this quarter’s only detractor to relative performance was the Ivy Emerging Markets Equity Fund, which performed in-line with emerging-market equities.
  • The Fund ended the period with the following target asset allocation: Ivy International Core Equity Fund 31%, Ivy Emerging Markets Equity Fund 29%, and a 10% allocation each to Ivy Pzena International Value Fund, Ivy Global Growth Fund, Ivy International Small Cap Fund and Ivy Global Equity Income Fund to provide a well-diversified portfolio of international stocks.

Outlook

  • Although the U.S. is making rapid progress, some global markets and economies continue to face significant challenges with the virus and distribution of vaccines as the pandemic continues. And despite the historical rebound in consumption and expenditures, previous levels of economic activity and employment have not been recovered. As populations are increasingly inoculated and low interest rates as well as trillions of dollars of stimulus continue working their way through the economy, activity is expected to continue its upward trajectory toward more normal levels.
  • Although securities valuations are demanding, fiscal stimulus is expected to continue, which adds to the pro-cyclical impulse. The Fed’s willingness to maintain accommodative monetary policy alleviates some upward pressure for interest rates, especially in shorter-dated markets. However, myriad risk factors remain, as always. Among these risks include the risk of inflation, higher interest rates, and valuation compression in equity securities that have already priced in much good news.

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 March 31, 2021, 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. All information is based on Class I shares. Diversification cannot ensure a profit or prevent against a loss in a declining market. Past performance is not a guarantee of future results.

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. These risks are magnified in emerging markets. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. 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 International Core Equity Fund

Market Sector Update

  • International markets showed a clear rotation of leadership in the first quarter as defensive sectors trailed the more
    economically sensitive areas of the economy. While it was volatile throughout, the quarter ended with the MSCI EAFE
    Index up 3.5%. Investors were focused on rates, reopening, and the potential for what an overheating global economy
    may do to inflation. This was the spark behind the shift back to cyclicals.
  • As such, energy, financials, and consumer cyclicals drove market returns while the more defensive health care,
    utilities and consumer staples lagged. The latter were negative for the period. The U.K., Europe and developed Asia
    Pacific countries experienced the greatest gains, while Japan was relatively weak.
  • In the spotlight was U.S. monetary policy and President Biden’s new administration’s fiscal packages, both lending
    to increased investor expectations for inflation. The Biden administration signed a new $1.9 trillion stimulus plan into
    place and presented a historic infrastructure bill. Between money already spent, approved, and likely to be approved
    by the U.S. government, it appears the U.S. will top what was spent during World War II (inflation adjusted), but over a
    much smaller timeframe. At the same time, the U.S. Federal Reserve (Fed) remains dovish, the global economy is
    perceived to be spring loaded for a significant snap back, and supply chain disruptions are causing major shortages
    across the globe. This is a recipe for inflation that the market recognizes but may be underestimating.
  • The U.S. dollar reversed course and appreciated against a major basket of currencies, primarily driven by yen and
    euro weakness as the British pound appreciated. Bond yields spiked across the globe in anticipation of inflationary
    pressure and the impact it may have on central bank policy. Commodities continued to rally, led by industrial metals
    and oil, while precious metals declined.

Portfolio Strategy

  • The Fund significantly outperformed the index over the quarter. The portfolio’s posture, which favors companies
    trading at an attractive relative valuation, accompanied with a slight tilt toward cyclicals (vs. defensive stocks),
    benefited our investors. Generally, positive contributions were distributed across most sectors, with consumer
    discretionary, energy, and health care helping the most. Financials, information technology and real estate detracted
    from performance. From a country standpoint, Japan, Canada, the U.K and Europe were positive relative contributors
    to performance. On the other hand, Brazil and Taiwan dragged on performance.
  • At a stock level, Volkswagen AG, Canada Goose Holdings, Inc., and Seven Generations Energy Ltd. were the top
    contributors. Volkswagen, a German auto manufacturer, had good quarterly results and impressed investors with their
    progress in electric vehicles where they plan to manufacture their own batteries and become a real competitor to
    Tesla. Canada Goose is a Toronto-based outerwear company known for their luxury down jackets. Their e-commerce
    business has offset traditional retail weakness. Additionally, they had strong sales into China, and are having early
    success diversifying into three-season apparel. Seven Generations, a Canadian energy company, was up with the
    broader energy complex as oil prices appreciated significantly.
  • The largest relative detractors were gold, Deutsche Wohnen AG and Ubisoft Entertainment S.A. Gold, for which there
    are several possible reasons it has been weak recently, has been one of the best assets during periods of inflation. We
    believe it should act as a ballast in the portfolio with key reasons it could strengthen, such as higher inflation, fiscal
    and monetary policy, and increased demand for physical gold, such as jewelry as the global recovery takes hold.
    Deutsche Wohnen, a German real estate developer and manager, was under pressure throughout the quarter as the
    government mandated rent freeze weighed on margins. However, rental demand is strong, and we believe Deutsche
    Wohnen has a high-quality portfolio in major cities within Germany. Ubisoft, a French videogame designer, was down despite strong growth after announcing they will delay certain new releases and experience likely margin pressure.
    We sold the position during the quarter.
  • While the market recovery has inflated valuations across many industries, we continue to find perceived unique
    opportunities. We bought SK Telecom Co. Ltd., a South Korean conglomerate, during the quarter. In South Korea, we
    believe several of their large conglomerates currently offer significant value. For SK Telecom, we believe more than
    100% of the value is in SK Hynix, where they own more than 20% of shares. Their legacy business is the leading
    telecom provider in South Korea where they are already invested in 5G. There is also potential for gains due to the
    country lifting temporary securities regulations that have weighed on shares. We sold Ubisoft as the valuation did not
    justify the near-term weakness to fundamentals.

Outlook

  • Despite the recent market rotation, we believe there is a deep underappreciation by investors for the magnitude of
    economic growth and inflationary pressures ahead. Generally, investors have not fully adopted the idea that stocks
    outside of what has been in favor for the greater part of the last decade will relinquish the spotlight. However, we
    believe the many signs of a sustained market shift are present.
  • The level of spending by governments around the world, particularly in the U.S., is at unprecedented levels.
    Additionally, central banks continue to support capital markets and are signaling low rates for the foreseeable future.
    The Fed has communicated a persistent dovish approach toward interest rate policy. This also has great potential to
    perpetuate inflation, particularly if they manipulate the curve to keep the 10-year rate at 2%.
  • Another inflationary pressure, although difficult to handicap its duration, is a shortage within the global supply chain,
    particularly within semiconductors. With semiconductor shortages around the world, many everyday goods,
    particularly autos, are experiencing manufacturing delays. Low supplies will lead to higher prices. When also
    considering higher commodity prices, in turn, raw material costs of everything we consume from food to clothes to
    electronics and beyond could go up. Meanwhile, the global economy is opening and consumers’ propensity to spend
    is high after a year of clamping down on social activities.
  • We believe these events should drive tremendous economic growth, which is generally good for early cycle equities.
    This leads us to be particularly optimistic about pockets of equities consistent with our investment style. After years of
    being underappreciated, international equities may be a great area of the world to find relative value. This, coupled
    with our investment style, which we believe is well positioned to take advantage of many of the currents carrying the
    market forward, may support a continued shift in our favor.

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 March 31, 2021, 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 03/31/2021: Merck KGaA 2.4%; Volkswagen AG 2.3%; Roche Holdings AG, Genusscheine 2.1%; Carrefour S.A. 2.0%; Airbus SE 2.0%; WPP Group plc 1.9%; Samsung
Electronics Co. Ltd. 1.8%; Legal & General Group plc 1.8%; DNB ASA 1.7%; and ENGIE 1.7%.
The MSCI EAFE Index is an equity index which captures large- and mid-cap representation across 21 developed market countries around the world, excluding the U.S. and Canada. With 915 constituents, the index
covers approximately 85% of the free float-adjusted market capitalization in each country. 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. 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. To the extent the Fund invests a significant portion of its assets in a particular geographical region or country, economic,
political, social and environmental conditions in that region or country will have a greater effect on Fund performance than they would in a more geographically diversified equity fund and the Fund’s performance
may be more volatile than the performance of a more geographically diversified fund. 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 VIP Energy

Market Sector Update

  • In the quarter, oil prices moved to their highest level since early October 2018. Crude markets recent strength has been driven by optimism over the economic recovery from fiscal stimulus, vaccines and slowing infections, decreasing inventories, and demand recovery in China and India. COVID-19 trends remain a headwind facing the oil markets. The spread of new COVID-19 variants, new lockdowns worldwide, and continued concerns about the global vaccine rollout weigh negatively on demand.
  • OPEC+ decided on an unexpected two-month agreement for the group’s production in January. Saudi Arabia announced an unexpected and unilateral production cut of 1 million barrels per day in February and March as Russia and Kazakhstan will increase output modestly to meet seasonal demand while other OPEC producers remain at their January levels. OPEC compliance remains very high.
  • Unprecedented cold weather in the central U.S., especially in Texas, equally affected fossil fuels and renewable energy. Very cold temperatures froze production wells and pipelines, shuttered refineries, reduced wind and solar capacity and left millions without power for days. We learned that utilities must work with both hydrocarbon fuels and renewable energy as we move toward greener energy.
  • We have seen geopolitical risk increase amid high tensions between Tehran and Washington. The Houthis launched a series of ballistic missile and drone strikes throughout Saudi Arabia focused on oil infrastructure and military targets. Attacks by Iranian-backed Shiite militias on bases hosting American troops in Iraq prompted President Biden to conduct the first military operation of his administration by launching air strikes in Syria. Also, Iran wants the removal of sanctions before it scales back nuclear activities. Recent activities show just how dangerous the security environment remains in the region.

Portfolio Strategy

  • While both the Portfolio and its benchmark, the S&P 1500 Energy Sector Index, experienced strong positive returns for the quarter, the index ended up outperforming the Portfolio. During the period, the Portfolio’s allocation to the energy sectors was slightly changed as we decreased our alternative energy position due to valuation in the quarter.
  • Key contributors to the Portfolio’s relative performance included holdings in Continental Resources, Inc., ChampionX Corp., Diamondback Energy, Inc., Parsley Energy, Inc. and Pioneer Natural Resources.
  • Industry allocations changed slightly when compared to those of the prior quarter. Approximately 38% of the equity holdings in the Portfolio were allocated to the oil and gas exploration and production industry segment, followed by 24% to oil and gas equipment and services and 14% to oil and gas refining and marketing.
  • The core focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We seek to identify those as companies that are low-cost operators, have strong balance sheets, capital discipline, ability to grow profitably and have strong return on capital.

Outlook

  • Our outlook on energy is largely unchanged in the quarter. We plan to stay the course as demand continues to improve led by synchronized global growth, vaccine optimism and fiscal stimulus. Demand should overcome concernsabout the virus’ resurgence, COVID-19 variants, additional lockdowns in Europe and any possible impacts on global demand.
  • OPEC+ will continue to draw down inventory surpluses and will gradually increase production allowing spare capacity to be fully absorbed by the end of 2021. We think U.S. shale is unlikely to grow much at all in 2021 due to capital discipline and a focus on improving balance sheets. The world will need U.S. shale to grow again at a moderate pace in 2022 to meet worldwide demand growth as OPEC’s spare capacity will be eroded by that 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 March 31, 2021, 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 03/31/2021: Pioneer Natural Resources Co. 6.6, ConocoPhillips 6.4, Marathon Petroleum Corp. 5.0, Exxon Mobil Corp. 4.8, Valero Energy Corp. 4.1, Cactus, Inc. 4.0, ChampionX Corp. 4.0, Phillips 66 4.0, Hess Corp. 4.0 and WEX, Inc. 3.7.

The S&P 1500 Energy Sector Index is an unmanaged index comprised of securities that represent the energy sector of the stock market. It is not possible to invest directly in an index.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. Because the Portfolio invests more than 25% of its total assets in the energy-related industry, the Portfolio may be more susceptible to a single economic, regulatory, or technological occurrence than a Portfolio that does not concentrate its investments in this industry. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. The Portfolio typically holds a limited number of stocks (generally 35 to 55). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s NAV than it would if the Portfolio invested in a larger number of securities. 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. The Portfolio may invest in Initial Public Offerings (IPOs), which can have a significant positive impact on the Portfolio’s performance that may not be replicated in the future. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Not all Portfolios may be offered at all broker/dealers. These and other risks are more fully described in the Portfolio’s prospectus. The Ivy Variable Insurance Portfolios are only available as investment options in variable life insurance policies and variable annuity contracts issued by participating insurance companies. They are not offered or made available directly to the general public.

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 Small Cap Core Fund

Market Sector Update

  • The turn of the calendar into 2021 did little to slow the markets down, as the Russell 2000 Index followed up its
    strongest quarter ever with another double-digit gain in the first quarter of 2021. However, all was not smooth within
    the Index as the 10-year U.S. Treasury interest rate rose from 0.92% to 1.75% during the quarter, triggering a rally in
    cyclical stocks at the expense of growth stocks. This rate move appears to be reflecting higher inflation expectations
    on the back of unprecedented fiscal and monetary stimulus and greater confidence in domestic growth as the U.S.
    vaccination effort has accelerated relatively smoothly.
  • The newly inaugurated Biden administration proposed and worked through Congress a $1.9 trillion aid package in
    March, on top of the $900 million the Trump administration cleared in December. Additionally, President Joe Biden
    introduced a $2.25 trillion infrastructure proposal at the end of the quarter, aimed at a wide range of investments from
    roads and bridges to technology research and development, partially funded with an increase in the corporate tax rate.
    The amount of fiscal spending over the last year in response to the pandemic dwarfs any other time period, and with
    a Federal Reserve that is no rush to tighten monetary policy, higher inflation expectations are completely reasonable
    and should be accounted for in portfolio construction.
  • Higher rates and higher expected economic growth positively impacted sentiment for small cap stocks, as small cap
    exchanged-traded funds saw their highest quarter of inflows ever. Well-documented short-squeezes in stocks like
    Gamestop and AMC Entertainment drove volatile day-to-day index performance, particularly early in the quarter.
    Overall, the Russell 2000 Index returned more than 12.5% in the first quarter after posting a better than 19% return in
    2020, led by cyclical sectors energy (+41.9%), consumer discretionary (+26.6%), and materials (+20.0%). Unsurprisingly,
    sectors with higher valuations or those that are more rate sensitive underperformed, with health care (+0.4%), utilities
    (+3.4%) and information technology (+5.2%) lagging.
  • While we are clearly not completely out of the woods with the pandemic given recurring lockdowns in Europe, virus
    variants, and global vaccine rollout hiccups, we are drawing nearer to a resumption of normal life. Investors are
    positioning for this rebound as evidenced by the furious rally from the bottom, but the question will be whether the
    expectations can be met. As the reopening uncertainty starts to clear over the coming months and quarters, some
    companies will exceed expectations and some will fail to meet them, but the return of a more normal cadence of
    business should help the market be more driven by fundamental business performance as opposed to the more
    thematic and macro-driven trading we have seen over the last year.

Portfolio Strategy

  • The Fund produced a positive return in the quarter and exceeded its benchmark. The Fund ended the quarter in the
    top half of its peer group in a period where nearly three-quarters of funds in the category outperformed the index.
  • Performance for the quarter was driven nearly equally between stock selection and allocation. Higher beta, less
    expensive, and smaller stocks outperformed again though with a higher quality tilt than the previous two quarters. As
    a result, the environment shifted somewhat in our favor stylistically.
  • The Fund saw positive attribution out of seven sectors, led by health care, communication services and financials.
    Consumer discretionary, materials and information technology detracted for the first three months of the calendar year.
  • 60% of the top 20 average holdings produced positive attribution this quarter and contributed more than 70 basis points to outperformance. TripAdvisor, Inc., Coherent, Inc., and Gap, Inc. were the highest contributors to attribution,
    while 2U, Inc., Switch, Inc., and Encompass Health Corp. dragged on performance.
  • The additions the Fund had made to cyclical companies over the past few quarters were rewarded in the quarter,
    and predicted beta remains higher than usual (5 yr. average beta for the Fund has been just under 0.9 and now we are
    in the mid-0.9 range) as we expect the benefits from stimulus and reopening to boost more economically sensitive
    areas for at least several more quarters as we see outsized economic growth.

Outlook

  • With vaccination progress continuing, some answers around how the economy will emerge from the pandemic will
    soon become clearer. Industries that may have been permanently transformed may be overlooked as the market has
    gotten excited about stocks that stand to benefit from reopening. The normalization of the economy post-pandemic
    will create opportunities as perceptions and realities get recalibrated.
  • The start to 2021 was encouraging relative to the benchmark, and we hope to build off that throughout the year and
    over the rest of the cycle through our commitment to identifying quality, underappreciated companies and constructing
    them thoughtfully into the portfolio.

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 March 31, 2021, 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. The Purchasing Managers' Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors.

Top 10 holdings as a % of net assets as of 3/31/2021: 2U, Inc. 3.2%, Encompass Health Corp. 3.1%, Skechers USA, Inc. 3.0%, Beacon Roofing Supply, Inc. 2.8%, Triton International Ltd. 2.7%, Regal-Beloit Corp. 2.6%
LPL Investment Holdings, Inc. 2.6%, Pinnacle Financial Partners, Inc. 2.5%, Envista Holdings Corp. 2.5%, Tabula Rasa HealthCare, Inc. 2.5%.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty,

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

  • The long-awaited “rotation” from growth stocks to value stocks made an appearance in the first quarter of 2021. The
    Russell 1000 Value Index (the Fund’s benchmark) returned 11.26% while the Russell 1000 Growth Index returned
    0.94%. While the outperformance in the quarter was significant, growth has outperformed value for much of the past
    decade. In summary, there is a lot of catching up to do.
  • The U.S. economy continued its recovery from the COVID-19 pandemic during the first quarter of 2021, and the stock
    market followed with positive returns. There were many bright spots, including employment, which increased by 1.6
    million in first quarter, more than recovering the fourth quarter layoffs related to the virus surge. As of March 2021, 62%
    of the 22 million jobs lost during the first couple months of the pandemic have been recovered.
  • A $1.9 trillion stimulus bill was passed in March 2021, which included $1,400 checks and a continuation of the $300
    per week supplemental unemployment benefit. President Biden presented his infrastructure plan for total spending of
    $2.25 trillion to be spent over 8 years. The plan also included tax increases over a 15-year period to pay for the cost.
    The Federal Reserve (Fed) maintained a dovish message and continued to downplay inflation fears and taper
    talk. Housing demand remained strong despite gains in both home price and mortgage rates. Manufacturing activity
    strengthened with the ISM Index hitting a 37-year high. The combination of elevated orders and low inventories is
    expected to support ongoing production in the coming months.
  • As always, there are potential negatives that bear watching. Interest rates continue to rise, as inflation seems about
    to re-appear. Fed policy is still supportive but cannot last forever. There is also a chance for further stimulus; however,
    it is not certain.

Portfolio Strategy

  • The Fund outperformed its benchmark for the quarter. Our best performing sectors on a relative basis were health
    care and consumer discretionary. Sectors that dragged on performance included communication services and
    materials. Performance was driven primarily by stock selection as the Fund’s approach is to keep sector overweight
    and underweight positions close to the benchmark’s weightings in an effort to minimize any macro risks that come with
    individual sectors.
  • The sharp economic recovery was a benefit to oversold cyclical sectors. Oil rebounded to start the year, which
    benefited our investments in Marathon Petroleum Corp. and EOG Resources, Inc. Within financials, Capital One added
    to the Fund’s outperformance as consumers remained resilient and posted strong card data. Other positive names
    included NXP Semiconductors NV, Magna International, Inc. and nVent Electric plc.
  • Our investments in other areas lagged in the rebound. Walmart, Inc. was the greatest individual detractor as investors
    rotated away from many of the “stay-at-home” stocks. GlaxoSmithKline plc was another holding that dragged on
    performance. Not owning Exxon, which is a very large weight in the benchmark, was another detractor.
  • Our strategy does not attempt to make sector calls, rather focusing primarily on stock selection. We attempt to equal
    weight sectors to remove macro factors from the portfolio and let individual stock selection drive performance. We
    strive to be no more than 1% over or under weight any sector. Most sector weighting changes occur due to the
    movements of the stocks held within that sector.

Outlook

  • The U.S. economy grinded to an abrupt halt in March 2020, but not for an economic reason. The pandemic recession,
    while devastating, was relatively short lived due to government paycheck protection and targeted stimulus. The stock
    market rebounded to new highs earlier this year in anticipation of an economic recovery. Despite supply chain issues
    across the board, initial indicators are signaling that there is a tremendous amount of pent-up demand.
  • While these economic forces are currently dominating the news, 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
    often is due to short-term negative factors, and we will 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 March 31, 2021, 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 a % of net assets as of 03/31/2021: Comcast Corp. 3.9, Citigroup, Inc. 3.7, Philip Morris International, Inc. 3.3, Morgan Stanley 3.2, Capital One Financial Corp. 3.2, Walmart, Inc. 3.2, Welltower, Inc.
3.2, Target Corp. 3.1, Eaton Corp. Plc. 3.0 and Raytheon Technologies Corp. 3.0.
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.
The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

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. 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. The Fund typically holds a limited number of stocks (generally 30 to 45) and the Fund's manager also tends to invest a significant portion of the
Fund's total assets in a limited number of stocks. As a result, the appreciation or depreciation of any one security held by the Fund may have a greater impact on the Fund’s NAV than it would if the Fund invested in
a larger number of securities or if the Fund's manager invested a greater portion of the Fund's total assets in a larger number of stocks. 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. 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 turn of the calendar into 2021 did little to slow the markets down, as the Russell 2000 Index followed up its strongest quarter ever with another double-digit gain in the first quarter of 2021. However, all was not smooth within the Index as the 10-year U.S. Treasury interest rate rose from 0.92% to 1.75% during the quarter, triggering a rally in cyclical stocks at the expense of growth stocks. This rate move appears to be reflecting higher inflation expectations on the back of unprecedented fiscal and monetary stimulus and greater confidence in domestic growth as the U.S. vaccination effort has accelerated relatively smoothly.
  • The newly inaugurated Biden administration proposed and worked through Congress a $1.9 trillion aid package in March, on top of the $900 million the Trump administration cleared in December. Additionally, President Joe Biden introduced a $2.25 trillion infrastructure proposal at the end of the quarter, aimed at a wide range of investments from roads and bridges to technology research and development, partially funded with an increase in the corporate tax rate. The amount of fiscal spending over the last year in response to the pandemic dwarfs any other time period, and with a Federal Reserve that is no rush to tighten monetary policy, higher inflation expectations are completely reasonable and should be accounted for in portfolio construction.
  • Higher rates and higher expected economic growth positively impacted sentiment for small cap stocks, as small cap exchanged-traded funds saw their highest quarter of inflows ever. Well-documented short-squeezes in stocks like Gamestop and AMC Entertainment drove volatile day-to-day index performance, particularly early in the quarter. Overall, the Russell 2000 Index returned more than 12.5% in the first quarter after posting a better than 19% return in 2020, led by cyclical sectors energy (+41.9%), consumer discretionary (+26.6%), and materials (+20.0%). Unsurprisingly, sectors with higher valuations or those that are more rate sensitive underperformed, with health care (+0.4%), utilities (+3.4%) and information technology (+5.2%) lagging.
  • While we are clearly not completely out of the woods with the pandemic given recurring lockdowns in Europe, virus variants, and global vaccine rollout hiccups, we are drawing nearer to a resumption of normal life. Investors are positioning for this rebound as evidenced by the furious rally from the bottom, but the question will be whether the expectations can be met. As the reopening uncertainty starts to clear over the coming months and quarters, some companies will exceed expectations and some will fail to meet them, but the return of a more normal cadence of business should help the market be more driven by fundamental business performance as opposed to the more thematic and macro-driven trading we have seen over the last year.

Portfolio Strategy

  • The Portfolio produced a positive return in the quarter and exceeded its benchmark. Performance for the quarter was driven nearly equally between stock selection and allocation. Higher beta, less expensive, and smaller stocks outperformed again though with a higher quality tilt than the previous two quarters. As a result, the environment shifted somewhat in our favor stylistically.
  • The Portfolio saw positive attribution out of seven sectors, led by health care, communication services and financials. Consumer discretionary, materials and information technology detracted for the first three months of the calendar year.
  • 60% of the top 20 average holdings produced positive attribution this quarter and contributed more than 70 basis points to outperformance. TripAdvisor, Inc., Coherent, Inc., and Gap, Inc. were the highest contributors to attribution, while 2U, Inc., Switch, Inc., and Encompass Health Corp. dragged on performance.
  • The additions the Portfolio had made to cyclical companies over the past few quarters were rewarded in the quarter, and predicted beta remains higher than usual (5-year average beta for the Portfolio has been just under 0.9 and now we are in the mid-0.9 range) as we expect the benefits from stimulus and reopening to boost more economically sensitive areas for at least several more quarters as we see outsized economic growth.

Outlook

  • With vaccination progress continuing, some answers around how the economy will emerge from the pandemic will soon become clearer. Industries that may have been permanently transformed may be overlooked as the market has gotten excited about stocks that stand to benefit from reopening. The normalization of the economy post-pandemic will create opportunities as perceptions and realities get recalibrated.
  • The start to 2021 was encouraging relative to the benchmark, and we hope to build off that throughout the year and over the rest of the cycle through our commitment to identifying quality, underappreciated companies and constructing them thoughtfully into the portfolio.

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 March 31, 2021, 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.

Top 10 holdings as a % of net assets as of 12/31/2020: 2U, Inc. 4.1%, Coherent, Inc. 3.5%, Switch, Inc. Class A 3.3%, TCF Financial Corp. 3.1%, Element Solutions, Inc. 2.9%, Encompass Health Corp. 2.8%, Varonis Systems, Inc. 2.6%, Triton International Ltd. 2.6%, Envista Holdings, Corp. 2.5%, Skechers USA, Inc. 2.4%.

The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets in ways that cannot necessarily be foreseen. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

Leverage refers to the amount of debt a firm uses to finance assets. Beta is a measure of a security or portfolio’s sensitivity to market movements (proxied using an index). A beta of greater than 1 indicates more volatility than the market, and a beta of less than 1 indicates less volatility than the market.

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

  • It is rather surreal to reflect on all that has transpired since this time last year. Despite times of dissension, difficulty, and tragedy over the last twelve months, we sense a refreshing feeling of optimism. While the impacts of the pandemic linger on, the momentum behind the vaccination campaign and gradual return of mobility has breathed life into the global economy. The fiscal and monetary stimulus put in place over the last year have been helpful to blunt the acute economic impacts from COVID-19 with an encouraging trend of strengthening economic data. Of note, our economy added 1.6 million jobs in the first quarter which represents approximately 62% of the 22 million jobs lost during the first couple of months of the pandemic. Also encouraging was a 37-year high in manufacturing activity, strengthened significantly with strong orders and low inventory expected to support ongoing production in the coming months. This optimism is evident in asset markets with the S&P 500 Index advancing to a new all-time high.
  • The S&P 500 Index, the Fund’s equity benchmark, advanced 6.17% with the energy, financials and industrials sectors leading the advance. While every sector saw positive returns, the traditionally defensive consumer staples and utilities sectors were the most significant laggards. It is worth highlighting that the information technology sector, long a market darling, posted a modest 2.0% return for the quarter as the market’s advance broadened to include other sectors.
  • The Fund’s fixed-income benchmark, the Bloomberg Barclays U.S. Government/Credit Index, declined 4.28% as interest rates rose and credit spreads narrowed slightly. The 10-year Treasury yield rose significantly to end the quarter at 1.74%, up 82 basis points (bps) from the start of the year. The Treasury curve steepened sharply with the spread relationship between the 2-year and the 10-year Treasury bond at 158 bps, up from 79 bps at the start of the year. Investment-grade credit spreads narrowed 6 bps during the quarter to 86 bps, well below the 20-year average of 144 bps and 4 bps tighter than when 2020 began.

Portfolio Strategy

  • The Fund posted a solid gain during the quarter and outperformed its benchmark index and peer group. Outperformance was driven by an overweight to equities and strong security selection in both the equity and fixedincome sleeves. For the quarter, the Fund’s equity weight averaged 68%, fixed income averaged 32%, with a very modest cash balance.
  • Within the Fund’s equity sleeve, strong stock selection in the consumer discretionary and industrials sectors as well as overweight allocations to the financials and energy sectors were meaningful contributors to relative performance. The quarter saw a broad-based rally, so detractors were few and far between. An underweight allocation and poor stock selection in the materials sector and poor stock selection in the health care sector hampered relative performance.
  • Positions in Goldman Sachs, Snap-on Inc, Canadian Natural Resources, Lowe’s Co. and Micron Technology, Inc. posted particularly strong results. Offsetting this strength was poor performance from Autodesk, Inc., Cerner Corp, Electronic Arts and V.F. Corp.
  • Within the fixed-income sleeve, our allocation to corporate credit was a meaningful contributor to outperformance. Our underweight of Treasuries and strong security selection in the energy and industrial sectors were notable contributors to relative performance. At the end of the quarter, the fixed-income sleeve had a duration of 7.38 years which is in line with the benchmark. During the quarter with investment-grade spreads continuing their move tighter, we reduced our corporate exposure with the proceeds invested in Treasuries. At quarter end, our allocation to corporate credit was in line with the benchmark and the fixed-income sleeve was slightly overweight Treasuries.

Outlook

  • As we look ahead, global economic growth is likely to rebound meaningfully in the near term as economies re-open and stimulus has its intended effect. As the vaccination campaign expands and mobility increases, we expect an acceleration in economic growth. We anticipate the more recent trend of a broadening of the equity market to continue as more cyclical companies see their earnings recover from the pandemic. During the quarter, after a strong run of performance, we began the process of reducing our exposure to investment grade and non-investment grade credit with the proceeds invested in Treasuries which has closed the large underweight versus the benchmark.
  • The economic impacts of COVID-19 are likely to be persistent though less punitive. We have seen growing evidence of a sharp rebound in economic activity and expect it to continue in the short term in part due to the lagged effects of fiscal and monetary stimulus put in place over the last several months. As economies recover, we are closely watching inflation rates and inflation expectations, which have been modest and must remain so in order to allow central banks to maintain their accommodative monetary policies.
  • While we continue to monitor macroeconomic forces and trends, we maintain an emphasis on finding perceived high quality, growing companies whose securities are trading at a reasonable valuation with visible catalysts to drive relative outperformance over the next twelve 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 March 31, 2021, 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. 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 percent of net assets as of 03/31/2021: Microsoft Corp. 3.3%; Goldman Sachs Group, Inc. 2.0%; Micron Technology, Inc. 2.0%; Zimmer Holdings, Inc. 2.0%; Lowe's Co., Inc. 2.0%; Constellation Brands, Inc. 1.9%; Autodesk, Inc. 1.7%; Electronic Arts, Inc. 1.7%; JPMorgan Chase & Co. 1.7%; and Anthem, Inc. 1.7%.

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

  • The ICE BAML US High Yield Index continued its streak of positive returns in the first quarter of 2021, returning 0.90%, which is the fourth quarter in a row of positive consecutive returns. Spreads on the index ended the quarter at 352 basis points (bps), which is 35 bps tighter versus year end.
  • Leverage loans continued to gain in the quarter, returning 1.86% as the markets believe rates have bottomed and the economic recovery takes shape. Spreads ended the quarter at 420 bps versus 460 bps at year end. Split B/CCC loans (+6.66%) outperformed B loans (+1.60%) and BB loans (+0.83%).
  • The best performing sectors in the ICE BAML US High Yield Index were entertainment, airlines and publishing, which were up 21.6%, 5.1% and 4.3%, respectively. Conversely, the worst performing sectors were utilities, restaurants and cable, which returned -1.3%, -0.99% and -0.57%, respectively.
  • The $3.4 billion of default/distressed volume is the lowest quarterly default total since $2.3 billion defaulted in third quarter of 2018. Including distressed exchanges, the U.S. high-yield default rate decreased to 5.37% at the end of the quarter. Meanwhile, the loan default rate including distressed exchanges decreased to 3.66%.
  • For the quarter, the $158.6 billion of high yield new issuance easily surpassed the prior high of $145.5 billion in second quarter 2020. Leverage loan new issuance totaled $300.5 billion in the period, and leverage finance markets remain wide open.
  • High yield funds reported outflows of $10.2 billion in the quarter versus positive flows of $6 billion last quarter. Floating rate loan funds reported inflows of $11.1 billion in the period as investors respond to stronger global growth rates and a corresponding rise in interest rates.

Portfolio Strategy

  • The Fund meaningfully outperformed during the quarter returning mid-single digits versus 0.90% for the ICE BAML US High Yield Index and 0.93% for the Morningstar peer group.
  • The high yield bond portion of the Fund (64% of Fund net assets) outperformed the index by 228 bps. Contributors to performance were credit picks in telecommunications (both wireline and wireless), rentals and aerospace/defense. The biggest detractor from performance was driven by an underweight to the energy sector
  • Leverage loan investments (28% of Fund net assets) outperformed both the index and the peer group by 478 bps. Credits in the retail, manufacturing and electronic sectors drove the outperformance. Detractors from performance were credits in the food and broadcasting sectors.
  • The equity portion of the Fund (7% of Fund net assets) outperformed both the index and the Morningstar peer group, returning 12.08%. The Fund’s equity position in New Cotai drove the majority of the outperformance, partially offset by Laureate and McDermott.

Outlook

  • In our last outlook, we stated that credit markets were wide open to those wishing to issue debt and at absolute yields that were the lowest in history. We also observed that the vaccine rollout was just beginning but looked to have a high probability of being ramped up and successful by the end of May or June. Both characterizations remain true today and continue to drive the credit and equity markets tighter (in terms of spreads) and higher (in terms of overall prices), respectively.
  • As investors have started to see the light at the end of the COVID-19 tunnel and economic activity has started to accelerate, rates have moved up quickly with the 10-year U.S. Treasury rate increasing 76 bps so far this year. With vaccinations ramping to over three million per day on average, herd immunity should be upon us mid-to-late summer. If we remain on this track and variants of the virus remain under control, we think the Federal Reserve (Fed)’s stance on accommodative policy for the foreseeable future will become increasingly debated. This will most likely lead to a continued march higher in rates. Longer term, we believe the Fed is more worried about deflation than inflation and will want to see solid data on inflation before tapering purchases and ultimately raising the federal funds rate some time in 2022.
  • High yield credit has shrugged off the increase in rates with positive returns year to date. It is our view that rising rates aren’t necessarily a bad thing for high yield credit. Higher rates normally are accompanied by improving economic growth, better corporate profits and lower unemployment, all of which leads to levered companies being able to better service their debt obligations as the economy recovers.
  • We continue to have an outsized weighting to leverage loans which should serve us well as they have low interest rate risk and their seniority in the capital structure makes them less susceptible to price declines. Loans have also benefitted from a technical tail wind this year as the asset class has seen inflows of $11 billion.
  • We acknowledge that with spreads and yields being at or near historical lows, finding great risk reward investments is increasingly difficult. We have passed on opportunities where the compensation, i.e. coupon, has not fit the risk. We will continue to let our fundamental research drive our investment decisions with a laser focus on making sure we are being compensated for the risks we are taking.

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 March 31, 2021, 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 impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.
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.
Top 10 holdings as a percent of net assets as of 3/31/2021: State Street Institutional U.S. Government Money Market Fund – 3.9%; New Cotai Participation Corp., Class B – 3.3%; Staples, Inc., 7.5%, 4/15/2026 – 2.3%; Olympus Merger Sub, Inc., 8.5%, 10/15/2025 – 2.2%; NFP Corp., 6.9%, 8/15/2028 – 2.0%; PAE Holding Corp., 5.3%, 10/19/2027 – 1.7%; Laureate Education, Inc., Class A – 1.6%; West Corp., 5.0%, 10/10/2024 – 1.5%; Altice France Holding S.A., 10.5%, 5/15/2027 – 1.5%; Wolverine Escrow LLC, 9.0%, 11/15/2026 – 1.4%

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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Chad Gunther

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Quarterly Fund Commentary

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Ivy Global Bond Fund

Market Sector Update

  • The global credit market ended the first quarter of 2021 tighter than calendar year-end 2020. Rallying credit markets
    to start and end the quarter were enough to offset weakness in late February and early March. The credit spread on
    the Bloomberg Barclays U.S. Universal Index, the Fund’s benchmark, ended the quarter at 68 basis points (bps), which
    is 13 bps tighter over the quarter, and even tighter than pre-pandemic levels in January 2020.
  • The International Monetary Fund (IMF) recently published its April 2021 World Economic Outlook (WEO). Its
    researchers again upgraded global gross domestic product (GDP) growth estimates and expectations. Looking back at
    last year, it estimates that the global economy contracted by -3.3% in 2020 which is 1.1 percentage points (pp) less
    contraction than it expected at the time of its last WEO in October 2020. At the same time, it projects global GDP
    growth of 6.0% in 2021 and 4.4% in 2022, which is higher by 0.5pp and 0.2pp, respectively, compared to October 2020
    expectations. Unfortunately, low-income developing countries stand out with GDP growth expectations revised
    downward compared to last October’s WEO. Meanwhile, among major economies, the U.S. stands out with
    expectations to surpass pre-COVID-19 GDP levels this year, while China returned to pre-COVID-19 GDP in 2020.
  • Fixed-income investment returns were generally negative for the quarter, as tighter credit spreads could not
    overcome a dramatic steepening of the U.S. Treasury yield curve. The 10-year U.S. Treasury yield ended the quarter at
    1.74% after entering at 0.93% as the Federal Reserve (Fed) maintained loose policy in the face of increasing fiscal
    stimulus.
  • Broadly, consumer consumption and activity data improved into the end of the quarter as the late-2020 COVID-19
    surge receded and consumers began to spend the latest round of stimulus checks. The U.S. COVID-19 vaccination rate
    continues to be ahead of most of the world, further bolstering sentiment.

Portfolio Strategy

  • The Fund outperformed its benchmark during the quarter. The outperformance was primarily attributable to two
    factors. First, the Fund’s shorter duration benefited it as interest rates rose significantly during the quarter. Second, the
    Fund’s exposure to credit supported returns as spreads continued to tighten through the quarter.
  • The Fund also outperformed its Morningstar peer group. The outperformance stemmed from the Fund’s higher credit
    exposure, lower duration, and lack of foreign currencies, as the U.S. dollar outperformed most major currencies, both
    in developed and emerging markets.
  • We continue to seek opportunities to reduce volatility in the Fund. We are maintaining a low-duration strategy,
    although we are more open than in the recent past to marginally increasing duration to levels that would remain low
    compared to peer funds. With credit spreads back to levels tighter than the historical average, we continue to move
    towards a more defensive position by moving up in higher quality credits/companies at the expense of high-yield
    credits in emerging market countries.

Outlook

  • We believe short-term interest rates will stay near zero for the foreseeable future. Base effects and fiscal stimulus
    are likely to result in increased inflation in the near term, but this increase should be both limited and transitory due to
    growth constraints as we exit the pandemic. The U.S.’s sizable fiscal packages provided much needed income support
    for sidelined workers and financial support for businesses facing interrupted product demand and cash flows.
    However, stimulus packages passed thus far are not fiscal stimulus that will generate sustained stronger growth.
  • As expected, Democrats were able to push through another large economic stimulus bill in the first quarter of 2020.
    The Biden administration recently proposed a large infrastructure bill, although significant hurdles remain for that to
    become law.
  • Demand for corporate credit remains intact. Across the globe, fixed-income yields are staggeringly low, leaving
    investors few alternatives. The Fed has indicated it will continue to support markets beyond the point at which the
    COVID-19 virus is contained, which we believe is likely to support current spread levels.
  • China has contained COVID-19 more effectively than most countries and is now the closest of the major countries to
    operating at “business-as-usual.” This has been a major support to global resource demand. While China’s credit cycle
    has likely peaked, which could weigh on global resource demand later in 2021, vaccine rollouts in the U.S. and the U.K.,
    and later in the year in the European Union, are likely to provide a counterweight.
  • The economies of many emerging market countries have been supported by surprisingly aggressive fiscal stimulus.
    With ballooning fiscal deficits, however, governments will likely have less room to respond in 2021. Furthermore, major
    emerging market countries including Brazil and India are now the epicenter of the COVID-19 pandemic.
  • West Texas Intermediate (WTI) crude began to rise in mid-November as COVID-19 vaccine trials showed positive
    results. The rise continued through most of the first quarter, driven by Saudi Arabian supply cuts, lower recent
    investment, and increasing demand. The WTI crude benchmark increased from $48 per barrel at the start of the year
    to peak at $66 before retreating slightly to end the quarter at $59 per barrel.
  • Finally, the tilt away from globalization that has been underway for about half of the decade is likely to be reinforced.
    We believe new factors stemming from COVID-19 and heightened geopolitical tension between the U.S. and China will
    fuel the move further away from globalization, which will change complex international supply chains, and lead to
    higher tariffs and potentially increased barriers to immigration.

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 March 31, 2021, 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 impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital markets
in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises
caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined
with certainty.

The Bloomberg Barclays U.S. Universal Index represents the union of the U.S. Aggregate Index, the U.S. High-Yield Corporate Index, the 144A Index, the Eurodollar Index, the Emerging Markets Index, and the non-
ERISA portion of the CMBS Index. Municipal debt, private placements, and non-dollar-denominated issues are excluded from the Universal Index. The only constituent of the index that includes floating-rate debt is
the Emerging Markets Index. Source: Bloomberg Barclays. 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. 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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Mark Beischel

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Quarterly Fund Commentary

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