Market Sector Update

• Oil prices, sluggish wage growth and uncertainty about inflation had an impact on the global bond markets during the quarter. The weakness mainly affected the value of the U.S. dollar, which depreciated versus the euro, pound and Canadian dollar.
• The U.S. Federal Reserve (Fed) raised interest rates in June, the second hike this year, and introduced new details for reducing the size of its balance sheet through a process that may begin in September. Markets in general expect one more rate hike in December.
• European Central Bank (ECB) President Mario Draghi’s comments on inflation in the eurozone caused the bond market to question a continuation of the ECB’s quantitative easing program. Markets expect the ECB in September to extend the purchase program but at a lower monthly amount and then end it in 2018.
• The Bank of Japan (BOJ) did not provide any guidance during the quarter in a change of direction with its monetary policy of targeting interest rates. Inflation forecasts suggest that while the BOJ might have overcome deflation, its 2% inflation goal is not on the horizon.

Portfolio Strategy

• The Fund had a positive return (before the effect of sales charges) but underperformed its blended benchmark index.
• The Fund’s exposure to the U.S. dollar hurt its relative performance as the dollar softened against other major currencies.
• The portfolio remained at an equal weighting in the Global Bond Strategy and High Income Strategy sleeves at quarter end at about 40% each, with the remaining 20% weighting in the Total Return Strategy sleeve. We continue to review the weightings regularly in managing the allocations in the Fund.
• The Fund continues to use primarily a “long only” investment strategy and again did not engage in derivative strategies during the quarter.
• We maintained a low-duration strategy again during the quarter, believing it allows a higher degree of certainty about the companies in which the Fund can invest. The Fund also continued to hold a higher level of liquidity because of structural changes in the capital markets. We plan to be opportunistic with that capital when we believe there are dislocations in the market that create potential opportunities.

Outlook

• We think dollar strength still will depend on a variety of factors, including the Fed becoming more hawkish versus other central banks’ positions; major fiscal stimulus or regulatory rollbacks in the U.S. becoming a reality; and growth in Europe and Japan being insufficient to lower expectations for monetary tightening.
• We believe dollar weakness will continue if the soft inflation data persists. The market is likely to question the Fed’s intentions for higher rates during the next 18 months.
• Fiscal policy also has created uncertainty about the dollar. Repealing and replacing Obamacare has proven to be difficult and we think it could hurt President Donald Trump’s political capital and his efforts at tax reform.
• Emerging market risk aversion continues to decline. Improving attitudes about emerging markets mean valuations are becoming less attractive, although macro conditions in those markets remain firm.
• We think China’s growth momentum may have moderated. Investment remains an important driver of growth, and we think another round of stimulus may be coming and monetary policy will remain accommodative.
• Russia continues to be a headline risk for the Trump administration, including multiple investigations related to Russia and the U.S. presidential election campaign. Diminishing concerns about a full repeal of the North American Free Trade Agreement (NAFTA) have allowed the Mexican peso and local rates to rally. But we think Mexican local rates and the peso will be more volatile going forward and subject to market emotions about fiscal, monetary and trade policies.
• The U.S. budget deficit is on the rise and we think it will continue with Trump’s pro-growth policies. Treasury supply will increase commensurate with that and is likely to be funded largely through Treasury bills issuance absorbed by new money market reforms, as well as incremental demand from Japanese investors searching for yield.

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

Class R6 shares were renamed Class N on March 3, 2017.

Risk factors:The value of the Fund's shares will change, and you could lose money on your investment. Although asset allocation among different sleeves and asset categories generally tends to limit risk and exposure to any one sleeve, the risk remains that the allocation of assets may skew toward a sleeve that performs poorly relative to the Fund's other sleeves, or to the market as a whole, which would result in the Fund performing poorly. While Ivy Investment Management Company (IICO) monitors the investments of Apollo Credit Management (Apollo) in addition to the overall management of the Fund, including rebalancing the Fund's target allocations, IICO and Apollo make investment decisions for their investment sleeves independently from one another. It is possible that the investment styles used by IICO or Apollo will not always complement each other, which could adversely affect the performance of the Fund. As a result, the Fund's aggregate exposure to a particular industry or group of industries, or to a single issuer, could unintentionally be larger or smaller than intended. Investment risks associated with investing in real estate securities, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes and differences in real estate market values. 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. 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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Before investing, investors should consider carefully the investment objectives, risks, charges and expenses of a mutual fund. This and other important information is contained in the prospectus and summary prospectus, which may be obtained here or from a financial advisor. Read it carefully before investing.