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    Quarterly Fund Commentary


    Ivy Municipal High Income Fund (prospectus)
    March 31, 2016


    Manager(s):
    Michael J. Walls

    Market Sector Update

    • The municipal market remained full speed ahead in the first quarter of 2016, with flows remaining positive and continued concerns over global growth and geopolitical risks leading the market higher. Flows for the last twelve months were solidly positive and, with the lack of supply, the municipal bond market was once again a top performer. Higher taxes and the relative attractiveness versus taxable equivalents have continued to drive demand for tax exempt income.
    • We have become less constructive on the high yield municipal space as new issues come to market fully priced and offer very little in the way of security provisions for the investor. We continue to participate selectively in the new issue market; however, attractive deals can be difficult to find.
    • Puerto Rico and concerns over higher rates continue to be the talk of the town; however, we believe any potential restructuring is already reflected in current bond prices. Likewise, we feel slow global growth and geopolitical risks will keep interest rates low for the foreseeable future. We continue to believe municipals will provide high net worth investors with attractive levels of income over the long term.

    Portfolio Strategy

    • We continue to purchase deals we feel offer above market yields based on the underlying credit fundamentals of the projects or municipalities.
    • We favor revenue bonds over tax-backed debt as revenue bonds, in our view, provide better diversification from the general tax issues and offer more attractive yields for investors.
    • Going forward, we are more cautious and will look for opportunities in bonds with more defensive structures as interest rates rise. We feel strongly these bonds represent greater value and will better protect the fund from the potential of slightly higher rates when growth begins to pick up. We will continue allow bonds to be refinanced to shorter call dates which will provide ample liquidity to exploit potential opportunities.

    Outlook

    • In the near term, we believe volatility will continue as choppy economic data continues globally creating large amounts of uncertainty for markets. It is important investors realize that we believe prudent managers diversify across states and sectors and always limit the amount of exposure to those variables as well as any individual bond.
    • We believe investors will continue to search for tax-exempt yield due to higher tax rates which should benefit the municipal market. In our view, patient investors should be rewarded over the long haul.

     


    The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2015. The manager’s views are subject to change at any time based on market and other&br;conditions, and no forecasts can be guaranteed. 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 by investing. Fixed income securities are subject to interest rate risk and, as such, the net asset value of the fund&br;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. The Fund may include a significant&br;portion of its investments that will pay interest that is taxable under the Alternative Minimum Tax (AMT). Exempt-interest dividends the Fund pays may be subject to state and local income taxes. The&br;portion of the dividends the Fund pays that is attributable to interest earned on U.S. government securities generally is not subject to those taxes, although distributions by the Fund to its shareholders&br;of net realized gains on the sale of those securities are fully subject to those taxes. The municipal securities market generally, or certain municipal securities in particular, may be significantly affected&br;by adverse political, legislative or regulatory changes or litigation at the Federal or state level. These and other risks are more fully described in the fund’s prospectus. Not all funds or fund classes may&br;be offered at all broker/ dealers.

    IVY INVESTMENTS? refers to the financial services offered by Ivy Distributors, Inc., a FINRA member broker dealer and the distributor of IVY FUNDS® mutual funds, and those financial services offered by its affiliates.

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