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    Quarterly Fund Commentary

    Ivy Managed International Opportunities Fund (prospectus)
    June 30, 2016

    Cynthia P. Prince-Fox
    Chace Brundige, CFA

    Market Sector Update

    • The year and quarter got off to a volatile start, with the S&P 500 Index correcting by over 10% and then ending the first quarter up 1.35%. The U.S. Treasury 10-year yield also was choppy, at one point rallying to yield 1.67% before ending the quarter at 1.98%, below where it started the year.
    • The gyrations in markets may in part be a response to the U.S. Federal Reserve (Fed)’s increase of short-term interest rates by 0.25% in December 2015 after seven years at zero, along with stimulative changes in China’s policy. Fed Chair Janet Yellen acknowledged the risks to the global economy, despite the Fed’s desire to normalize rates. Japan embarked on negative rates in January and the European Central Bank further cut interest rates and expanded its quantitative easing program again.
    • The world’s currency markets were unsteady as the U.S. dollar was broadly lower during the quarter versus its major trading partners and many emerging market currencies after Yellen’s comments. The weaker dollar is likely to reduce the currency headwind for U.S. multinational companies and allow emerging markets a respite from sustained weakness.

    Portfolio Strategy

    • The Fund had a negative return for the quarter, as did its benchmark index. The performance reflected the mix of returns in the five underlying funds during the quarter and their allocation weightings. Only two of the five had positive returns (before the effect of sales charges).
    • The Fund ended the quarter with allocations largely unchanged from the prior quarter. The largest percentage of assets again was allocated to the underlying Ivy International Core Equity Fund at about 29%. The allocation to Ivy Global Growth Fund was about 25%, which helped maintain wide exposure to global markets overall. The allocations to Ivy European Opportunities Fund at 19%, Ivy Global Income Allocation Fund at 16% and Ivy Emerging Markets Equity Fund at about 10% also were unchanged from the prior quarter.
    • About 69% of the portfolio again was invested in foreign equities at quarter end and about 19% was invested in domestic equities, based on the holdings in the underlying funds. The Fund held slightly more than 6% in fixed income and about 4% in cash.
    • Yield and duration have been tough to find in fixed income markets. Negative rates persist on more than a dozen yield curves globally and the number continues to grow. Market participants have found yield is less scarce in global equity markets, driving the outperformance of many equity bond surrogates to outpace other parts of the market. Of note, despite lower sovereign bond yields relative to the U.S. Treasury, higher yielding foreign equities have not performed like their U.S. counterparts.


    • We continue to experience the effects of an emphasis on low-volatility strategies and the outperformance of “bond proxies” within U.S. equities – those stocks most correlated with the 10-year U.S. Treasury yield. We believe the tailwind of bond proxy names cannot continue indefinitely.
    • Brexit has created a number of uncertainties for global investors. The resolution is unclear and we think it is likely to have the undesired effect of lowering business and consumer confidence. With growth scarce globally, incremental stimulus form global central banks is increasingly causing undesired side effects. Uncertainty is a recipe for investors to seek safety of the U.S. dollar, U.S. Treasuries and the Japanese yen. Yen strength will pressure exports from Japan and could impede an already fragile recovery in that country.
    • We will continue to monitor central bank efforts to fight global deflation with interest rates or by using the asset side of the balance sheet. On the bright side, credit markets remain stable and open for most companies to finance at historically low rates.

    The opinions expressed in this commentary are those of the Fund's manager and are current through June 30, 2016. The manager's views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Holdings and weightings are subject to change. Past performance is no guarantee of future results. Past performance is not a guarantee of future results.

    Michael Avery retired from the company effective June 30, 2016, and Cynthia Prince-Fox and Chace Brundige, CFA, assumed portfolio management responsibilities on the Fund.

    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. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. Fixedincome securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as nondividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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.

    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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