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    Quarterly Fund Commentary

    Ivy Global Equity Income Fund (prospectus)
    June 30, 2016

    Robert Nightingale

    Market Sector Update

    • Across the globe, markets were turbulent but overall up slightly. Largely, markets climbed until May, but then proceeded to unsettle due to the coming Brexit vote and potential rate hikes by the U.S. Federal Reserve (Fed). Global markets took a brief dive post the Brexit vote, but quickly recovered.
    • In local currency, Canada, Australia, the U.K., Switzerland and the U.S. performed well, while Europe and Japan lagged. From a global sector standpoint, energy and health care performed the best, while consumer discretionary, information technology and financials performed the worst. Over the quarter, the U.S. dollar gained approximately 3% versus a basket of other currencies.
    • The Fed continues to push out further rate hikes due to the combination of paltry May jobs growth and Brexit. The market does not expect additional hikes until mid-2017 due to slowing growth in Europe stemming from the Brexit; mixed U.S. economic results; poor emergingmarket growth; and deflationary forces.
    • Post Brexit, the Bank of England stood ready for rate cuts and liquidity to aid an economy that may fall into a recession. The European Central Bank (ECB) does not plan to lower rates further, and is instead focused on getting the banking system fit to handle any added shocks.
    • Fears of a global recession slightly increased, as many feared the Brexit “yes” vote would hurt the U.K., and to a lesser extent, the European economy. Global purchasing managers’ indices had been getting slowly better before the surprise vote.

    Portfolio Strategy

    • The Fund slightly outperformed the benchmark, before the effects of sales charges, for the quarter. Stock selection slightly contributed to relative performance, while sector allocation slightly detracted. An underweight allocation to the U.S., a relatively strongperforming market, detracted but strong stock selection in the U.S. more than offset the underweight allocation.
    • From a stock selection standpoint, energy and consumer discretionary aided performance, while selection in telecommunication services and information technology were the largest detractors.
    • U.S. dollar currency hedges to the euro and British pound was the top contributor to performance as those currencies were weak relative to the U.S. dollar.
    • As the quarter progressed, we slightly increased our weighting to more defensive sectors due to slowing global growth, expected higher oil prices and the Brexit vote. The Fund increased its allocation to energy via large integrated oil and to health care. On the other hand, the Fund reduced exposure to consumer discretionary, industrials and financials. The Fund also lowered its exposure to the U.K., Japan and Switzerland, while increasing exposure to the U.S. and mainland Europe. Exposure to large cap names increased over the quarter as well.
    • The Fund’s largest sector overweights include telecommunications, health care and energy, where we continue to find companies we believe provide good dividend yield, recovery potential or growth prospects. In our view, our underweight allocations to information technology and financials tend to have either poor fundamentals or high relative valuations.


    • We think global economic growth will remain slow and faces additional headwinds caused by the Brexit vote hurting the U.K., and to a lesser extent, the European economy. Slower emergingmarket growth has also contributed to the muted growth outlook. We believe monetary policy is likely to remain aggressive for the foreseeable future, but to a lesser extent in the U.S. We think the Fed will raise interest rates early in 2017, which at times, will keep the markets on edge.
    • We are concerned about the recent terrorist attacks in Europe and the effects the large refugee influx will have on European politics and the economy.
    • We continue to follow policies stemming from Europe, including reforms and regulation measures from foreign governments and the ECB. The global marketplace had been fairly nervous about a Brexit, though we feel it is best for investors to keep things in context. The upcoming formal legal process of withdrawing from the EU – an approximate two year negotiation process – should provide a clearer impact of the yes referendum vote. In our view, Britain’s pending exit from the EU is unique, and we do not expect additional countries to exit.
    • We believe China is in a multi-year rebalancing to a more consumer-based economy and its anticorruption efforts need to be monitored. In our view, these changes will have lasting impacts throughout the global marketplace in shaping GDP growth, commodity prices and multinational profits based in Europe and the U.S.
    • We believe Japan will stimulate its economy via increased fiscal spending and quantitative easing.

    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. 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. 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 high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Dividend-paying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected.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 INVESTMENTSSM 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

    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 can be obtained from a financial advisor or at www.ivyinvestments.com. Read it carefully before investing.

    Variable investment options are subject to market risk, including loss of principal, and are suitable for long-term investing, particularly for retirement. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 ½ may be subject to a 10 percent IRS penalty in addition to taxes. Ivy Funds VIP 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 public.

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