Waddell & Reed

Quarterly Fund Commentary

Ivy High Income Opportunities Fund (prospectus)
December 31, 2013

William M. Nelson

Please note this security started trading on May 29, 2013.

Market Sector Update

  • Treasuries continued on their trajectory up in yield with the 10-year ending the calendar year at approximately 3%.
  • Default rates continue to remain low.
  • Issuance is very strong with extremely low yields for issuers to refinance balance sheets and/or leveraged buyouts to occur.

Portfolio Strategy

  • We have a bias toward companies that would benefit – but are not reliant on – an improving economy. These companies do not need a lot of top-line growth and should continue to perform in a slow economy.
  • We seek good risk/reward characteristics when making investment decisions, particularly related to companies that we believe the market does not understand or which generate outsized yield related to their price.


  • We believe high-yield is in what we consider to be a “Goldilocks” scenario: not too hot and not too cold.
  • We continue to be in the midst of a Treasury yield upswing. We believe this headwind will make portfolio construction increasingly important.
  • We continue to play in the lower-quality bond space as we continue to prefer credit risk over the yield risk higher-quality credits may encounter related to rising Treasury yields.
  • We feel high yield is better suited than a lot of asset classes in this environment.

The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 2013. The manager’s views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Any securities or sectors mentioned are based on what the managers feel may be newsworthy and may or may not reflect holdings in this portfolio. It is not intended to represent that an investment in these securities or sectors was or will be profitable. Past performance is no guarantee of future results.

Risk Factors. The price of the Fund’s shares will fluctuate with market conditions and other factors. Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation. Closed-end funds frequently trade at a discount from their net asset values (NAVs), which may increase an investor’s risk of loss. At the time of sale, shares may have a market price that is below NAV, and may be worth less than the original investment. There is no assurance that the Fund will meet its investment objective.

Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than with 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 The Fund’s use of leverage may result in special risks and can magnify the effects of any losses. IVH also carries additional risks, including, but not limited to, market discount risk, derivatives risk, duration risk, issuer risk, interest rate risk, prepayment risk, loan risk, credit risk, swap risk, liquidity risk, foreign exposure risk, emerging markets risk,and non-diversification risk. For a more complete description of these and other risks, please see the Fund’s webpage at www.ivyfunds.com.

An investment in the Fund is not appropriate for all investors and is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle.

Ivy Investment Management Company (IICO) serves as the Fund’s investment adviser. IICO is a wholly-owned subsidiary of Waddell & Reed Financial, Inc.

The Fund is a closed-end exchange traded investment company. This material is presented only to provide information and is not intended as investment advice or recommendations for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. After the initial public offering, shares of closed-end funds are sold on the open market through a stock exchange. Investment policies, management fees, risks other than those mentioned above, and other matters of interest to prospective investors may be found in the closed-end fund prospectus used in its initial public offering. For additional information, contact the Ivy Funds Sales Desk at 866.263.1985.

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