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    Quarterly Fund Commentary


    Delaware Ivy Municipal Bond Fund (prospectus)
    December 31, 2016


    Manager(s):
    Gregory A. Gizzi
    Stephen J. Czepiel
    Jake van Roden

    Market Sector Update

    • Municipal market performance was primarily driven by the following Donald J. Trump election victory factors: 1.Expectations for both individual and corporate tax reform; 2.Expectations for a more business-friendly regulatory environment, with rollbacks of certain growth-stunting regulations; 3.Anticipated high levels of fiscal stimulus which could be funded through some combination of both Treasury and municipal bond markets; 4.Renewed animal spirits and growth prospects which benefited equity markets; 5.A re-calibration of future inflation expectations as a result of improving optimism.
    • Defaults in the municipal bond asset class continue to be rare. While we anticipate increased headline risk from municipal issuers that have severely under-funded pensions and other post-retirement benefit obligations, we continue to believe that these problems are not systemic, and that they will remain isolated.
    • Interest rates increased dramatically in the quarter and the yield curve slope steepened significantly.

    Portfolio Strategy

    • The Trump victory is a potential market and economic game changer. His policies, if implemented, increase economic growth potential. There are some faint signs that inflation may be picking up by some measures, and there is heightened anxiety that inflation may accelerate moving forward.
    • Europe, China and Japan continue to run very stimulative monetary policy operations, which could continue to prevent U.S. rates from rising too far, although at the moment U.S. monetary policy has decoupled from the rest of the world. While the United Kingdom decision to leave the European Union did result in additional monetary stimulus, the anticipated economic fallout from the decision has been very mild, to date. Geopolitical risk continues to elevate the potential for additional flight-to-quality investments.
    • Even with the dramatic bond sell-off that we observed in 4Q 2016, both Treasury and municipal rates remain at very low levels. The portfolio duration is currently slightly short to our benchmark. We continue to maintain our overweight slant to spread product in the A-BBB range.
    • We will continue to place emphasis on diversification, higher (overall) credit quality and yield curve positioning.

    Outlook

    • We remain confident that municipal bond defaults will continue to be much lower than any other fixed-income alternatives, besides U.S. Treasuries.
    • We strongly believe that there will be a reduction in both the individual and corporate tax rates with the new administration. Municipal bonds have already begun to reprice in anticipation of the expected tax reforms. We do not believe that the municipal tax exemption is in jeopardy, as the municipal market is the most efficient infrastructure financing vehicle in the U.S. and could be very instrumental in funding much of Presidentelect Trump's projects, in addition to other funding sources.
    • We expect to see continued headlines on municipal pension under-funding and other retirement benefits issues. We will remain vigilant in monitoring these situations and we will endeavor to avoid investments with these issuers.
    • We expect Treasury yields to be the primary driver of the investment-grade municipal market as we move into 1Q 2017. Supply/demand technicals will continue to play a very important role in relative performance.
    • For several years we have felt that the 30+ year bull market was nearing an end. There is much uncertainty in the market, which continues to keep bond yields at very low levels. Global central banks appear determined to keep rates artificially low, but the move in U.S. rates has pulled global rates modestly higher.

    The opinions expressed in this commentary are those of the Fund’s manager and are current through December 31, 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.

    Diversification is an investment strategy that attempts to manage risk within your portfolio but does not guarantee profits or protect against loss in declining markets.

    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 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 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 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 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 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 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.

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