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    Quarterly Fund Commentary

    Delaware Ivy Municipal High Income Fund (prospectus)
    December 31, 2016

    Gregory A. Gizzi
    Stephen J. Czepiel
    Jake van Roden
    Jake van Roden

    Market Sector Update

    • The fourth quarter brought a reversal and sell-off in the municipal market. The election of Donald Trump caused rates to rise and bonds to sell off, as investors recognized the potential for lower tax rates and faster economic growth. With higher rates we believe that supply will continue to be below norms and, with the adjustment in rates, the municipal market appears much more attractive.
    • With the backup in rates we have become more constructive on the high yield municipal space, as new issues come to market with more attractive yields and better collateral for investors. We continue to participate selectively in the new issue market while maintaining ample amounts of liquidity for investors.
    • Going forward, we believe the municipal market is oversold, based on slower global growth and continued geopolitical risk. While the Federal Reserve is likely to raise rates in 2017, the rise in municipal bond rates has been more dramatic and overdone in our view.

    Portfolio Strategy

    • We continue to purchase deals we feel offer above market yields based on the underlying credit fundamentals of the projects or municipalities.&br;
    • We favor revenue bonds over tax-backed debt as revenue bonds, in our view, provide higher yields and better diversification from general tax and pension issues currently affecting many municipalities.
    • Going forward, we will look for opportunities in bonds with less defensive structures, as interest rates have risen so dramatically. We feel at this time that it makes sense to begin to lengthen durations, as these bonds represent greater value than in the past as a result of the aggressive upward move in rates. We will continue to allow bonds to be refinanced to shorter call dates, which will provide ample liquidity to exploit potential opportunities.


    • In the near term, we believe volatility will continue, as choppy economic data continues to globally create large amounts of uncertainty for markets. It is important that investors realize the value in diversifying across states and sectors. Portfolio managers work to limit the amount of exposure to such variables, as well as watch for over-investment in any individual bond.
    • We believe investors will continue to search for tax-exempt yield due to higher tax rates, which should benefit the municipal bond 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, 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 it 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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