Ivy Mid Cap Growth Fund

Market Sector Update

  • Mid-cap growth stocks, as measured by the Russell Midcap Growth Index (Fund’s benchmark), enjoyed the strongest returns across the domestic equity spectrum in first quarter 2019, with a return of 19.6%, after falling 16% in fourth quarter 2018. This return ranked as number five among the top quarterly returns for the index over the past 20 years, showing a significant rebound since the end of 2018.
  • As the market rebounded from the selloff late last year, all sectors within the index posted positive returns. Information technology, industrials, consumer discretionary and health care were the top contributing sectors. Energy, in particular, had a strong rebound from worst performing sector in fourth quarter 2018 to a top five performing sector in first quarter 2019, although the sector’s relatively small exposure within the index keeps its contribution to the overall return relatively small.
  • The market’s rebound appears to have come from a more dovish Federal Reserve (Fed) and the announcement that it was pausing interest rate hikes; hopes for governmental stimulus in China coupled with positive news from the Trump Administration on the potential for a trade deal; and indicators that global growth could be nearing the bottom of deceleration. The U.S. economy appears resilient at this point when compared to the recent shocks, whether real or perceived, that are being thrown its way.

Portfolio Strategy

  • The Fund had a positive double-digit absolute return for the quarter, outperforming its benchmark. From a sector perspective, the Fund benefitted from relative outperformance in consumer discretionary, communication services, industrials and information technology.
  • Consumer discretionary was a significant overweight in the Fund and the sector benefitted from solid stock selection. Chipotle Mexican Grill posted strong sales performance as its management’s initiatives in the e-commerce area take hold. MercadoLibre was another particularly strong performer as the Latin American focused e-commerce company is demonstrating strong growth after emerging from a significant corporate investment period. Ulta Beauty, Inc. also posted positive results for the quarter with strong same store sales growth and margin expansion in the ubercompetitive retail space. Ulta has also shown an early adeptness in balancing “traditional” beauty products with the growing health and wellness categories.
  • Within communication services, Electronic Arts had an extremely positive streaming platform game launch during the quarter. The game, Apex Legends, had more than 25 million players within the first week, which compared quite favorably to similar competitors’ offerings. Electronic Arts is a name we have held in the portfolio for a long time and we still believe strongly in the company’s fundamentals and growth prospects.
  • Our industrials exposure was a slight overweight in the quarter that benefitted from several names, including CoStar Group and Fastenal. CoStar is the leading provider of real estate data, analytics and marketplace-listing platforms, including Apartments.com. It has a defensible franchise of mainly subscription based revenue that continues to grow with solid management execution. In the quarter, the company surprised to the upside as well as refreshed five-year guidance to a stronger level. Fastenal has been in the portfolio for more than a decade and continues to deliver strong numbers with good guidance.
  • Information technology was underweight the benchmark in the quarter. While the allocation affect was a slight negative, stock selection more than offset the underweight drag of the sector on the portfolio. Two particularly strong names for the quarter were ServiceNow and Keysight Technologies. ServiceNow is a software-as-a-service provider specializing in enterprise cloud-based solutions. During the period, it benefitted from higher-than-expected growth in billings against some very difficult comparisons from the year before and has projected higher guidance for the rest of 2019. ServiceNow also continues to ramp up the pace of research and development, which should benefit the company at least through 2020. Keysight Technologies provides testing systems and solutions for a diverse customer base with 5G communications network needs. It reported solid numbers in the quarter and guided higher for its April quarter. With 5G deployment currently in its infancy stages, we think the runway for this mid-cap grower is long.
  • Our cash exposure, while at the low end of our typical range, was still a drag on performance. Also, our small options exposure in the form of protective puts detracted a small amount from performance on the quarter. (A put gives the owner the right, but not obligation, to sell a specified amount of an underlying asset at a set price within a specified time.)

Outlook

  • The market’s temperament changed dramatically between fourth quarter 2018 and the end of first quarter 2019. Concerns about higher interest rates and worldwide trade wars were largely put to bed, with the Fed halting talk of rate hikes for 2019 and much rhetoric around a resolution, albeit on the horizon, to the China/U.S. trade wars. Near term confidence in the economy and corporate profits became in vogue again in the quarter, with a strong risk trade presenting itself in the markets.
  • While the Fund represents an economically constructive point of view, our approach is essentially balanced based on stock selection as opposed to overt sector allocations. The portfolio continues to express a more economically constructive and optimistic view, with a more assertive pro-growth, less defensive stance.
  • We are currently overweight the consumer discretionary, health care and industrials sectors. We are underweight the information technology sector but still have a healthy exposure. We are also underweight the consumer staples sector with our primary exposure in Hershey Foods Corp. and Sprouts Farmers Market. We are underweight materials and have no exposure to the real estate and energy sectors, which represent a combined 3.7% of the benchmark.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings (%) as of 03/31/2019: CoStar Group, Inc. 3.5, Chipotle Mexican Grill, Inc. 3.5, Zoetis, Inc. 2.8, Tractor Supply Co. 2.7, Electronic Arts, Inc. 2.6, ServiceNow, Inc. 2.5, MercadoLibre, Inc. 2.3, Ulta Beauty, Inc. 2.3, Keysight Technologies, Inc. 2.3 and Edwards Lifesciences Corp. 2.2.

The Russell Midcap Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index. Commentary is based on Class I shares.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in mid-cap growth stocks may carry more risk than investing in stocks of larger more well-established companies. 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. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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Nathan A. Brown, CFA

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Ivy Large Cap Growth Fund

Market Sector Update

  • It was a quarter of reversals. Equities performed strongly and reversed a significant portion of the losses realized during the prior quarter. Equities across all capitalization ranges and all styles had significant gains during the first quarter 2019. Growth styles outperformed value styles while mid caps outperformed both small and large. The Russell 1000 Growth Index, the Fund’s benchmark, increased by approximately 16% in the quarter.
  • The Federal Reserve (Fed) was a big source of the positive optimism that developed during the quarter. Post what was perceived to be policy error during fourth quarter 2018, the Fed moved quickly to ease tightening financial conditions. Actions taken included stepping back from quantitative tightening (balance sheet reduction) and taking a more dovish position regarding future interest rate hikes.
  • In response to these actions from the Fed, yields across the yield curve moved lower and the yield curve spread (10- year minus 2-year Treasuries) flattened slightly. Investors perceived the reduction in rates across the yield curve as helpful for solving the problem of tight financial conditions.
  • On the trade tariffs front, there was building hope during the quarter that China and the U.S. were on a path to agreement. Companies with high foreign sales exposure, those that experienced a difficult year in 2018, benefited from this more optimistic sentiment.
  • The net positive is that several of the most prominent worries during 2018 were mitigated during the first quarter 2019, sending volatility lower and market multiples higher. Despite near-term earnings risk based on weak global growth, there were building expectations for an acceleration in earnings growth later in 2019.
  • In another reversal of fourth quarter 2018 performance, a period in which all sectors in the index ended the period in negative territory, first quarter ended with all sectors in positive territory with strength in information technology and real estate and relative underperformance in financials and energy.
  • From a factor perspective, risk and quality outperformed during the quarter. Underperforming factors included value and pockets of momentum.

Portfolio Strategy

  • The Fund posted strong absolute double-digit gains, slightly underperforming its benchmark during the period. Performance benefited from strong stock selection in consumer staples, consumer discretionary and industrials. The main offset was driven by stock selection in financials.
  • Consumer staples provided positive attribution as the Fund held an overweight position to Estee Lauder. The shares responded positively to sustained strong growth out of China, a source of stress into quarterly results. The Fund also benefited from weakness in Coca-Cola, an index holding, as we have no exposure to this company.
  • Consumer discretionary benefited from stock selection with strength in Ulta Beauty, Inc. following strong quarterly results and VF Corp., which bounced back following recent concern around growth sustainability of its Vans shoe segment. The Fund also benefited from zero exposure to Tesla, which underperformed in the quarter.
  • The industrials sector was another notable positive contributor to performance. Strong growth momentum from CoStar Group and Verisk Analytics, both overweight positions, propelled those stocks higher and offset weakness from some cyclical names, such as JB Hunt.
  • The strong positive relative drivers were offset by performance in financials. Specifically, CME Group was a significant detractor of performance as the gains realized in 2018 related to increase in volatility partly reversed as volatility in the markets ebbed.

Outlook

  • We are cautious in returning to the narrative that the economy/equity markets will exit from the recent period of volatility and stress back on the same bull market trade as before. We are concerned economic conditions will remain tight and that a more cautious narrative is warranted and not currently being reflected.
  • The Fed has stepped back from further tightening but the impact from past interest rate hikes will remain in the system. We believe investors must ask if the repositioning of the Fed policy is an attempt to further accelerate the economy or a response to increasing, late-cycle risks to global growth.
  • We think the concerns around trade tariffs have also been swept away too quickly as investors have just moved to anticipation of a clear resolution. Several questions still linger and it is an unknown if a deal will bring full closure. We worry the uncertainty already created regarding global supply chains will be hard to unwind.
  • Excesses appear to be difficult to find as consumer debt, manufacturing inventories, corporate debt coverage and excess business investment, just aren’t apparent this cycle. We think the implication could be a growth deceleration with no recession or a shallow recession looming on the horizon.
  • The Fund will remain tilted to high quality, profitable growth as we believe the controversy regarding the growth outlook will remain, if not increase. In the current environment of sentiment swings between pro-growth and growth fears, it is important to stress risk management to avoid mistakes given the high failure rate of large-cap growth companies.

The opinions expressed are those of the Fund’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings (%) as of 03/31/2019: Microsoft Corp. 8.0, Alphabet, Inc. 5.0, Amazon.com, Inc. 4.9, Visa, Inc. 4.6, Apple, Inc. 4.6, MasterCard, Inc. 3.5, Verisk Analytics, Inc. 3.4, CME Group, Inc. 3.3, Intuit, Inc. 3.1 and PayPal, Inc. 3.1.

Co-portfolio Manager Daniel P. Becker, CFA, left the firm effective April 12, 2018.

The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It is not possible to invest directly in an index. Commentary is based on Class I shares.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Investing in companies involved primarily in a single asset class (large cap) may be more risky and volatile than an investment with greater diversification. 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. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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Ivy Core Equity Fund

Market Sector Update

  • Domestic markets surged in the first quarter of 2019, with the S&P 500 Index, the Fund’s benchmark, up over 13% for the quarter. This follows a dismal performance in the previous quarter, where the benchmark declined nearly 14%.
  • We attribute this dramatic rebound to the Federal Reserve (Fed) and its pivot on interest rate increases. The Fed indicated it will likely leave rates unchanged this year due to weaker global growth and benign inflationary pressure.
  • In another surprising move, Fed Chairman Jerome Powell announced in March plans to halt the Fed’s program of reducing bonds and mortgage-backed securities holdings on its balance sheet in September. The best performing sectors for the first quarter included information technology, real estate, industrials and energy as the market took a decidedly pro-cyclical turn. Real estate, while not typically pro-cyclical, performed well thanks to the downward move in 10-year Treasury interest rates in late March. The worst performing sectors for the quarter included health care and financials.

Portfolio Strategy

  • The Fund delivered a positive return for the quarter, but underperformed its benchmark (based on Class I shares).
  • The largest detractor from relative performance was the larger-than-normal cash balance. Additional negatives included stock selection in the communication services sector (ownership of Take Two Interactive and lack of ownership in Netflix and Facebook). The portfolio’s underweight and stock selection in energy also detracted from relative performance. The largest positive contributor to relative performance came from stronger stock selection within financials.
  • With regard to individual holdings, top performers included Microsoft, First Data, and Citigroup. Holdings that were detractors to performance included Take-Two Interactive, CME Group and Vail Resorts.
  • From a style perspective, it should be noted that over the past nine months we have materially decreased the portfolio’s weighting of high growth stocks as their valuation levels have increased relative to the broad market.
  • We anticipate that through the course of 2019, investors will feel somewhat better about growth prospects outside of the U.S. and more value-oriented investments could see a good tactical run. We have and will continue to pivot the portfolio to companies with valuation characteristics that are more favorable. Often these moves will come at the expense of some longtime winners in the portfolio.
  • Looking at portfolio composition, the information technology and consumer discretionary sectors are the Fund’s largest sector overweights as we are adding positions in which there has been growth in earnings and/or free cash flow while trading at valuation levels below their historical norms. The Fund continues to be underweight expensive bond proxy groups including real estate and utilities. We saw large opportunities to invest in companies following the recent correction, so the Fund’s cash levels are down over the previous quarter.

Outlook

  • As we look ahead, the pace global economic growth is very likely to slow, but remain positive in the near term. There are signs that policy makers globally are responding to slowing growth and a lack of inflation. Chinese policymakers are stimulating, while eurozone officials continue a policy of negative interest rates and the Fed’s signal of no further near-term rate hikes.
  • However, the uncertainties around political, monetary and trade policies have been stubbornly persistent and are likely to linger for most of this year. While we believe domestic economic growth will continue, the lagged effects of tighter monetary policy and waning benefits from fiscal stimulus will be a headwind.

Top 10 holdings (%) as of 03/31/2019: Microsoft Corp. 5.3, Boeing Co. 3.6, UnitedHealth Group, Inc. 3.6, Citigroup, Inc. 2.8, Amazon.com, Inc. 2.7, Analog Devices, Inc. 2.7, Lockheed Martin Corp. 2.6, Mastercard, Inc. 2.5, Alphabet, Inc. 2.5, Nike, Inc. 2.4.

Gus C. Zinn, CFA, served as a portfolio manager on the Fund until Dec. 3, 2018.

The S&P 500 Index is a float-adjusted market capitalization weighted index that measures the large-capitalization U.S. equity market. It is not possible to invest directly in an index.

Risk factors: The value of the Fund’s shares will change, and you could lose money on your investment. Because the Fund is generally invested in a small number of stocks, the performance of any one security held by the Fund will have a greater impact than if the Fund were invested in a larger number of securities. Although larger companies tend to be less volatile than companies with smaller market capitalizations, returns on investments in securities of large capitalization companies could trail the returns on investments in securities of smaller companies. 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. Not all funds or fund classes may be offered at all broker/dealers. These and other risks are more fully described in the Fund’s prospectus.

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Erik Becker, CFA

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Ivy VIP International Core Equity

Market Sector Update

  • Broad international markets were up approximately 10% in U.S. dollars, reversing the majority of last quarter’s losses. The U.S. dollar appreciated about 1% relative to a basket of other currencies. More accommodative central bank policy, an improving geopolitical backdrop and signs of bottoming in some international markets, particularly China, helped ease looming fears of a recession. For much of the quarter, earnings revisions were negative but leveled out at quarter end.
  • With regards to monetary policy, the U.S. Federal Reserve’s (Fed) 180 degree turn in policy stance was notable, signaling rate hikes are to be placed on hold, while balance sheet reduction will end sooner than anticipated. The European Central Bank (ECB) also extended the duration of its accommodative policy, announcing plans to launch a new round of long-term loans to eurozone banks and extending a pledge to hold off on any rate increases before year end. China has implemented a mix of monetary and fiscal policies in an effort to drive growth.
  • Targeted steps by China to stimulate its economy showed signs of success as the economy improved from a very low level over the quarter. Europe, Japan and the U.S. generally deliver disappointing economic data, but largely appear to be bottoming. On the geopolitical side, both China and the U.S. sent positive signals on the likelihood of a trade resolution, which benefitted markets. Meanwhile, the ongoing Brexit negotiations delivered very little progress towards reaching a resolution. The rebound in the markets is a signal that expectations for better economic growth are on the rise. While we see the merits to this view, we would feel a lot better about this prospect if the U.S. dollar was weaker.
  • Brent crude rebounded approximately 24% on the quarter, though the price remained $17 below its early October high. Both global demand expectations and OPEC production cuts contributed to the price rebound.

Portfolio Strategy

  • The Portfolio posted positive performance and performed in line with the benchmark for the period. Strong stock selection was a positive contributor, while currency and sector allocation were negative contributors to performance for the quarter. Stock selection was notably strong in the consumer staples and industrials sectors, while selection lagged in financials and communication services.
  • Consumer staples holding Wuliangye Yibin Co. Ltd., a Chinese liquor company, was a standout performer as was industrials holding Airbus Se. Financials holding Swedbank was a noteworthy detractor to performance, stemming from the company’s involvement in a money laundering investigation. Allocations to poor-performing telecommunication services companies also detracted, driving the underperformance in the communication services sector.
  • Geographically, the Portfolio’s holdings in developing markets, particularly China, drove relative gains. Additionally, our underweight in Japan helped as the market performed poorly, while stock selection was weak in the U.K.
  • In an effort to provide support in down markets, we maintained our forward currency contract to the Japanese yen, neutralizing our stock underweight allocation on a currency basis. Additionally, we hedged our direct exposure to the Chinese yuan.

Outlook

  • There are many factors we are carefully monitoring in the current economic environment. Shift in central bank policy, the rise of nationalism, the Brexit saga and trade negotiations – particularly between the U.S. and China – are standout issues. Going forward, we believe geopolitics will be as important to asset performance as monetary policy. The question remains: How much longer will the cycle extend uninterrupted by looming risks? As a result, we are watching closely for signs of change, and continue to seek stocks that should better withstand an economic downturn. While we think U.S.-China trade tensions will persist, we expect some positive agreements in 2019, in line with market expectations.
  • In much of the world, global monetary policy remains at the extremes of easy and we do not see that changing materially unless inflation accelerates at a higher-than-expected rate. Virtually all countries are struggling with high levels of debt. As a result, we believe central banks will attempt to keep rates below nominal gross domestic product growth to monetize debt and continue to stimulate their economies. As such, we believe there is a long-term cap on how high rates can go as long as central banks maintain control. Our base case is slow, deliberate exiting of quantitative easing and narrowing of negative interest rate policy globally.
  • We believe relative valuation remains supportive for international equities. We see relative value opportunities in emerging markets (especially China), energy, internet-related companies and in many cyclicals that we view as more stable than average.

The opinions expressed are those of the Portfolio’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Nestle S.A., Registered Shares 2.7%, SAP AG 2.7%, Roche Holdings AG, Genusscheine 2.6%, Total S.A. 2.6%, Airbus SE 2.4%, Danone S.A. 1.9%, Orange S.A. 1.8%, Wuliangye Yibin Co. Ltd., A Shares 1.8%, AIA Group Ltd. 1.7% and Unilever plc 1.7%.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio 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. These and other risks are more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

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Catherine Murray

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Ivy Municipal Bond Fund

Market Sector Update

  • Municipal market performance was primarily driven by a strong rally in the Treasury market.
  • Performance was also enhanced by a continued supply/demand imbalance and increased investor interest in taxavoidance
    strategies linked to the cap on the state and local tax (SALT) deduction from the new tax bill. The Federal
    Reserve (Fed) surprised markets with an aggressive policy reversal as it moved to a very dovish position. Concerns
    about slowing global growth, trade war angst and Brexit uncertainty were the primary drivers for the change in policy,
    as well as mild inflation pressures.
  • Interest rates declined sharply in the quarter and the yield curve flattened modestly. The Treasury market yield curve
    inverted between the 3-month bill and the 10-year which the market interpreted as a signal that a recession is
    forthcoming. We are not convinced this metric holds the same validity as in the past due to the unconventional easy
    monetary policy operations implemented by the Fed and other central banks in the last decade.
  • Defaults in the municipal bond asset class continue to be rare. While we anticipate increased headline risk from
    municipal issuers that have severely underfunded pensions and other post-retirement benefit obligations, we continue
    to believe these problems are not systemic and they will remain isolated.

Portfolio Strategy

  • The Fund had a positive return, but underperformed its benchmark. Treasury and municipal rates remain at very low
    historical levels. The portfolio duration is currently shorter than our benchmark, and the portfolio is defensively
    structured. We will continue to look for attractive opportunities to re-invest cash flow from bond income and maturity
    proceeds, but we believe valuations are stretched after the recent aggressive rally and we are proceeding with a high
    level of caution and patience.
  • We will continue to place emphasis on diversification, higher (overall) credit quality and yield curve positioning.
  • We expect to see continued headlines on municipal pension underfunding and other post-retirement benefits issues.
    We will remain vigilant in monitoring these situations and we will endeavor to avoid investments with these issuers.

Outlook

  • We remain confident that municipal bond defaults will continue to be much lower than any other fixed-income
    alternatives except U.S. Treasuries.
  • While we ultimately expect Treasury yields to be the key driver of the municipal market, we believe municipal bonds
    are currently at stretched valuations. We have also experienced unprecedented cash flows into the municipal bond
    asset class year to date. Historically, it has been prudent to not invest aggressively at extremes. Therefore, we are
    exercising patience based on the belief there will be a more attractive entry point to deploy some of our excess cash.
  • While we acknowledge that the numerous risks cited above will need to be monitored closely, we believe that
    financial markets have overreacted to some degree and are not in sync with relatively robust economic reality. We are
    cautiously optimistic that a U.S. trade deal with China will relieve some of the Fed's anxiety regarding U.S. economic
    growth prospects going forward.
  • Anticipated higher levels of Treasury issuance in the future to finance budget deficits, as well as a potential inflation
    surprise could force the Fed to temper its extremely dovish policy stance.
  • The big wild card moving forward is the Trump presidency. We remain cautiously optimistic that President Donald
    Trump's policies will result in enhanced economic growth, but much could go wrong given the high level of divisiveness
    in Congress. A lack of resolution in the trade conflict with China or an escalation of tensions, as well as the possibility
    of a policy mistake by the Fed could prove to be very destabilizing. The Democratic controlled House and continued
    partisan bickering over the Mueller investigation could also prove to be difficult obstacles for the president.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Diversification and asset allocation are investment strategies that attempt to manage risk within your portfolio but do 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.

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Ivy VIP Global Growth

Market Sector Update

  • Global equity markets experienced a strong recovery during the quarter after the sharp sell-off that occurred in late 2018. The increased likelihood of a trade resolution between the U.S. and China, the U.S. Federal Reserve pausing plans for additional rate hikes as well as improving economic data out of Europe and China helped drive the market rally in both developed and emerging markets.
  • In a continuation of recent trends, growth stocks outperformed value stocks, though both styles generated doubledigit returns during the quarter. Emerging markets generally outperformed developed markets during the period. In particular, China performed well as it regained part of prior losses. The U.S. led developed market performance, while Japan was a laggard. Performance in Europe was mixed, with outperformance from the U.K. (on a timeline extension of Brexit) and underperformance from Germany.
  • On a sector basis, information technology was particularly strong, up almost 20% for the quarter. The real estate, energy and industrials sectors also performed well, while the health care and financials sectors underperformed.

Portfolio Strategy

  • The Portfolio outperformed the benchmark for the period with stock selection driving relative outperformance. Selection was notably strong in the industrials, consumer staples and communication services sectors.
  • The Portfolio’s exposure to the health care sector was the largest relative detractor to performance. The Portfolio's overweight allocation to the relatively poor-performing sector as well as exposure to U.S. health care services stocks that disproportionately performed poorly on fears stemming from political rhetoric/concerns contributed to the decline. As political pressure continued through the quarter, we materially reduced our overweight allocation to U.S. health care services stocks on fears of continued political and regulatory concerns between now and the 2020 presidential election.
  • Top individual contributors to performance in the period included Airbus SE (benefitting from Boeing safety issues), Ping An Insurance Group Co. of China Ltd., and Ferrari N.V. Top individual detractors included CME Group, Inc., Cigna Corp., UnitedHealth Group, Inc. and HCA Holdings, Inc.
  • The Portfolio’s largest sector overweights include consumer discretionary, followed by industrials and information technology. The Portfolio’s largest sector underweights include communication services and materials.

Outlook

  • In our view, the most meaningful risk to equity markets is the on-going U.S.-China trade war. While a resolution is widely expected by markets today, a formal resolution of trade issues would be positive. We believe it would allow equity markets to focus on economic and business fundamentals, which have generally been showing signs of improvement. (Corporate earnings growth is still likely to slow for most global markets, particularly the U.S. where sizeable 2018 corporate tax cuts are having less impact). However, economic data in China, Europe and the U.S. looks better today than it did as we finished 2018.
  • Going forward, we are focusing on holdings we believe can succeed under a range of scenarios. We continue to look for perceived opportunities where secular growth stocks have been oversold on fears and are pricing in unrealistically negative scenarios. We are focused on competitively advantaged growth stocks that we believe can outperform in this environment.

The opinions expressed are those of the Portfolio’s manager and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 holdings as a percent of net assets include: Airbus SE 5.7%, Amazon.com, Inc. 4.6%, Microsoft Corp. 3.2%, Visa Inc. Class A 3.2%, CME Group, Inc. 3.1%, Dollar General Corp. 3.0%, HCA Holdings, Inc. 3.0%, Cognizant Technology Solutions Corp., Class A 2.7%, Thermo Fisher Scientific, Inc. 2.6% and Ping An Insurance (Group) Co. of China Ltd., H Shares 2.5%.

Risk factors: The value of the Portfolio's shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may be more volatile or not perform as well as value stocks or the stock market in general. 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 The Portfolio typically holds a limited number of stocks (generally 45 to 70). As a result, the appreciation or depreciation of any one security held by the Portfolio may have a greater impact on the Portfolio’s net asset value than it would if the Portfolio invested in a larger number of securities. These and other risks are more fully described in the Portfolio's prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

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Ivy Pinebridge High Yield Fund

Market Sector Update

  • High yield spreads rallied in the first quarter along with most other risk asset classes.
  • Investor sentiment improved amid a backdrop of progress on U.S.-China trade talks, stable or better than expected corporate earnings releases and, most importantly, a dovish pivot from U.S. Federal Reserve (Fed) Chairman Jerome Powell and the Federal Open Market Committee (FOMC).
  • In contrast to Chairman Powell’s December statement that the Fed’s balance sheet wind-down was on “autopilot,” he reversed course in January by reassuring investors that the central bank would be flexible with respect to all policy measures, including the timing and magnitude of the balance sheet runoff. Subsequently, FOMC statements dropped any bias towards hiking rates and added the word “patient” providing further assurance of a dovish stance.
  • 10-year Treasury rates rallied 28 basis points (bps) during the quarter while the option-adjusted spread on the Bloomberg Barclays U.S. Corporate High-Yield Index rallied 135 bps.

Portfolio Strategy

  • The Fund outperformed its benchmark during the quarter. Outperformance was primarily due to security selection with sector selection having a small negative impact.
  • From a security selection standpoint, the most notable contributions came from holdings in the communications, technology and basic industry sectors. These contributors more than offset the negative impact from holdings in the energy sector.
  • From a sector selection standpoint, a small cash position and an underweight allocation to the consumer non-cyclical sector detracted from performance. These detractors more than offset contributions from overweight allocations to finance companies and government-owned names.

Outlook

  • We continue to monitor four important factors when evaluating the most attractive risk/reward opportunities: credit fundamentals, future Fed action, the macroeconomic environment and corporate earnings.
  • Credit fundamentals generally remain solid, and spreads continue to be attractive versus other fixed income alternatives. Spreads are trading in the 350-400 bps range, which implies a default rate of approximately 2%. We believe valuations at this level are fair, but unlikely to tighten further on a relative basis, as loans remain wide of 400 bps.
  • The Fed’s new dovish tone could be favorable across U.S. fixed income this year, as it is now indicating that it will be patient with further monetary tightening unless warranted by an uptick in growth or inflation. Although the Fed continues to see favorable growth and a strong labor market ahead, it also has acknowledged the risk increase for a less favorable outlook.
  • We continue to see relatively low odds for a U.S. recession this year, though a few macro indicators are flashing subtle warnings. Low sovereign rates globally and flat yield curves suggest reasons for caution.
  • Primary issuance has picked up, but we believe the market still is better bid. However, recent equity-linked weakness and CCC underperformance indicate that the positive technical environment may reverse quickly.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The Bloomberg Barclays U.S. Corporate High-Yield Index measures the U.S. dollar-denominated, high-yield, fixed-rate corporate bond market. It is not possible to invest directly in an index.

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. 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. 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. 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.

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Ivy Managed International Opportunities Fund

Market Sector Update

  • Global equity markets rebounded sharply in the first quarter of 2019, precipitated by a pivot in monetary policy by the U.S. Federal Reserve (Fed) in late December, which announced a sudden pause in its plan to increase policy rates given weakening economic data and tightening financial conditions.
  • Additional optimism fueled a strong equity market rally throughout the first quarter of 2019 driven by a positive turn in rhetoric around the U.S.-China trade dispute, Chinese economic stimulus measures, a re-opening of the U.S. government and relief that corporate earnings reports did not materially lower forward-looking earnings guidance.

Portfolio Strategy

  • The Fund benefitted from the robust equity returns in the first quarter and posted a double-digit return, in line with its benchmark index. The performance reflects the mix of returns in the underlying funds and their allocation weightings. The most significant contributions were from the Ivy Emerging Markets Equity Fund and the Ivy Global Growth Fund. Both funds significantly outperformed their respective benchmarks, and the U.S. equity and growth-style exposures were tailwinds for the Fund. The Ivy Pzena International Value Fund and the Ivy International Small Cap Fund were the most significant detractors to performance as the value style underperformed in the period and both funds underperformed their respective benchmarks.
  • The Fund ended the quarter with the following target asset allocation: Ivy International Core Equity Fund 35%, Ivy Pzena International Value Fund 20%, Ivy Emerging Markets Equity Fund 15%, and a 10% allocation each to Ivy Global Growth Fund, Ivy International Small Cap Fund and Ivy Global Equity Income Fund.
  • At quarter end, about 87% of the Fund was invested in foreign equities, 10% in domestic equities and 3% in cash and cash equivalents.

Outlook

  • Our outlook remains balanced. Global growth remains tepid, but signs of improvement are emerging in economic data. In our view, many risk factors that precipitated the sell-off in the fourth quarter of 2018 have abated. First and foremost, the Fed has halted its hiking cycle, has signaled its willingness to be flexible in its balance sheet normalization process and has signaled the possibility of a change in monetary policy framework that may lead them to a more dovish policy stance.
  • Following a deleveraging phase in China, policy makers there have implemented measures to stimulate growth, including looser monetary policy, tax cuts and fee reductions as well as increased lending to the private sector, including new infrastructure investments through local government special purpose bonds. These measures operate with a lag and our economists anticipate these factors will be a tailwind to growth in the coming quarters.
  • We believe the rhetoric around the U.S.-China trade dispute has improved and the market expects a deal to be reached in the coming months. As many of the bearish dynamics that hindered returns in 2018 are alleviated in 2019 we anticipate global growth to improve modestly from a relatively low base.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. 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. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. 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.

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Ivy International Core Equity Fund

Market Sector Update

  • Broad international markets were up approximately 10% in U.S. dollars, reversing the majority of last quarter’s losses.
    The U.S. dollar appreciated about 1% relative to a basket of other currencies. More accommodative central bank policy,
    an improving geopolitical backdrop and signs of bottoming in some international markets, particularly China, helped
    ease looming fears of a recession. For much of the quarter, earnings revisions were negative but leveled out at quarter
    end.
  • With regards to monetary policy, the U.S. Federal Reserve’s (Fed) 180 degree turn in policy stance was notable,
    signaling rate hikes are to be placed on hold, while balance sheet reduction will end sooner than anticipated. The
    European Central Bank (ECB) also extended the duration of its accommodative policy, announcing plans to launch a
    new round of long-term loans to eurozone banks and extending a pledge to hold off on any rate increases before year
    end. China has implemented a mix of monetary and fiscal policies in an effort to drive growth.
  • Targeted steps by China to stimulate its economy showed signs of success as the economy improved from a very
    low level over the quarter. Europe, Japan and the U.S. generally delivered disappointing economic data, but largely
    appear to be bottoming. On the geopolitical side, both China and the U.S. sent positive signals on the likelihood of a
    trade resolution, which benefitted markets. Meanwhile, the ongoing Brexit negotiations delivered very little progress
    towards reaching a resolution. The rebound in the markets is a signal that expectations for better economic growth are
    on the rise. While we see the merits to this view, we would feel a lot better about this prospect if the U.S. dollar was
    weaker.
  • Brent crude rebounded approximately 24% on the quarter, though the price remained $17 below its early October
    high. Both global demand expectations and OPEC production cuts contributed to the price rebound.

Portfolio Strategy

  • The Fund posted positive performance and performed in line with the benchmark for the period. Strong stock
    selection was a positive contributor, while currency and sector allocation were negative contributors to performance
    for the quarter. Stock selection was notably strong in the consumer staples and industrials sectors, while selection
    lagged in financials and communication services.
  • Consumer staples holding Wuliangye Yibin Co. Ltd., a Chinese liquor company, was a standout performer as was
    industrials holding Airbus Se. Financials holding Swedbank was a noteworthy detractor to performance, as allegations
    of potential involvement in money laundering surfaced. Allocations to poor-performing telecommunication services
    companies also detracted, driving the underperformance in the communication services sector.
  • Geographically, the Fund’s holdings in developing markets, particularly China, drove relative gains. Additionally, our
    underweight in Japan helped as the market performed poorly, while stock selection was weak in the U.K.
  • In an effort to provide support in down markets, we maintained our forward currency contract to the Japanese yen,
    neutralizing our stock underweight allocation on a currency basis. Additionally, we hedged our direct exposure to the
    Chinese yuan.

Outlook

  • There are many factors we are carefully monitoring in the current economic environment. Shift in central bank policy,
    the rise of nationalism, the Brexit saga and trade negotiations – particularly between the U.S. and China – are standout
    issues. Going forward, we believe geopolitics will be as important to asset performance as monetary policy. The think U.S.-China trade tensions will persist, we expect some positive agreements in 2019, in line with market
    expectations.
  • In much of the world, global monetary policy remains at the extremes of easy and we do not see that changing
    materially unless inflation accelerates at a higher-than-expected rate. Virtually all countries are struggling with high
    levels of debt. As a result, we believe central banks will attempt to keep rates below nominal gross domestic product
    growth to monetize debt and continue to stimulate their economies. As such, we believe there is a long-term cap on
    how high rates can go as long as central banks maintain control. Our base case is slow, deliberate exiting of
    quantitative easing and narrowing of negative interest rate policy globally.
  • We believe relative valuation remains supportive for international equities. We see relative value opportunities in
    emerging markets (especially China), energy, internet-related companies and in many cyclicals that we view as more
    stable than average.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March
31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not
intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial
needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Nestle S.A., Registered Shares 2.7%, SAP AG 2.7%, Roche Holdings AG, Genusscheine 2.6%, Total S.A. 2.6%, Airbus SE 2.4%, Danone S.A. 1.9%,
Orange S.A. 1.8%, Wuliangye Yibin Co. Ltd., A Shares 1.8%, AIA Group Ltd. 1.7% and Subaru Corp. 1.7%.

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. 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.

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Ivy Funds VIP Energy

Market Sector Update

  • Global equity markets posted positive returns on the broad indexes. The energy and materials sectors also posted positive returns during the quarter, with energy outperforming and materials underperforming the broader equity market.
  • Volatility continued in the oil markets. Crude oil prices rebounded significantly higher in the quarter. West Texas Intermediate, the U.S. benchmark, was up about 30% after falling 45% in the fourth quarter and Brent, the global benchmark, was up slightly more.
  • The OPEC supply reduction announced in December 2018 provided a positive stimulus for the oil market. OPEC’s policy change was in response to waivers granted by the U.S. that allowed Iran to continue exporting oil to approved nations. As a result of the decreased supply from OPEC, global oil inventories declined in the quarter. Political disruptions and geopolitical issues led to lower production from Venezuela and Libya.
  • The Trump Administration is set to decide by early May if wavers that allowed countries to buy crude oil from Iran – despite U.S. sanctions – will be extended. The waivers were the initial reason the oil market became oversupplied.
  • The U.S. continued to grow oil production in the quarter, even as the rig count declined slightly. Lower rig count was driven by lower oil prices in the prior quarter as well as lower capital expenditures as producers aimed to generate more free cash flow.

Portfolio Strategy

  • The Portfolio posted a positive return for the quarter that slightly trailed the positive return of its benchmark index.
  • The five greatest equity contributors to performance relative to the benchmark were Propeto Holdings Corp., Wex, Inc., Dril-Quip, Inc., Cactus Inc.-Class A and Patterson UTI Energy, Inc.
  • The five greatest detractors to relative performance were Exxon Mobil Corp., Chevron Corp., Kinder Morgan, Inc.- Class P, Williams Companies, Inc. and Oneok, Inc.
  • About 40% of the equity holdings in the Portfolio were allocated to the Oil & Gas Exploration & Production industry segment, followed by about 28% to Oil & Gas Equipment & Services and 13% to Oil & Gas Refining & Marketing. The allocation to domestic equity was steady from the prior quarter at about 88% of net assets.
  • The focus of the energy strategy remains on investing in companies that can create value over the full course of the energy cycle. We identify those as companies that are low-cost operators, have strong balance sheets, have the ability to grow profitably and have strong return on capital.

Outlook

  • We expect the oil market price rebalancing that occurred in the quarter to continue, with OPEC expected to maintain production cuts into the summer. U.S. production growth is expected to decelerate but still grow in excess of 1 million barrels per day in 2019. U.S. supply growth is expected to be roughly in-line with global oil demand.
  • U.S. rig count, after declining in the quarter, is likely to remain flat as producers show spending discipline even with higher oil prices. Exploration and production companies are seeing more pressure from investors to be more prudent in allocating capital in order to generate better investor returns. This discipline could be tested in the second half of 2019 if oil prices remain in the current range or higher.
  • We believe the worldwide demand growth rate continues to be the greatest risk to oil prices going forward. Demand growth for this year has been better than expected, despite a synchronized global economic slowdown.
  • Infrastructure constraints continue in the Permian Basin for crude oil and natural gas, with some relief forecast for the fourth quarter, based on an expected increase in pipeline capacity.
  • Energy equities have lagged the appreciation in oil prices this year, but we think that gap will be reduced throughout the year as equities gain back some ground versus the commodity.

The opinions expressed are those of the Portfolio’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2019, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

Top 10 equity holdings as a percent of net assets as of 03/31/2019: Concho Resources, Inc., 5.42%; Continental Resources, Inc., 4.26%; Pioneer Natural Resources Co., 4.00%; Valero Energy Corp., 3.63%; Diamondback Energy, Inc., 3.63%; Phillips 66, 3.61%; EOG Resources, Inc., 3.43%; WPX Energy, Inc., 3.41%; Marathon Petroleum Corp., 3.37%; Halliburton Co., 3.29%.

Risk factors: The value of the Portfolio’s shares will change, and you could lose money on your investment. An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Investing in companies involved in one specified sector may be more risky and volatile than an investment with greater diversification. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in the prospectus.

Annuities are long-term financial products designed for retirement purposes. Annuity and life insurance guarantees are based on the financial strength and claims-paying ability of the issuing insurance company. The guarantees have no bearing on the performance of a variable investment option. Variable investment options are subject to market risk, including loss of principal. There are charges and expenses associated with annuities and variable life insurance products, including mortality and expense risk charges, management fees, administrative fees, expenses for optional riders and deferred sales charges for early withdrawals. Withdrawals before age 59 1/2 may be subject to a 10% IRS tax penalty and surrender charges may apply.

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