Market Sector Update

• Equities continued to perform well during the quarter despite a number of negative risk events in Europe – the Cypriot financial crisis, inconclusive election results in Italy, and countries reporting slowing economic data. Despite these hardships, central banks remained very accommodative and provided support for risky asset prices in equity and fixed income markets.
• Though U.S. stocks performed well in the quarter, there remains a lack of yield opportunities in the U.S. Interest rates on fixed income remain at all-time lows and dividend-yielding stocks are expensive and producing lower income relative to international counterparts.
• Inflation remained under control in most markets, though the push by the Japanese Prime Minister for monetary easing in order to weaken the yen helped push Japan equities higher – driven by exporters.

Portfolio Strategy

• The Fund underperformed during the quarter compared to its blended benchmark. Our asset allocation proved to be correct in continuing to overweight equities, but within the equity portfolio, performance was hurt by an underweight in the outperforming U.S. – the overwhelming factor in our underperformance to the benchmark.
• Recent events in Europe have resulted in the Fund being more defensively positioned; however, better relative yield opportunity in equities has kept us from a full rotation into more fixed-income assets.
• Within the equity portfolio, health care is being increased at the expense of more cyclical sectors as we reduce the Fund’s beta. Positioning in the U.S. and Japan has also increased mainly at the expense of the UK, and to a lesser extent, Western Europe.
• The fixed-income portion of the portfolio outperformed, mainly driven by an underweight in Japan and an overweight in spread product. We have substantially shifted currency exposure – significantly reducing our British pound and emerging market currencies and increasing our overweight in the U.S. dollar.
• We have maintained our overweight in credit and spread product in the fixedincome portfolio and continue to have no exposure to Japan because of the depreciating currency.

Outlook

• Europe again reminded us that the sovereign debt crisis is far from over with uncertainty around European policy likely to persist. While Europe’s solutions are often less than ideal and likely harmful for growth, we do not believe they will cause a systemic breakdown of the euro.
• Europe is still an important part of the global economy, and largely because of these struggles in Europe, we continue to have a challenging outlook for global growth.
• The sluggish growth will give central banks additional leeway to pursue aggressive monetary policies. This is likely to provide support for risky asset prices despite the challenging economic backdrop.
• We expect the U.S. to slowly grow, even with higher taxes and spending cuts.
• As we look to allocate income around the globe, we still see better relative value in dividend yield and intend to keep our overweight in international equities due to this attribute.

The opinions expressed in this commentary are those of the Fund’s managers and are current through March 31, 2013. The managers’ views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results.

Risk Factors. As with any mutual fund, 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 f uctuations, political l 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 risks and, as such, the net asset value of the Fund may fall as interest rates rise. Dividend-paying investments may not experience the same price appreciation as non-dividend-paying instruments. Dividend- paying companies may choose not to pay a dividend, or dividends may be less than was anticipated. Investing in high-income securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. 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.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. For a prospectus, or if available a summary prospectus, containing this and other information for the Ivy Funds, call your financial advisor or visit us online at www.ivyfunds.com. Please read the prospectus or summary prospectus carefully before investing.