Market Sector Update

• There was some improvement in the global economy during the quarter, although growth overall remained slow. Global stock markets in the quarter continued their rebound from the lows of 2008-09.
• U.S. equities posted a strong quarter, surpassing a previous record closing level in a major index, as investors mostly ignored the fiscal issues in Washington and the long-term economic effects of the sequester budget cuts remain unclear. The U.S. economy continued its slow growth during the quarter.
• Europe’s economy remained in recession. Cyprus’ banking crisis unraveled and the outcome shook the confidence of investors and European bank depositors. Equities markets quickly stabilized after initially reacting with uncertainty. Italy added to the concerns about Europe as it continues to struggle to form a government after its latest round of elections.
• After a slight rebound in late 2012, the Asia Ex-Japan equity market saw a pullback in the quarter and underperformed the global market. China completed its transition to a new standing committee late in the quarter. The country’s economy continued to grow strongly.

Portfolio Strategy

• The Fund had slightly positive performance (before the effect of sales charges) for the quarter, but trailed its benchmark and peer group. It remained weighted more heavily through its underlying funds to equities than to fixed income. The Asian fund was the heaviest allocation among underlying funds.
• The weightings in the Fund reflect our continued focus on the increasing consumption of the expanding middleclass populations across emerging markets, and on investments in companies that may benefit from this trend.
• Asian markets generally underperformed the global equity markets during the quarter, and the underlying Asian fund had negative performance. These factors affected the Fund’s overall performance for the quarter because of its weighting.
• We continue to seek dividend-paying equities in some underlying funds. Such equities continue to offer higher yields, compared to benchmark fixed-income yields, in many global markets.

Outlook

• We expect equity markets to drive economic growth, and we think emerging-market equities could outperform developed markets. In addition, we think those world markets overall will outperform U.S. equities. Many emerging-market economies continue to show improvement.
• The growing middle-class population across emerging markets and that group’s increasing consumption of goods and services remain key investment themes for the Fund.
• There still are uncertainties in Asian markets, including whether China can sustain its strong growth. Strength in the U.S. dollar and weakness of the yen also are near-term factors for Asia’s regional equity markets.
• Europe faces continued issues with its banking system overall, which is adding uncertainty about its markets and growth prospects.
• The underlying funds overall continue to seek the stocks of companies with a sustainable competitive advantage, strong margins and growing markets or market share.

The opinions expressed in this commentary are those of the Fund’s manager and are current through March 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. 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. Investing in a single region involves greater risk and potential reward than investing in a more diversified fund. 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. Dividendpaying investments may not experience the same price appreciation as non-dividend paying instruments. Dividend-paying companies may choose to not pay a dividend or the dividend may be less than expected. The performance of the Fund will depend on the success of the allocations among the chosen underlying funds. 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.

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.