Market Sector Update

• Despite ongoing policy debates in Washington and relatively slow global growth, equity markets posted very strong results for the first three months of the year and ended the quarter near all-time highs.
• The recent market rally has been primarily driven by price-to-earnings (P/E) multiple expansion due to receding tail risks and improving investor confidence, as earnings growth expectations have remained modest at best.
• It is notable that traditional defensive growth sectors such as health care and consumer staples led the market advance. Both sectors have benefited from their less volatile earnings profile and above-average dividend yields.
• During the quarter, value-oriented strategies outperformed growth strategies and small-cap stocks generally outperformed large caps. Also, low-quality stocks modestly outperformed, which was a slight headwind to our style of investing in quality growth companies. Reversing a trend from the previous quarter, U.S. stocks broadly outperformed most international stocks with a key exception being Japan.

Portfolio Strategy*

• The Fund posted strong absolute returns for the quarter, but modestly lagged its Russell 1000 Growth Index benchmark.
• Stock selection in energy and telecommunications was a drag to performance. Specifically, VMware, Time Warner Cable and Crown Castle International were the largest relative detractors for the period. In addition, consumer staples negatively impacted performance due to an underweighted position along with weaker-than-index stock selection.
• Stock selection in consumer discretionary favorably impacted performance with strength from Las Vegas Sands, Discovery Holdings and Nike Inc. In addition, stock selection in financials had a positive impact with strength from T. Rowe Price and American Express Company.

Outlook

• We continue to look for companies that can establish competitive advantages in large, growing markets and generate superior levels of profitability and growth over the long term.
• We believe top-line secular growth companies should be favored in today’s slow-growth environment.
• Currently, we are finding opportunities in key areas of technology, consumer discretionary and health care. We are currently de-emphasizing consumer staples due to unattractive valuations.

*VMware Inc., Crown Castle International Corp., Las Vegas Sands, Discovery Holdings, Nike Inc., T. Rowe Price and American Express Company (0.48%, 1.0%, 3.1%, 1.6%, 2.3%, 2.0% and 1.6% of net assets as of 03/31/2013.) Time Warner Cable is no longer a holding of the Fund.

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.

Russell 1000 Growth is an unmanaged index comprised of securities that represent the large-cap sector of the stock market. It is not possible to invest directly in an index.

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. While the Fund seeks to minimize tax distributions to shareholders, it may realize capital gains and earn some dividends. 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.