As filed with the Securities and Exchange Commission on October 13, 1999
(File Nos. 33- and 811- ).
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
THE UNIVERSAL FUNDS
(Exact Name of Registrant as Specified in Charter)
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 777-6472
C. William Ferris
Mackenzie Investment Management Inc.
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Name and Address of Agent for Service)
Copies to:
Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square, South - Suite 1230
Boston, MA 02109
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
Title of securities being registered: Shares of beneficial interest, no par
value per share.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant files a further
amendment that specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, or until this Registration Statement becomes effective on such date
as the Commission, acting pursuant to Section 8(a) of the Securities Act of
1933, may determine.
<PAGE>
THE UNIVERSAL FUNDS
CROSS REFERENCE SHEET
This Registration Statement contains the Prospectuses and Statements of
Additional Information to be used with the two series that comprise The
Universal Funds (the "Registrant").
ITEMS REQUIRED BY FORM N-1A:
PART A:
ITEM 1 FRONT AND BACK COVER PAGES: Front and back cover pages
ITEM 2 RISK/RETURN SUMMARY: INVESTMENTS, RISKS AND PERFORMANCES: Principal
Investment Strategies; Principal Risks
ITEM 3 RISK/RETURN SUMMARY: FEE TABLE: Fees and Expenses
ITEM 4 INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, AND RELATED
RISKS: Principal Investment Strategies; Principal Risks; Investment
Objectives, Principal Investment Strategies, and Related Risks
ITEM 5 MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable
ITEM 6 MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE: Management
ITEM 7 SHAREHOLDER INFORMATION: Shareholder Information
ITEM 8 DISTRIBUTION ARRANGEMENTS: Distribution Arrangements
ITEM 9 FINANCIAL HIGHLIGHTS INFORMATION: Not applicable
PART B
ITEM 10 COVER PAGE AND TABLE OF CONTENTS: Cover Page; Table of Contents
ITEM 11 FUND HISTORY: General Information
ITEM 12 DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS: Investment
Objectives, Strategies and Risks; Investment Restrictions; Appendix A
ITEM 13 MANAGEMENT OF THE FUND: Trustees and Officers; Compensation Table
ITEM 14 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees and
Officers
ITEM 15 INVESTMENT ADVISORY AND OTHER SERVICES: Portfolio Management;
Custodian; Fund Accounting Services; Transfer Agent and Dividend
Paying Agent; Administrator; Auditors
ITEM 16 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage Allocation
ITEM 17 CAPITAL STOCK AND OTHER SECURITIES: Special Rights and Privileges;
Capitalization and Voting Rights
ITEM 18 PURCHASE, REDEMPTION AND PRICING OF SHARES: Special Rights and
Privileges; Capitalization and Voting Rights; Net Asset Value
ITEM 19 TAXATION OF THE FUND: Taxation
ITEM 20 UNDERWRITERS: Distribution Services
ITEM 21 CALCULATION OF PERFORMANCE DATA: Performance Information
ITEM 22 FINANCIAL STATEMENTS: Financial Statements
<PAGE>
PROSPECTUS
December ___, 1999
THE UNIVERSAL FUNDS
Universal European Opportunities Fund
The Universal Funds (the "Trust") is a registered open-end investment company
consisting of one separate portfolio. This Prospectus relates to the Class A,
Class B, Class C and Class I shares of Universal European Opportunities Fund
(the "Fund"). The Fund also offers Advisor Class shares, which are described in
a separate prospectus.
The Fund is the successor entity to Ivy European Opportunities Fund, a
diversified series of shares of Ivy Fund, before the Fund's shareholders
approved a proposal to reorganize the Fund as a series of the Trust. The Fund
will not commence operations until after the closing of the reorganization
transaction. This reorganization is expected to occur on ___________, 1999 or as
soon as practicable thereafter. Accordingly, the Fund is not offering its shares
for purchase, and will not accept subscriptions for such shares, until after the
reorganization takes place.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
Investments in the Fund are not deposits of any bank and are not federally
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
[Insert all logos]
<PAGE>
CONTENTS
Universal European Opportunities Fund
Additional Information about investment strategies and risks
Management
Shareholder information
Financial highlights
Account application
<PAGE>
UNIVERSAL EUROPEAN OPPORTUNITIES FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital growth by investing in the
securities markets of Europe.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities of European companies, which may include:
o companies operating in Europe's emerging markets;
o small-capitalization companies in the more developed markets of Europe;
and
o large European companies, or European companies of any size -that provide
special investment opportunities (such as privatized companies, those
providing exceptional value, or those engaged in initial public
offerings).
The Fund may also invest in European debt securities, up to 20% of which may be
low-rated (commonly referred to as "high yield" or "junk" bonds).
The Fund's manager uses a "bottom-up" investment approach, focusing on prospects
for long term earnings growth.
PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK:
Securities selected for the Fund may not perform as well as the securities held
by other mutual funds with investment objectives that are similar to those of
the Fund.
MARKET RISK:
Common stock represents a proportionate ownership interest in a company. The
market value of common stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem your Fund shares at
a time when the Fund's stock portfolio is not performing as well as expected.
SMALL- AND MEDIUM-SIZED COMPANY RISK:
Securities of smaller companies may be subject to more abrupt or erratic market
movements than the securities of larger, more established companies, since
smaller companies tend to be thinly traded and because they are subject to
greater business risk. Transaction costs in smaller-company stocks may also be
higher than those of larger companies.
IPO RISK
Securities issued through an initial public offering (IPO) can experience an
immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. The Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
INTEREST RATE RISK:
The Fund's debt security investments are susceptible to decline in a rising
interest rate environment, even where "management risk" is not a factor.
CREDIT RISK:
The market value of debt securities also tends to vary according to the relative
financial condition of the issuer. Certain of the Fund's debt security holdings
may be considered below investment grade (commonly referred to as "high yield"
or "junk" bonds). Low-rated debt securities are considered speculative and could
weaken the Fund's returns if the issuer defaults on its payment obligations.
FOREIGN SECURITY AND EMERGING-MARKET RISK:
Investing in foreign securities involves a number of economic, financial and
political considerations that are not associated with the U.S. markets and that
could affect the Fund's performance unfavorably, depending upon prevailing
conditions at any given time. Among these potential risks are:
o greater price volatility;
o comparatively weak supervision and regulation of securities exchanges,
brokers and issuers;
o higher brokerage costs;
o fluctuations in foreign currency exchange rates and related conversion
costs;
o adverse tax consequences; and
o settlement delays.
The risks of investing in foreign securities are more acute in countries with
developing economies.
EURO CONVERSION RISK:
On January 1, 1999, a new European currency called the "euro" was introduced and
adopted for use by eleven European countries. The transition to daily usage of
the euro will occur during the period from January 1, 1999 through December 31,
2001, at which time eurobills and coins will be put into circulation. Certain
European Union members, including the United Kingdom, did not officially
implement the euro on January 1, 1999 and may cause market disruptions when and
if they decide to do so. Should this occur, the Fund could experience investment
losses.
WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth potential,
but who can accept moderate fluctuations in capital value in the short term.
*You should consult with your financial advisor before deciding whether the Fund
is an appropriate investment choice in light of your particular financial needs
and risk tolerance.
PERFORMANCE INFORMATION
The Fund commenced operations on May 3, 1999, therefore no performance
information is available.
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
fees paid directly from
SHAREHOLDER FEES your investment
- --------------------------------------------------------------------------------
Class A Class B Class C Class I
- --------------------------------------------------------------------------------
Maximum sales charge 5.75% none none none
(load imposed on purchases)(as a
percentage of offering price)
Maximum deferred sales none 5.00% 1.00% none
charge (load) (as a
percentage of purchase price
Maximum sales charge (load) none none none none
imposed on reinvested dividends
Redemption fee* none none none none
Exchange fee none none none none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10
wire fee will be charged to your account.
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund
assets
- -------------------------------------------------------------------------------
Class A Class B Class C Class I
- -------------------------------------------------------------------------------
Management fees 1.00% 1.00% 1.00% 1.00%
Distribution and/or service 0.25% 1.00% 1.00% none
(12b-1) fees
Other expenses 0.95% 0.95% 0.95% 0.86%
Total annual Fund 2.20% 2.95% 2.95% 1.86%
operating expenses*
* The Fund's Investment Manager has agreed to reimburse the Fund's expenses for
the current fiscal year to the extent necessary to ensure that the Fund's Annual
Fund Operating Expenses do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and taxes). For each of the following nine years, the
Investment Manager will ensure that these expenses do not exceed 2.50% of the
Fund's average net assets.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods (with additional information shown for Class B and Class C shares
based on the assumption that you do not redeem your shares at that time).
The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be as follows:
- -------------------------------------------------------------------------------
Year Class A Class B Class B Class C Class C Class I
(No (No
redemption) redemption)
- -------------------------------------------------------------------------------
1st $ 785 $ 798 $ 298 $ 398 $ 298 $ 189
3rd 1,330 1,323 1,023 1,023 1,023 699
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies located or otherwise
doing business in European countries and covering a broad range of economic and
industry sectors. The Fund may also invest a significant portion of its assets
in debt securities, up to 20% of which is considered below investment grade
(commonly referred to as "high yield" or "junk" bonds). The Fund's manager
follows a "bottom-up" approach to investing, which focuses on prospects for long
term earnings growth. Company selection is generally based on an analysis of a
wide range of indicators (such as growth, earnings, cash, book and enterprise
value), as well as factors such as market position, competitive advantage and
management strength. Country and sector allocation decisions are driven by the
company-selection process.
PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income they
generate will vary daily and generally reflect market conditions, interest rates
and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent
redemption.
OTHER RISKS: The following identifies the investment techniques that the Fund's
advisor considers important in achieving the Fund's investment objective or in
managing its exposure to risk (and that could therefore have a significant
effect on the Fund's returns) and a description of the general risk
characteristics of these investment techniques. Other investment methods that
the Fund may use (such as derivative investments), but that are not likely to
play a key role in their overall investment strategies, are described in the
Fund's Statement of Additional Information (see back cover page for information
on how you can receive a free copy).
COMMON STOCKS: Common stocks represent a proportionate ownership interest in a
company. As a result, the value of common stock rises and falls with a company's
success or failure. The market value of common stock can fluctuate
significantly, with smaller companies being particularly susceptible to price
swings. Transaction costs in smaller-company stocks may also be higher than
those of larger companies. Investors in the Fund should note that these risks
are heightened in the case of securities issued through IPOs.
DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest
rate and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. For example, as interest rates
decline, the value of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to decrease. The
Fund's portfolio is therefore susceptible to the decline in value of the debt
instruments it holds in a rising interest rate environment. The market value of
debt securities also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more volatile than bonds
with shorter maturities.
LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly
referred to as "high yield" or "junk" bonds) offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
For this reason, these bonds are considered speculative and could significantly
weaken the Fund's returns.
FOREIGN SECURITIES: Investing in foreign securities involves a number of
economic, financial and political considerations that are not associated with
the U.S. markets and that could affect the Fund's performance favorably or
unfavorably, depending upon prevailing conditions at any given time. For
example, the securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the U.S. Foreign
investing may also involve brokerage costs and tax considerations that are not
usually present in the U.S. markets. Many of the Fund's securities also are
denominated in foreign currencies and the value of the Fund's investments, as
measured in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Other factors that can affect the value of the Fund's foreign investments
include the comparatively weak supervision and regulation by some foreign
governments of securities exchanges, brokers and issuers, and the fact that many
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards. It may also be difficult to obtain reliable
information about the securities and business operations of certain foreign
issuers. Settlement of portfolio transactions may also be delayed due to local
restrictions or communication problems, which can cause the Fund to miss
attractive investment opportunities or impair its ability to dispose of
securities in a timely fashion (resulting in a loss if the value of the
securities subsequently declines).
SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign
securities are heightened in countries with new or developing economies.
Among these additional risks are the following:
o securities that are even less liquid and more volatile than those in more
developed foreign countries;
o less stable governments that are susceptible to sudden adverse actions
(such as nationalization of businesses, restrictions on foreign ownership
or prohibitions against repatriation of assets);
o increased settlement delays;
o unusually high inflation rates (which in extreme cases can cause the value
of a country's assets to erode sharply);
o unusually large currency fluctuations and currency conversion costs; and
o high national debt levels (which may impede an issuer's payment of
principal and/or interest on external debt).
DEPOSITORY RECEIPTS: Interests in foreign issuers may be acquired in the form of
sponsored or unsponsored American Depository Receipts ("ADRs"), Global
Depository Receipts ("GDRs") and similar types of depository receipts. ADRs
typically are issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs and other types
of depository receipts are usually issued by foreign banks or trust companies.
The investing Fund's investments in ADRs, GDRs and other depository receipts are
viewed as investments in the underlying securities.
Depository receipts can be difficult to price and are not always exchange
listed. Unsponsored depository programs also are organized independently without
the cooperation of the issuer of the underlying securities. As a result,
information concerning the issuer may not be as current or as readily available
as in the case of sponsored depository instruments, and their prices may be more
volatile than if they were sponsored by the issuers of the underlying
securities.
ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed
of in the ordinary course of business within seven days at roughly the value at
which the investing fund has valued the assets. These may be "restricted
securities," which cannot be sold to the public without registration under the
Securities Act of 1933 (in the absence of an exemption) or because of other
legal or contractual restrictions on resale. Thus, while illiquid securities may
offer the potential for higher returns than more readily marketable securities,
there is a risk that the investing fund will not be able to dispose of them
promptly at an acceptable price.
BORROWING: For temporary or emergency purposes, the Fund may borrow up to
one-third of the value of its total assets from qualified banks. Borrowing may
exaggerate the effect on the Fund's share value of any increase or decrease in
the value of the securities it holds. Money borrowed will also be subject to
interest costs.
TEMPORARY DEFENSIVE POSITIONS: The Fund may occasionally take a temporary
defensive position and invest without limit in U.S. Government securities,
investment-grade debt securities, and cash and cash equivalents such as
commercial paper, short-term notes and other money market securities. When the
Fund assumes such a defensive position it may not achieve its investment
objective. Its exposure to the risks associated with debt securities would also
be heightened (see "Debt Securities" above).
OTHER IMPORTANT INFORMATION
EUROPEAN MONETARY UNION: The Fund may have investments in Europe. On January 1,
1999, a new European currency called the "euro" was introduced and adopted for
use by eleven European countries. The transition to daily usage of the euro will
occur during the period from January 1, 1999 through December 31, 2001, at which
time euro bills and coins will be put into circulation. Certain European Union
members, including the United Kingdom, did not officially implement the euro on
January 1, 1999 and may cause market disruptions when and if they decide to do
so. Should this occur, the Fund could experience investment losses.
YEAR 2000 RISKS: Many computer software and hardware systems in use today cannot
distinguish between the year 2000 and the year 1900 because of the way dates are
encoded and calculated (the "Year 2000 Problem"). The inability of
computer-based systems to make this distinction could have a seriously adverse
effect on the handling of securities trades, pricing and account services
worldwide. The Fund's service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Problem with respect to the
computer systems that they use. Information about the Year 2000 readiness of the
issuers of the securities that the Fund may purchase is also taken into
consideration during the investment decision-making process (though such
information may not be readily available, particularly in non-U.S. countries,
and may be limited to public filings or statements from company representatives
that are not independently verifiable).
The Fund's manager believes these steps will be sufficient to avoid any material
adverse impact on the Fund. At this time, however, there can be no assurance
that significant problems will not occur (which either directly or indirectly
may cause the Fund to lose money).
MANAGEMENT
INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
IMI provides investment advisory and business management services to the Fund.
IMI is an SEC-registered investment advisor with over $5 billion in assets under
management, and provides similar services to the other series of the Universal
Funds, the five series of Mackenzie Solutions and the nineteen series of Ivy
Fund. For its services, IMI receives a fee equal, on an annual basis, to 1.00%
of the Fund's average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from the Fund. Fees paid to a subadviser if the Fund employs multiple
subadvisers will depend upon the fee rate negotiated with IMI and upon the
percentage of the Fund's assets allocated to that subadviser by IMI, which may
vary from time to time. Thus, the basis for fees paid to any such subadviser
will not be constant, and the relative amounts of fees paid to the various
subadvisers of the Fund will fluctuate. These internal fluctuations, however,
will not affect the total advisory fees paid by the Fund, which will remain
fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new subadvisers and
entering into sub-advisory agreements, IMI will negotiate fees with those
subadvisers and, because these fees are paid by IMI and not directly by the
Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and any
increase will inure to its detriment. The fee paid to IMI by the Fund and the
fees paid to the subadvisers by IMI are considered by the Board in approving the
Fund's advisory and sub-advisory arrangements. Any change in fees paid by a Fund
to IMI would require shareholder approval.
THE SUBADVISER
Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue,
London, England EC2M 2PA, serves as subadviser to the Fund under an Agreement
with IMI. For its services, Henderson receives a fee from IMI that is equal, on
an annual basis, to 0.50% of the Fund's average net assets. Henderson is an
indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance
and financial services company located in New South Wales, Australia.
PORTFOLIO MANAGEMENT
Stephen Peak, Executive Director of Henderson and head of Henderson's European
equities team, is primarily responsible for selecting the Fund's portfolio of
investments. Formerly a director and portfolio manager with Touche Remnant &
Co., Mr. Peak has 24 years of investment experience.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each
day the Exchange is open for trading (normally any weekday that is not a
national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last sale price on the exchange on which it was
purchased.
If no sale is reported at that time, the average between the last bid and asked
prices is used. Securities and other Fund assets for which market prices are not
readily available are priced at their "fair value" as determined by IMI in
accordance with procedures approved by the Fund's Board of Trustees. IMI may
also price a foreign security at its fair value if events materially affecting
the estimated value of the security occur between the close of the foreign
exchange on which the security is principally traded and the time as of which
the Fund prices its shares. Fair-value pricing under these circumstances is
designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair-value pricing occurs, however, there
may be some period of time during which the Fund's share price and/or
performance information is not available.
The number of shares you receive when you place a purchase or exchange order,
and the payment you receive after submitting a redemption request, is based on
the Fund's net asset value next determined after your instructions are received
in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer
agent) or by your registered securities dealer. Each purchase and redemption
order is subject to any applicable sales charge (see "Choosing the appropriate
class of shares"). Since the Fund normally invests in securities that are listed
on foreign exchanges that may trade on weekends or other days when the Fund does
not price its shares, the Fund's share value may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES
Please read these sections below carefully before investing.
CHOOSING THE APPROPRIATE CLASS OF SHARES:
The essential features of the Fund's different classes of shares are described
below. If you do not specify on your Account Application which class of shares
you are purchasing, it will be assumed that you are purchasing Class A shares.
The Fund has adopted separate distribution plans pursuant to Rule 12b-1 under
the 1940 Act for its Class A, B and C shares that allow the Fund to pay
distribution and other fees for the sale and distribution of its shares and for
services provided to shareholders. Because fees are paid out of the Fund's
assets on an ongoing basis, over time they will increase the cost of your
investment and may cost you more than paying other types of sales charges.
CLASS A SHARES: Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% (the "offering price"). The sales charge may be reduced or
eliminated if certain conditions are met (see "Additional purchase
information"). Class A shares are subject to a 0.25% Rule 12b-1 service fee.
CLASS B SHARES: Class B shares are offered at net asset value, without an
initial sales charge, but subject to a contingent deferred sales charge ("CDSC")
that declines from 5% to zero on certain redemptions within six years of
purchase. Class B shares are subject to a 0.75% Rule 12b-1 distribution fee and
a 0.25% Rule 12b-1 service fee, and convert automatically into Class A shares
eight years after purchase.
CLASS C SHARES: Class C shares are offered at net asset value, without an
initial sales charge, but subject to a CDSC of 1% for redemptions within the
first year of purchase. Class C shares are subject to a 0.75% Rule 12b-1
distribution fee and a 0.25% Rule 12b-1 service fee.
CLASS I SHARES: Class I shares are offered to certain classes of investors of
the Fund without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales charges and
expenses that apply to each class.
- --------------------------------------------------------------------------------
Class A Class B Class C Class I
- --------------------------------------------------------------------------------
Maximum initial $1,000 $1,000 $1,000 $5,000,000
investment*
Minimum subsequent $100 $100 $100 $10,000
investment*
Initial sales charge Maximum none none none
5.75%
with
options
for a
reduction
or
waiver
CDSC None, Maximum 1.00% none
except 5.00% for
on declines the
certain over first
NAV six year
purchase years
Service and distribution fees 0.25% 0.75% 0.75% none
Service distribution distribution
fee fees fee
and and
0.25% 0.25%
service service
fee fee
*Minimum initial and subsequent investments for retirement plans are $25.
ADDITIONAL PURCHASE INFORMATION
CLASS A SHARES: Class A shares are sold at a public offering price equal to
their net asset value per share plus an initial sales charge, as set forth below
(which is reduced as the amount invested increases):
Amount Invested Sales Sales Portion of
charge as charge a public
a percentage offering
percentage of net price
of public amount retained by
offering invested dealer
price
- -------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but then less than $100,000 5.25% 5.54% 4.50%
$100,000 but less than $250,000 4.50% 4.71% 3.75%
$250,000 but less than $500,000 3.00% 3.09% 2.50%
$500,000 or over* 0.00% 0.00% 0.00%
* A CDSC of 1.00% may apply to Class A shares that are redeemed within two years
of the end of the month in which they were purchased.
Class A shares that are acquired through reinvestment of dividends or
distributions are not subject to any sales charges.
HOW TO REDUCE YOUR INITIAL SALES CHARGE:
o "Rights of Accumulation" permits you to pay the sales charge that applies
to the cost or value (whichever is higher) of all Manager of Managers Fund
Class A shares you own.
o A "Letter of Intent" permits you to pay the sales charge that would apply
to your cumulative purchase of Fund shares over a 13-month period (certain
restrictions apply).
HOW TO ELIMINATE YOUR INITIAL SALES CHARGE:
You may purchase Class A shares at NAV (without an initial sales charge or a
CDSC) through any one of the following methods:
o through certain investment advisors and financial planners who charge a
management, consulting or other fee for their services;
o under certain qualified retirement plans;
o as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
o as an employee of a selected dealer; or
o through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan has
at least $3 million in assets or over 500 or more eligible employees.
Class B shares of the Fund are made available to Plan participants at NAV
without a CDSC if the Plan has less than $3 million in assets or fewer than 500
eligible employees. For further information see "Group Systematic Investment
Program" in the SAI.
Certain trust companies, bank trust departments, credit unions, savings and
loans and other similar organizations may also be exempt from the initial sales
charge on Class A shares.
You may also purchase Class A shares at NAV if you are investing at least
$500,000 through a dealer or agent. Ivy Mackenzie Distributors, Inc. ("IMDI"),
the Fund's distributor, may pay the dealer or agent (out of IMDI's own
resources) for its distribution assistance according to the following schedule:
- --------------------------------------------------------------------------------
Purchase amount Commission
- --------------------------------------------------------------------------------
First $3,000,000 1.00%
Next $2,000,000 0.50%
Over $5,000,000 0.25%
IMDI may from time to time pay a bonus or other cash incentive to dealers (other
than IMDI) including, for example, those which employ a registered
representative who sells a minimum dollar amount of the shares of the Fund
and/or other funds distributed by IMDI during a specified time period.
The Fund may, from time to time, waive the initial sales charge on its Class A
shares sold to clients of certain dealers meeting criteria established by the
Distributor. This privilege will apply only to Class A shares of the Fund that
are purchased using proceeds obtained by such clients through redemption of
another mutual fund's shares on which a sales charge was paid. Purchases must be
made within 60 days of redemption from the other fund, and the Class A shares
purchased are subject to a 1.00% CDSC on shares redeemed within the first year
after purchase.
CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to an
initial sales charge but are subject to a CDSC. If you redeem your Class C
shares within one year of purchase they will be subject to a CDSC of 1%, and
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the following rates:
- --------------------------------------------------------------------------------
Year since CDSC as a percentage
purchase of dollar amount
subject to charge
- --------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
The CDSC for both Class B and Class C shares will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
shares being redeemed. No charge will be assessed on increases in account value
above the original purchase price or on reinvested dividends and distributions.
Shares will be redeemed on a lot-by-lot basis in the following order:
o Shares held more than six years
o Shares acquired through reinvestment of dividends and distributions
o Shares subject to the lowest CDSC percentage; on a first-in, first-out
basis
(1) with the portion of the lot attributable to capital appreciation
redeemed first, which is not subject to a CDSC; then
(2) the portion of the lot attributable to your original basis, which is
subject to a CDSC.
The CDSC for Class B shares is waived for:
o Certain post-retirement withdrawals from an IRA or other retirement plan
if you are over 59 1/2 years old.
o Redemptions by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers.
o Redemptions resulting from a tax-free return of excess contribution to
an IRA.
o Withdrawals resulting from shareholder death or disability provided that
the redemption is requested within one year of death or disability.
o Withdrawals through the Systematic Withdrawal Plan of up to 12% per year
of your account value at the time the plan is established.
Both Class B shares and Class C shares are subject to an ongoing service and
distribution fee at a combined annual rate of up to 1.00% of the portfolio's
average net assets attributable to its Class B or Class C shares. The ongoing
distribution fees will cause these shares to have a higher expense ratio than
that of Class A and Class I shares. IMDI uses the money that it receives from
the deferred sales charge and the distribution fees to cover various promotional
and salesrelated expenses, as well as expenses related to providing
distributions services, such as compensating selected dealers and agents for
selling these shares.
Approximately eight years after the original date of purchase, your Class B
shares will be converted automatically to Class A shares. Class A shares are
subject to lower annual expenses than Class B shares.
The conversion from Class B shares to Class A shares is not considered a taxable
event for federal income tax purposes. Class C shares do not have a similar
conversion privilege.
CLASS I SHARES: Class I shares are offered only to institutions and certain
individuals, and are not subject to an initial sales charge or a CDSC, nor to
ongoing service or distribution fees. Class I shares also bear lower fees than
Class A, Class B and Class C shares.
SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to the Fund in which you wish to
invest. You should note on the check the class of shares you wish to invest in
(see page X for minimum initial investments.) Deliver your application materials
to your registered representative or selling broker, or send them to one of the
addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy.
Boca Raton, FL 33432-6114
BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account registration,
Fund number or name, and account number. Mail to one of the addresses above.
THROUGH YOUR BROKER: Deliver to your registered representative or selling broker
the investment slip attached to your statement, or written instructions, along
with your payment.
BY WIRE: Purchases may also be made by wiring money from your bank account to
your Universal Funds account. Your bank may charge a fee for wiring funds.
Before wiring the Fund, please call IMSC at 800.777.6472. Wiring instructions
are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #
For further credit to:
Your Account Registration
Your Fund Number and Account Number
BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Universal Funds account. Complete sections 6A and 7B of the Account
Application.
HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
BY MAIL: Send your written redemption request to IMSC at one of the addresses at
left. Be sure that all registered owners listed on the account sign the request.
Medallion signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption proceeds to you on
the next business day, but may take up to seven days (or longer in the case of
shares recently purchased by check).
BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or
custodial account. To process your redemption order by telephone, you must have
telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests by
telephone can only be accepted for amounts up to $50,000.
BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
electronically drawn each month from your Universal Funds account and deposited
directly into your bank account. Certain minimum balances and minimum
distributions apply. Complete section 6B of the Account Application to add this
feature to your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds
through a variety of payment methods:
BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you a
fee for receiving a Federal Funds wire.
BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
IMPORTANT REDEMPTION INFORMATION:
A CDSC may apply to certain Class A share redemptions, to Class B shares
redeemed within six years of purchase, and to Class C shares that are redeemed
within one year of purchase.
If you own shares of more than one class of the Fund, the Fund will redeem first
the shares having the highest 12b-1 fees, unless you instruct otherwise.
Any shares subject to a CDSC will be redeemed last unless you specifically elect
otherwise.
Shares will be redeemed in the order described under "Additional purchase
information -- Class B and Class C shares".
The Fund may (on 60 days' notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
The Fund may take up to seven days (or longer in the case of shares recently
purchased by check) to send redemption proceeds.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Universal fund, subject
to certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page X of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To
process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund or IMSC may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a capital gain or a
capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the exchange privilege for
the purpose of timing short-term market fluctuations. The Fund may therefore
limit the frequency of exchanges by a shareholder, charge a redemption fee or
cancel a shareholder's exchange privilege if at any time it appears that such
market-timing strategies are being used. For example, shareholders exchanging
more than five times in a 12-month period may be considered to be using
market-timing strategies.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
Reinvested dividends and distributions are added to your account at NAV and are
not subject to a CDSC regardless of which share class you own.
Cash dividends and distributions can be sent to you:
BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into
your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class to another. The Fund intends to
declare and pay dividends annually. The Fund will distribute net investment
income and net realized capital gains, if any, at least once a year. The Fund
may make an additional distribution of net investment income and net realized
capital gains to comply with the calendar year distribution requirement under
the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986,
as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless of
how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by your
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss which will be long term or short term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S.
Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
[To be provided]
<PAGE>
Account Application
Please mail applications and checks to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, FL 33431-0922
- ------------------------------------------------------------------------------
This application should not be used for retirement accounts for which
The Universal Funds (IBT) is custodian.
- ------------------------------------------------------------------------------
1 Registration
Name ___________
===========
Address ___________
City ___________ State ____________ Zip __________
Phone # (day) (___)_______ Phone # (evening) (___)___________
___ Individual ___ UGMA / UTMA ___ Sole
proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other
- ----------------
Date of Trust ____________ Minor's state of residence
- ----------------
(FUND USE ONLY)
- ------------
Account Number
- ------------
Dealer / Branch / Rep
- ------------
Account Type / Soc Cd
2 Tax I.D.
Citizenship: ____ U.S. ____Other (please specify): ________________
Social Security # ____-____-____ or Tax identification # ___-__________
Under penalties of perjury, I certify by signing in Section 8 that: (1) the
number shown in this section is my correct taxpayer identification number (TIN),
and (2) I am not subject to backup withholding because: (a) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting interest or dividends on
your tax return.) Please see the "Dividends, distributions and taxes" section of
the Prospectus for additional information on completing this section.
3. Dealer information
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the Shareholder, and
agrees to notify IMSC of any purchases made under a Letter of Intent or Rights
of Accumulation.
Dealer Name _______
Branch Office Address _______
City _______ State _______ Zip Code _______
Representative's name _______
Representative's # _______ Representative's phone
# _______
Authorized signature of dealer __________________________________________
4. Investments
A. Enclosed is my check for ($1,000 minimum) $___________ made payable to
Universal European Opportunities Fund. Please invest it in Class A __ Class B
___ Class C ___ or Class I ___ shares.
B. I qualify for an elimination of the sales charge due to the following
privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate privilege is
applicable, provide account(s) information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed below.
Fund name: _______________ Fund name: ________________
Account #: _______________ Account #: ________________
If establishing a Letter of Intent, you will need to purchase Class A shares
over a thirteen-month period in accordance with the provisions in the
Prospectus. The Aggregate amount of these purchases will be at least equal to
the amount indicated below (see Prospectus for minimum amount required for
reduced sales charges).
____ $50,000 ____ $100,000 ____ $250,000 ____ $500,000
C. FOR DEALER USE ONLY
Confirmed trade orders:
________ Confirm # ________Number of shares ________ Trade date
A. 5 Distribution Options
I would like to reinvest dividends and capital gains into additional shares in
this account at net asset value unless a different option is checked below.
A. Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund.
Account number: _______
B. Pay all dividends and capital gains in cash.
I request the above cash distribution, selected in A or B above, be sent to:
_____ the address listed in the registration
_____ the special payee listed in Section 7A (by mail)
_____ the special payee listed in Section 7B (by EFT)
6 Optional Special Features
A. Automatic Investment Method (AIM)
___ I wish to have my bank account listed in section 7B automatically debited
via EFT on a predetermined frequency and invested into my Universal European
Opportunities Fund account as listed below.
1. Withdraw $__________ for each time period indicated below and invest my
bank proceeds into the Fund. Share class: ___Class A ___ Class B ___ Class
C Account #: __________________________________
2. Debit my bank account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. Systematic Withdrawal Plans (SWP)**
___ I wish to have my Universal European Opportunities Fund account
automatically debited on a predetermined frequency and the proceeds sent to me
per my instructions below.
1. Withdraw ($50 minimum) $_____ for each time period indicated below from
the following Fund account:
Share Class ___ Class A ____ Class B ____ Class C
Account #: ______________________________________
2. Withdraw from my Universal European Opportunities Fund account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration.
___ sent to the special payee listed in section 7A or 7B.
Note: A minimum balance of $5,000 is required to establish a SWP.
C. Federal Funds Wire for Redemption Proceeds** By checking "yes" immediately
above, I authorize IMSC to honor telephone instructions for the redemption
of Fund shares up to $50,000. Proceeds may be wire transferred to the bank
account designated ($1,000 minimum). (Complete Section 7B).
D. Telephonic redemptions** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall
not exceed $50,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. To change this option once
established, written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be provided
automatically.
* There must be a period of at least seven calendar days between each investment
(AIM) / withdrawal (SWP) period.
**This option may not be used if shares are issued in certificate form.
7 Special Payee
A. Mailing Address: Please send all disbursements to this payee:
Name of bank or individual ___________
Account # (if applicable) _____________
Street ____________________________
City ______ State ______ Zip ______
B. Fed Wire / EFT Information
Financial Institution _________________
ABA # ___________________________
Account # _________________________
Street ____________________________
City _____ State _______ Zip ______
(please attach a voided check)
B. 8 Signatures
Investors should be aware that the failure to check the "No" under Section
6D above means that the Telephone Redemption Privileges will be provided.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund may be liable for any losses due to unauthorized
or fraudulent telephone instructions. Please see "How to redeem shares" in
the Prospectus for more information on this privilege.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in Section
1. I have received a current Prospectus and understand its terms are
incorporated in this application by reference. I am certifying my taxpayer
information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
______________________________
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
______________________________
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
QUOTRON SYMBOLS AND CUSIP NUMBERS
FUND SYMBOL CUSIP
Universal European Opportunities Fund - Class A * 465898815
Universal European Opportunities Fund - Class B * 465898823
Universal European Opportunities Fund - Class C * 465898831
Universal European Opportunities Fund - Class I * 465898849
<PAGE>
(The Universal Funds Logo)
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated December __, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semiannual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semiannual reports are available upon request and without
charge from the Distributor at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI and the annual and semiannual
reports) may also be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (please call 1-800-SEC-0330 for further details). Information
about the Fund is also available on the SEC's Internet Website (www.sec.gov),
and copies of this information may be obtained, upon payment of a copying fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. ____________
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, regarding
any other inquiries about the Fund at 800.777.6472.
www.ivymackenzie.com
E-mail: [email protected]
<PAGE>
[Front Cover Page]
PROSPECTUS
December ___, 1999
THE UNIVERSAL FUNDS
Universal European Opportunities Fund
The Universal Funds (the "Trust") is a registered open-end investment company
consisting of one separate portfolio. This Prospectus relates to the Advisor
Class shares of Universal European Opportunities Fund (the "Fund"). The Fund
also offers Class A, Class B, Class C and Class I shares, which are described in
a separate prospectus.
The Fund is the successor entity to Ivy European Opportunities Fund, a
diversified series of shares of Ivy Fund, before the Fund's shareholders
approved a proposal to reorganize the Fund as a series of the Trust. The Fund
will not commence operations until after the closing of the reorganization
transaction. This reorganization is expected to occur on ___________, 1999 or as
soon as practicable thereafter. Accordingly, the Fund is not offering its shares
for purchase, and will not accept subscriptions for such shares, until after the
reorganization takes place.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
Investments in the Fund are not deposits of any bank and are not federally
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
[Insert all logos]
<PAGE>
CONTENTS
Universal European Opportunities Fund
Additional Information about investment strategies and risks
Management
Shareholder information
Financial highlights
Account application
<PAGE>
UNIVERSAL EUROPEAN OPPORTUNITIES FUND
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital growth by investing in the
securities markets of Europe.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the equity
securities of European companies, which may include:
o companies operating in Europe's emerging markets;
o small-capitalization companies in the more developed markets of Europe;
and
o large European companies, or European companies of any size -that provide
special investment opportunities (such as privatized companies, those
providing exceptional value, or those engaged in initial public
offerings).
The Fund may also invest in European debt securities, up to 20% of which may be
low-rated (commonly referred to as "high yield" or "junk" bonds).
The Fund's manager uses a "bottom-up" investment approach, focusing on prospects
for long term earnings growth.
PRINCIPAL RISKS
The main risks to which the Fund is exposed in carrying out its investment
strategies are the following:
MANAGEMENT RISK:
Securities selected for the Fund may not perform as well as the securities held
by other mutual funds with investment objectives that are similar to those of
the Fund.
MARKET RISK:
Common stock represents a proportionate ownership interest in a company. The
market value of common stock can fluctuate significantly even where "management
risk" is not a factor, so you could lose money if you redeem your Fund shares at
a time when the Fund's stock portfolio is not performing as well as expected.
SMALL- AND MEDIUM-SIZED COMPANY RISK:
Securities of smaller companies may be subject to more abrupt or erratic market
movements than the securities of larger, more established companies, since
smaller companies tend to be thinly traded and because they are subject to
greater business risk. Transaction costs in smaller-company stocks may also be
higher than those of larger companies.
IPO RISK
Securities issued through an initial public offering (IPO) can experience an
immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. The Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of the Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
INTEREST RATE RISK:
The Fund's debt security investments are susceptible to decline in a rising
interest rate environment, even where "management risk" is not a factor.
CREDIT RISK:
The market value of debt securities also tends to vary according to the relative
financial condition of the issuer. Certain of the Fund's debt security holdings
may be considered below investment grade (commonly referred to as "high yield"
or "junk" bonds). Low-rated debt securities are considered speculative and could
weaken the Fund's returns if the issuer defaults on its payment obligations.
FOREIGN SECURITY AND EMERGING-MARKET RISK:
Investing in foreign securities involves a number of economic, financial and
political considerations that are not associated with the U.S. markets and that
could affect the Fund's performance unfavorably, depending upon prevailing
conditions at any given time. Among these potential risks are:
o greater price volatility;
o comparatively weak supervision and regulation of securities exchanges,
brokers and issuers;
o higher brokerage costs;
o fluctuations in foreign currency exchange rates and related conversion
costs;
o adverse tax consequences; and
o settlement delays.
The risks of investing in foreign securities are more acute in countries with
developing economies.
EURO CONVERSION RISK:
On January 1, 1999, a new European currency called the "euro" was introduced and
adopted for use by eleven European countries. The transition to daily usage of
the euro will occur during the period from January 1, 1999 through December 31,
2001, at which time eurobills and coins will be put into circulation. Certain
European Union members, including the United Kingdom, did not officially
implement the euro on January 1, 1999 and may cause market disruptions when and
if they decide to do so. Should this occur, the Fund could experience investment
losses.
WHO SHOULD INVEST*
The Fund may be appropriate for investors seeking long-term growth potential,
but who can accept moderate fluctuations in capital value in the short term.
*You should consult with your financial advisor before deciding whether the Fund
is an appropriate investment choice in light of your particular financial needs
and risk tolerance.
PERFORMANCE INFORMATION
The Fund commenced operations on May 3, 1999, therefore no performance
information is available.
FEES AND EXPENSES
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
fees paid directly from
SHAREHOLDER FEES your investment
- ----------------------------------------------------------
- ----------------------------------------------------------
Maximum sales charge none
(load imposed on purchases)(as a
percentage of offering price)
Maximum deferred sales none
charge (load) (as a
percentage of purchase price
Maximum sales charge (load) none
imposed on reinvested dividends
Redemption fee* none
Exchange fee none
*If you choose to receive your redemption proceeds via Federal Funds wire, a $10
wire fee will be charged to your account.
ANNUAL FUND expenses that are
OPERATING EXPENSES deducted from Fund assets
- ------------------------------------------------------------
- ------------------------------------------------------------
Management fees 1.00%
Distribution and/or service (12b-1) fees none
Other expenses 0.95%
Total annual Fund operating expenses* 1.95%
* The Fund's Investment Manager has agreed to reimburse the Fund's expenses for
the current fiscal year to the extent necessary to ensure that the Fund's Annual
Fund Operating Expenses do not exceed 1.95% of the Fund's average net assets
(excluding 12b-1 fees and taxes). For each of the following nine years, the
Investment Manager will ensure that these expenses do not exceed 2.50% of the
Fund's average net assets.
Example:
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your
costs would be as follows:
-------------------------
Year
-------------------------
1st $ 198
3rd 726
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
PRINCIPAL STRATEGIES
The Fund seeks to achieve its principal objective of long-term capital growth by
investing primarily in the equity securities of companies located or otherwise
doing business in European countries and covering a broad range of economic and
industry sectors. The Fund may also invest a significant portion of its assets
in debt securities, up to 20% of which is considered below investment grade
(commonly referred to as "high yield" or "junk" bonds). The Fund's manager
follows a "bottom-up" approach to investing, which focuses on prospects for long
term earnings growth. Company selection is generally based on an analysis of a
wide range of indicators (such as growth, earnings, cash, book and enterprise
value), as well as factors such as market position, competitive advantage and
management strength. Country and sector allocation decisions are driven by the
company-selection process.
PRINCIPAL RISKS
GENERAL MARKET RISK:
As with any mutual fund, the value of the Fund's investments and the income they
generate will vary daily and generally reflect market conditions, interest rates
and other issuer-specific, political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent
redemption.
OTHER RISKS: The following identifies the investment techniques that the Fund's
advisor considers important in achieving the Fund's investment objective or in
managing its exposure to risk (and that could therefore have a significant
effect on the Fund's returns) and a description of the general risk
characteristics of these investment techniques. Other investment methods that
the Fund may use (such as derivative investments), but that are not likely to
play a key role in their overall investment strategies, are described in the
Fund's Statement of Additional Information (see back cover page for information
on how you can receive a free copy).
COMMON STOCKS: Common stocks represent a proportionate ownership interest in a
company. As a result, the value of common stock rises and falls with a company's
success or failure. The market value of common stock can fluctuate
significantly, with smaller companies being particularly susceptible to price
swings. Transaction costs in smaller-company stocks may also be higher than
those of larger companies. Investors in the Fund should note that these risks
are heightened in the case of securities issued through IPOs.
DEBT SECURITIES, IN GENERAL: Investing in debt securities involves both interest
rate and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. For example, as interest rates
decline, the value of debt securities generally increases. Conversely, rising
interest rates tend to cause the value of debt securities to decrease. The
Fund's portfolio is therefore susceptible to the decline in value of the debt
instruments it holds in a rising interest rate environment. The market value of
debt securities also tends to vary according to the relative financial condition
of the issuer. Bonds with longer maturities tend to be more volatile than bonds
with shorter maturities.
LOW-RATED DEBT SECURITIES: In general, low-rated debt securities (commonly
referred to as "high yield" or "junk" bonds) offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
For this reason, these bonds are considered speculative and could significantly
weaken the Fund's returns.
FOREIGN SECURITIES: Investing in foreign securities involves a number of
economic, financial and political considerations that are not associated with
the U.S. markets and that could affect the Fund's performance favorably or
unfavorably, depending upon prevailing conditions at any given time. For
example, the securities markets of many foreign countries may be smaller, less
liquid and subject to greater price volatility than those in the U.S. Foreign
investing may also involve brokerage costs and tax considerations that are not
usually present in the U.S. markets. Many of the Fund's securities also are
denominated in foreign currencies and the value of the Fund's investments, as
measured in U.S. dollars, may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations. Currency
conversions can also be costly.
Other factors that can affect the value of the Fund's foreign investments
include the comparatively weak supervision and regulation by some foreign
governments of securities exchanges, brokers and issuers, and the fact that many
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards. It may also be difficult to obtain reliable
information about the securities and business operations of certain foreign
issuers. Settlement of portfolio transactions may also be delayed due to local
restrictions or communication problems, which can cause the Fund to miss
attractive investment opportunities or impair its ability to dispose of
securities in a timely fashion (resulting in a loss if the value of the
securities subsequently declines).
SPECIAL EMERGING-MARKET CONCERNS: The risks of investing in foreign
securities are heightened in countries with new or developing economies.
Among these additional risks are the following:
o securities that are even less liquid and more volatile than those in more
developed foreign countries;
o less stable governments that are susceptible to sudden adverse actions
(such as nationalization of businesses, restrictions on foreign ownership
or prohibitions against repatriation of assets);
o increased settlement delays;
o unusually high inflation rates (which in extreme cases can cause the value
of a country's assets to erode sharply);
o unusually large currency fluctuations and currency conversion costs; and
o high national debt levels (which may impede an issuer's payment of
principal and/or interest on external debt).
DEPOSITORY RECEIPTS: Interests in foreign issuers may be acquired in the form of
sponsored or unsponsored American Depository Receipts ("ADRs"), Global
Depository Receipts ("GDRs") and similar types of depository receipts. ADRs
typically are issued by a U.S. bank or trust company and represent ownership of
the underlying securities issued by a foreign corporation. GDRs and other types
of depository receipts are usually issued by foreign banks or trust companies.
The investing Fund's investments in ADRs, GDRs and other depository receipts are
viewed as investments in the underlying securities.
Depository receipts can be difficult to price and are not always exchange
listed. Unsponsored depository programs also are organized independently without
the cooperation of the issuer of the underlying securities. As a result,
information concerning the issuer may not be as current or as readily available
as in the case of sponsored depository instruments, and their prices may be more
volatile than if they were sponsored by the issuers of the underlying
securities.
ILLIQUID SECURITIES: "Illiquid securities" are assets that may not be disposed
of in the ordinary course of business within seven days at roughly the value at
which the investing fund has valued the assets. These may be "restricted
securities," which cannot be sold to the public without registration under the
Securities Act of 1933 (in the absence of an exemption) or because of other
legal or contractual restrictions on resale. Thus, while illiquid securities may
offer the potential for higher returns than more readily marketable securities,
there is a risk that the investing fund will not be able to dispose of them
promptly at an acceptable price.
BORROWING: For temporary or emergency purposes, the Fund may borrow up to
one-third of the value of its total assets from qualified banks. Borrowing may
exaggerate the effect on the Fund's share value of any increase or decrease in
the value of the securities it holds. Money borrowed will also be subject to
interest costs.
TEMPORARY DEFENSIVE POSITIONS: The Fund may occasionally take a temporary
defensive position and invest without limit in U.S. Government securities,
investment-grade debt securities, and cash and cash equivalents such as
commercial paper, short-term notes and other money market securities. When the
Fund assumes such a defensive position it may not achieve its investment
objective. Its exposure to the risks associated with debt securities would also
be heightened (see "Debt Securities" above).
OTHER IMPORTANT INFORMATION
EUROPEAN MONETARY UNION: The Fund may have investments in Europe. On January 1,
1999, a new European currency called the "euro" was introduced and adopted for
use by eleven European countries. The transition to daily usage of the euro will
occur during the period from January 1, 1999 through December 31, 2001, at which
time euro bills and coins will be put into circulation. Certain European Union
members, including the United Kingdom, did not officially implement the euro on
January 1, 1999 and may cause market disruptions when and if they decide to do
so. Should this occur, the Fund could experience investment losses.
YEAR 2000 RISKS: Many computer software and hardware systems in use today cannot
distinguish between the year 2000 and the year 1900 because of the way dates are
encoded and calculated (the "Year 2000 Problem"). The inability of
computer-based systems to make this distinction could have a seriously adverse
effect on the handling of securities trades, pricing and account services
worldwide. The Fund's service providers are taking steps that each believes are
reasonably designed to address the Year 2000 Problem with respect to the
computer systems that they use. Information about the Year 2000 readiness of the
issuers of the securities that the Fund may purchase is also taken into
consideration during the investment decision-making process (though such
information may not be readily available, particularly in non-U.S. countries,
and may be limited to public filings or statements from company representatives
that are not independently verifiable).
The Fund's manager believes these steps will be sufficient to avoid any material
adverse impact on the Fund. At this time, however, there can be no assurance
that significant problems will not occur (which either directly or indirectly
may cause the Fund to lose money).
MANAGEMENT
INVESTMENT ADVISOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
IMI provides investment advisory and business management services to the Fund.
IMI is an SEC-registered investment advisor with over $5 billion in assets under
management, and provides similar services of The Universal Funds, the five
series of Mackenzie Solutions and the nineteen series of Ivy Fund. For its
services, IMI receives a fee equal, on an annual basis, to 1.00% of the Fund's
average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from the Fund. Fees paid to a subadviser if the Fund employs multiple
subadvisers will depend upon the fee rate negotiated with IMI and upon the
percentage of the Fund's assets allocated to that subadviser by IMI, which may
vary from time to time. Thus, the basis for fees paid to any such subadviser
will not be constant, and the relative amounts of fees paid to the various
subadvisers of the Fund will fluctuate. These internal fluctuations, however,
will not affect the total advisory fees paid by the Fund, which will remain
fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new subadvisers and
entering into sub-advisory agreements, IMI will negotiate fees with those
subadvisers and, because these fees are paid by IMI and not directly by the
Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and any
increase will inure to its detriment. The fee paid to IMI by the Fund and the
fees paid to the subadvisers by IMI are considered by the Board in approving the
Fund's advisory and sub-advisory arrangements. Any change in fees paid by a Fund
to IMI would require shareholder approval.
THE SUBADVISER
Henderson Investment Management Limited ("Henderson"), 3 Finsbury Avenue,
London, England EC2M 2PA, serves as subadviser to the Fund under an Agreement
with IMI. For its services, Henderson receives a fee from IMI that is equal, on
an annual basis, to 0.50% of the Fund's average net assets. Henderson is an
indirect, wholly owned subsidiary of AMP Limited, an Australian life insurance
and financial services company located in New South Wales, Australia.
PORTFOLIO MANAGEMENT
Stephen Peak, Executive Director of Henderson and head of Henderson's European
equities team, is primarily responsible for selecting the Fund's portfolio of
investments. Formerly a director and portfolio manager with Touche Remnant &
Co., Mr. Peak has 24 years of investment experience.
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
The Fund calculates its share price by dividing the value of the Fund's net
assets by the total number of its shares outstanding as of the close of regular
trading (usually 4:00 p.m. Eastern time) on the New York Stock Exchange on each
day the Exchange is open for trading (normally any weekday that is not a
national holiday).
Each portfolio security that is listed or traded on a recognized stock exchange
is valued at the security's last sale price on the exchange on which it was
purchased. If no sale is reported at that time, the average between the last bid
and asked prices is used. Securities and other Fund assets for which market
prices are not readily available are priced at their "fair value" as determined
by IMI in accordance with procedures approved by the Fund's Board of Trustees.
IMI may also price a foreign security at its fair value if events materially
affecting the estimated value of the security occur between the close of the
foreign exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these circumstances
is designed to protect existing shareholders from the actions of short-term
investors trading into and out of the Fund in an attempt to profit from
short-term market movements. When such fair-value pricing occurs, however, there
may be some period of time during which the Fund's share price and/or
performance information is not available.
The number of shares you receive when you place a purchase or exchange order,
and the payment you receive after submitting a redemption request, is based on
the Fund's net asset value next determined after your instructions are received
in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the Fund's transfer
agent) or by your registered securities dealer. Each purchase and redemption
order is subject to any applicable sales charge (see "Choosing the appropriate
class of shares"). Since the Fund normally invests in securities that are listed
on foreign exchanges that may trade on weekends or other days when the Fund does
not price its shares, the Fund's share value may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
HOW TO BUY SHARES
Please read these sections below carefully before investing.
Advisor Class shares are offered through this prospectus only to the following
investors:
o Trustees or other fiduciaries purchasing shares for employee benefit plans
that are sponsored by organizations that have at least 1,000 employees;
o Any account with assets of at least $10,000 if (a) a financial planner, trust
company, bank trust department or registered investment adviser has
investment direction, and where the investor pays such person as compensation
for his advice and other services an annual fee of at least 0.50% on the
assets in the account, or (b) such account is established under a "wrap fee"
program and the account holder pays the sponsor of he program an annual fee
of at least 0.50% on the assets in the account;
o Officers and Trustees of Ivy Fund, Mackenzie Solutions and The
Universal Funds (and their relatives);
o Directors or employees of Mackenzie Investment Management Inc. or its
affiliates;
o Directors, officers, partners, registered representatives, employees and
retired employees (and their relatives) of dealers having a sales agreement
with IMDI (or trustees or custodians of any qualified retirement plan or IRA
established for the benefit of any such person.)
The following investment minimums, sales charges and expenses apply.
-------------------------------
Advisor Class
-------------------------------
-------------------------------
Minimum
initial $10,000
investment*
-------------------------------
-------------------------------
Minimum
subsequent $250
investment*
-------------------------------
-------------------------------
Initial sales None
charge
-------------------------------
-------------------------------
CDSC None
-------------------------------
-------------------------------
Service and None
distribution
fees
-------------------------------
* Minimum initial and subsequent investments for retirement plans are $25.
SUBMITTING YOUR PURCHASE ORDER
INITIAL INVESTMENTS: Complete and sign the Account Application appearing at the
end of this Prospectus. Enclose a check payable to Universal European
Opportunities Fund. You should note on the check that you wish to invest in
Advisor Class shares (see page X for minimum initial investments.) Deliver your
application materials to your registered representative or selling broker, or
send them to one of the addresses below:
- - BY REGULAR MAIL:
Ivy Mackenzie Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
- - BY COURIER:
Ivy Mackenzie Services Corp.
700 South Federal Hwy.
Boca Raton, FL 33432-6114
BUYING ADDITIONAL SHARES
There are several ways to increase your investment in the Fund:
BY MAIL: Send your check with a completed investment slip (attached to your
account statement) or written instructions indicating the account registration,
Fund number or name, and account number. Mail to one of the addresses above.
THROUGH YOUR BROKER: Deliver to your registered representative or selling broker
the investment slip attached to your statement, or written instructions, along
with your payment.
BY WIRE: Purchases may also be made by wiring money from your bank account to
your Universal Funds account. Your bank may charge a fee for wiring funds.
Before wiring the Fund, please call IMSC at 800.777.6472. Wiring instructions
are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #
For further credit to:
Your Account Registration
Your Fund Number and Account Number
BY AUTOMATIC INVESTMENT METHOD: You can authorize to have funds electronically
drawn each month from your bank account and invested as a purchase of shares
into your Universal Funds account. Complete sections 6A and 7B of the Account
Application.
HOW TO REDEEM SHARES
SUBMITTING YOUR REDEMPTION ORDER: You may redeem your Fund shares through your
registered securities dealer or directly through IMSC. If you choose to redeem
through your registered securities dealer, the dealer is responsible for
properly transmitting redemption orders in a timely manner. If you choose to
redeem directly through IMSC, you have several ways to submit your request:
BY MAIL: Send your written redemption request to IMSC at one of the addresses at
left. Be sure that all registered owners listed on the account sign the request.
Medallion signature guarantees and supporting legal documentation may be
required. When you redeem, IMSC will normally send redemption proceeds to you on
the next business day, but may take up to seven days (or longer in the case of
shares recently purchased by check).
BY TELEPHONE: Call IMSC at 800.777.6472 to redeem from your individual, joint or
custodial account. To process your redemption order by telephone, you must have
telephone redemption privileges on your account. IMSC employs reasonable
procedures that require personal identification prior to acting on redemption
instructions communicated by telephone to confirm that such instructions are
genuine. In the absence of such procedures, the Fund or IMSC may be liable for
any losses due to unauthorized or fraudulent telephone instructions. Requests by
telephone can only be accepted for amounts up to $50,000.
BY SYSTEMATIC WITHDRAWAL PLAN ("SWP"): You can authorize to have funds
electronically drawn each month from your Universal Funds account and deposited
directly into your bank account. Certain minimum balances and minimum
distributions apply. Complete section 6B of the Account Application to add this
feature to your account.
RECEIVING YOUR REDEMPTION PROCEEDS: You can receive redemption proceeds
through a variety of payment methods:
BY CHECK: Unless otherwise instructed in writing, checks will be made payable
to the current account registration and sent to the address of record.
BY FEDERAL FUNDS WIRE: Proceeds will be wired on the next business day to a
pre-designated bank account. Your account will be charged $10 each time
redemption proceeds are wired to your bank, and your bank may also charge you a
fee for receiving a Federal Funds wire.
BY ELECTRONIC FUNDS TRANSFER ("EFT"): For SWP redemptions only.
IMPORTANT REDEMPTION INFORMATION:
If you own shares of more than one class of the Fund, the Fund will redeem first
the shares having the highest 12b-1 fees, unless you instruct otherwise.
The Fund may (on 60 days' notice) redeem the accounts of shareholders whose
investment, including sales charges paid, has been less than $1,000 for more
than 12 months.
The Fund may take up to seven days (or longer in the case of shares recently
purchased by check) to send redemption proceeds.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of another Universal fund, subject
to certain restrictions (see "Important exchange information").
SUBMITTING YOUR EXCHANGE ORDER: You may submit an exchange request to IMSC as
follows:
BY MAIL: Send your written exchange request to IMSC at one of the addresses on
page X of this Prospectus. Be sure that all registered owners listed on the
account sign the request.
BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange transaction. To
process your exchange order by telephone, you must have telephone exchange
privileges on your account. IMSC employs reasonable procedures that require
personal identification prior to acting on exchange instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of such
procedures, the Fund or IMSC may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
IMPORTANT EXCHANGE INFORMATION:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a capital gain or a
capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the exchange privilege for
the purpose of timing short-term market fluctuations. The Fund may therefore
limit the frequency of exchanges by a shareholder, charge a redemption fee or
cancel a shareholder's exchange privilege if at any time it appears that such
market-timing strategies are being used. For example, shareholders exchanging
more than five times in a 12-month period may be considered to be using
market-timing strategies.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund generally declares and pays dividends and capital gain distributions
(if any) at least once a year.
Dividends and distributions are "reinvested" in additional Fund shares unless
you request to receive them in cash.
Reinvested dividends and distributions are added to your account at NAV and are
not subject to a CDSC regardless of which share class you own.
Cash dividends and distributions can be sent to you:
BY MAIL: a check will be mailed to the address of record unless otherwise
instructed.
BY ELECTRONIC FUNDS TRANSFER: your proceeds will be directly deposited into
your bank account.
To change your dividend and/or distribution options, call IMSC at 800.777.6472.
Dividends ordinarily will vary from one class to another. The Fund intends to
declare and pay dividends annually. The Fund will distribute net investment
income and net realized capital gains, if any, at least once a year. The Fund
may make an additional distribution of net investment income and net realized
capital gains to comply with the calendar year distribution requirement under
the excise tax provisions of Section 4982 of the Internal Revenue Code of 1986,
as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and net short-term capital gains) will be taxable to you as
ordinary income. If a portion of the Fund's income consists of dividends paid by
U.S. corporations, a portion of the dividends paid by the Fund may be eligible
for the corporate dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses), if any, are taxable to you as long-term capital gains, regardless of
how long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a retirement
plan, income and gain will not be taxable each year. Instead, the taxable
portion of amounts held in a tax-deferred account generally will be subject to
tax as ordinary income only when distributed from that account.
A distribution will be treated as paid to you on December 31 of the current
calendar year if it is declared by the Fund in October, November or December
with a record date in such a month and paid by the Fund during January of the
following calendar year. In certain years, you may be able to claim a credit or
deduction on your income tax return for your share of foreign taxes paid by your
Fund.
Upon the sale or exchange of your Fund shares, you may realize a capital gain or
loss which will be long term or short term, generally depending upon how long
you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all distributions payable to you if you fail to provide the Fund with your
correct taxpayer identification number or to make required certifications, or if
you have been notified by the Internal Revenue Service that you are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against your U.S.
Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
FINANCIAL HIGHLIGHTS
[To be provided]
<PAGE>
Account Application
Please mail applications and checks to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, FL 33431-0922
- ------------------------------------------------------------------------------
This application should not be used for retirement accounts for which
The Universal Funds (IBT) is custodian.
- ------------------------------------------------------------------------------
1 Registration
Name ___________
===========
Address ___________
City ___________ State ____________ Zip __________
Phone # (day) (___)_______ Phone # (evening) (___)___________
___ Individual ___ UGMA / UTMA ___ Sole
proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other
- --------
Date of Trust ____________ Minor's state of residence
- ----------------
(FUND USE ONLY)
- ------------
Account Number
- ------------
Dealer / Branch / Rep
- ------------
Account Type / Soc Cd
2 Tax I.D.
Citizenship: ____ U.S. ____Other (please specify): ________________
Social Security # ____-____-____ or Tax identification # ___-__________
Under penalties of perjury, I certify by signing in Section 8 that: (1) the
number shown in this section is my correct taxpayer identification number (TIN),
and (2) I am not subject to backup withholding because: (a) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting interest or dividends on
your tax return.) Please see the "Dividends, distributions and taxes" section of
the Prospectus for additional information on completing this section.
3. Dealer information
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the Shareholder, and
agrees to notify IMSC of any purchases made under a Letter of Intent or Rights
of Accumulation.
Dealer Name _______
Branch Office Address _______
City _______ State _______ Zip Code _______
Representative's name _______
Representative's # _______ Representative's phone
# _______
Authorized signature of dealer __________________________________________
4. Investments
A. Enclosed is my check ($10,000 minimum) for $ made payable to Universal
European Opportunities Fund. Please invest it Advisor Class shares.
B. FOR DEALER USE ONLY
Confirmed trade orders:
________ Confirm # ________Number of shares ________ Trade
date
A. 5 Distribution Options
I would like to reinvest dividends and capital gains into additional shares in
this account at net asset value unless a different option is checked below.
A. __ Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund.
Account number: ______________________
B. Pay all dividends and capital gains in cash.
I request the above cash distribution, selected in A or B above, be sent to:
_____ the address listed in the registration
_____ the special payee listed in Section 7A (by mail)
_____ the special payee listed in Section 7B (by EFT)
6 Optional Special Features
A. Automatic Investment Method (AIM)
___ I wish to have my bank account listed in section 7B automatically debited
via EFT on a predetermined frequency and invested into my Universal European
Opportunities Fund account listed below.
1. Withdraw $__________ for each time period indicated below and invest my
bank proceeds into the Fund.
Account #: __________________________________
2. Debit my bank account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. Systematic Withdrawal Plans (SWP)**
___ I wish to have my Universal European Opportunities Fund account
automatically debited on a predetermined frequency and the proceeds sent to me
per my instructions below.
1. Withdraw ($50 minimum) $_____ for each time period indicated below from
the following Fund account:
Account #: ______________________________________
2. Withdraw from my Universal European Opportunities Fund account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration.
___ sent to the special payee listed in section 7A or 7B.
Note: A minimum balance of $10,000 is required to establish a SWP.
C. Federal Funds Wire for Redemption Proceeds** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B).
D. Telephonic redemptions** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall
not exceed $50,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. To change this option once
established, written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be provided
automatically.
* There must be a period of at least seven calendar days between each investment
(AIM) / withdrawal (SWP) period.
**This option may not be used if shares are issued in certificate form.
7 Special Payee
A. Mailing Address: Please send all disbursements to this payee:
Name of bank or individual ___________
Account # (if applicable) _____________
Street ____________________________
City ______ State ______ Zip ______
<PAGE>
B. Fed Wire / EFT Information
Financial Institution _________________
ABA # ___________________________
Account # _________________________
Street ____________________________
City _____ State _______ Zip ______
(please attach a voided check)
B. 8 Signatures
Investors should be aware that the failure to check the "No" under Section
6D above means that the Telephone Redemption Privileges will be provided.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund may be liable for any losses due to unauthorized
or fraudulent telephone instructions. Please see "How to redeem shares" in
the Prospectus for more information on this privilege.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in Section
1. I have received a current Prospectus and understand its terms are
incorporated in this application by reference. I am certifying my taxpayer
information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
______________________________
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
______________________________
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
QUOTRON SYMBOLS AND CUSIP NUMBERS
FUND SYMBOL CUSIP
Universal European Opportunities Fund - Class A * 465898815
Universal European Opportunities Fund - Class B * 465898823
Universal European Opportunities Fund - Class C * 465898831
Universal European Opportunities Fund - Class I * 465898849
<PAGE>
(The Universal Funds Logo)
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated December __, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus, and the Fund's annual
and semiannual reports to shareholders. The Fund's annual report includes a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its most recent fiscal year. The SAI and
the Fund's annual and semiannual reports are available upon request and without
charge from the Distributor at the following address and phone number.
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
Information about the Fund (including the SAI and the annual and semiannual
reports) may also be reviewed and copied at the SEC's Public Reference Room in
Washington, D.C. (please call 1-800-SEC-0330 for further details). Information
about the Fund is also available on the SEC's Internet Website (www.sec.gov),
and copies of this information may be obtained, upon payment of a copying fee,
by writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. ____________
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, regarding
any other inquiries about the Fund at 800.777.6472.
www.ivymackenzie.com
E-mail: [email protected]
<PAGE>
[Front Cover Page]
PROSPECTUS
December __, 1999
THE UNIVERSAL FUNDS
Universal Global Value Fund
The Universal Funds (the "Trust") is a registered open-end investment company
currently consisting of two separate portfolios. This Prospectus relates to the
Class A, Class B, Class C, and Class I shares of Universal Global Value Fund
(the "Fund"). The Fund also offers Advisor Class shares, which are described in
a separate prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
Investments in the Fund are not deposits of any bank and are not federally
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY......................................................................3
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS.................6
MANAGEMENT...................................................................9
SHAREHOLDER INFORMATION.....................................................11
ACCOUNT APPLICATION.........................................................21
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND..............................27
SHAREHOLDER INQUIRIES.......................................................27
<PAGE>
SUMMARY
Investment The Fund seeks long-term capital growth. Any income realized
objective will be incidental.
Principal The Fund invests at least 65% of its assets in equity
investment securities. The Fund's management team employs a contrarian
strategies value philosophy (i.e., the team looks for securities which
are trading below their estimated intrinsic value), while
looking for investment opportunities around the world.
Principal The main risks to which the Fund is exposed in carrying out its
risks investment strategies are the following:
Management risk: Securities selected for the Fund may not perform
as well as the securities held by other mutual funds with
investment objectives that are similar to those of the Fund.
Market risk: Common stock represents a proportionate ownership
interest in a company. The market value of common stock can
fluctuate significantly even where "management risk" is not a
factor, so you could lose money if you redeem your Fund shares at
a time when the Fund's stock portfolio is not performing as well
as expected.
Foreign security and emerging market risk: Investing in foreign
securities involves a number of economic, financial and political
considerations that are not associated with the U.S. markets and
that could affect the Fund's performance unfavorably, depending
upon prevailing conditions at any given time. Among these
potential risks are:
o greater price volatility;
o comparatively weak supervision and regulation of securities
exchanges, brokers and issuers;
o higher brokerage costs;
o fluctuations in foreign-currency exchange rates and related
conversion costs;
o adverse tax consequences; and
o settlement delays.
The risks of investing in foreign securities are more acute in
countries with developing economies.
Investment Concentration Risk: Since the Fund may invest a
significant portion of its assets in a single country or industry
at a given time, the Fund could experience wider fluctuations in
value than would other mutual funds with more diversified
portfolios.
Who should The Fund may be appropriate for investors seeking long-term
invest* growth potential, but who can accept significant fluctuations in
capital value in the short-term.
* You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
Performance Information
The Fund commenced operations on December ___, 1999; therefore, no
performance information is available.
Fees and Expenses
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
SHAREHOLDER FEES (fees paid directly from your investment)
Class A Class B Class C Class I
Maximum sales charge 5.75% None None None
(load) imposed on
purchases (as a
percentage of offering
price)......
Maximum deferred sales None 5.00% 1.00% None
charge (load) (as a
percentage of purchase
price)...........................
Maximum sales charge None None None None
(load) imposed on
reinvested dividends....
Redemption fee*................ None None None None
Exchange fee................... None None None None
* If you choose to receive your redemption proceeds via Federal Funds
wire, a $10 wire fee will be charged to your account.
<PAGE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Class A Class B Class C Class I
Management 1.00% 1.00% 1.00% 1.00%
fees.............
Distribution 0.25% 1.00% 1.00% None
and/or service
(12b-1) fees....
Other 0.95% 0.95% 0.95% 0.86%
expenses.......
Total annual 2.20% 2.95% 2.95% 1.86%
Fund operating
expenses........
Example
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods (with additional information shown for Class B and Class C shares
based on the assumption that you do not redeem your shares at that time).
The example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your
costs would be as follows:
Year Class A Class B (no redemption) Class C (no redemption) Class I
Class B Class C
1st $785 $798 $298 $398 $298 $189
3rd 1,224 1,213 913 913 913 585
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of companies
throughout the world. The Fund selects securities on a global basis, but
may invest a significant portion of its assets in the securities of
companies in a single country or a single industry, depending on
prevailing market conditions.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd.
("Cundill"), the Fund's sub-advisor, is based on a contrarian "value"
philosophy. Cundill looks for securities which are trading below their
estimated intrinsic value. To determine the intrinsic value of a
particular company, Cundill's primary focus is on the company's financial
statements. Other factors considered include the earnings, dividends,
business prospects, management capabilities and potential catalysts to
realize shareholder value. Securities are purchased where the price
represents a significant discount to Cundill's estimate of the company's
intrinsic value. Given the bottom-up or company specific approach, Cundill
does not forecast economies or corporate earnings and does not rely on
market timing.
Principal risks
General market risk: As with any mutual fund, the value of the Fund's
investments and the income it generates will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent
redemption.
Other risks: Since the Fund invests in the equity securities of foreign
issuers, it is more susceptible to the risks associated with foreign
securities than a fund that invests primarily in the securities of U.S.
issuers and/or debt securities. Following is a description of these risks,
along with the risks commonly associated with the other securities and
investment techniques that the Fund's portfolio manager considers
important in achieving the Fund's investment objective or in managing the
Fund's exposure to risk (and that could therefore have a significant
effect on the Fund's returns). Other investment techniques that the Fund
may use (such as derivative investments), but that are not likely to play
a key role in the Fund's overall investment strategy, are described in the
Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
o Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock rises
and falls with a company's success or failure. The market value of
common stock can fluctuate significantly, with smaller companies being
particularly susceptible to price swings. Transaction costs in
smaller-company stocks may also be higher than those of larger
companies.
o Foreign Securities: Investing in foreign securities involves a number
of economic, financial and political considerations that are not
associated with the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon prevailing
conditions at any given time. For example, the securities markets of
many foreign countries may be smaller, less liquid and subject to
greater price volatility than those in the U.S. Foreign investing may
also involve brokerage costs and tax considerations that are not
usually present in the U.S. markets.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and regulation
by some foreign governments of securities exchanges, brokers and
issuers, and the fact that many foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards. It may
also be difficult to obtain reliable information about the securities
and business operations of certain foreign issuers. Settlement of
portfolio transactions may also be delayed due to local restrictions or
communication problems, which can cause the Fund to miss attractive
investment opportunities or impair its ability to dispose of securities
in a timely fashion (resulting in a loss if the value of the securities
subsequently declines).
o Foreign Currencies: Many of the Fund's securities also are denominated
in foreign currencies and the value of the Fund's investments as
measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
o Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies. Among
these additional risks are the following:
o securities that are even less liquid and more volatile than those in
more developed foreign countries;
o less stable governments that are susceptible to sudden adverse actions
(such as nationalization of businesses, restrictions on foreign
ownership or prohibitions against repatriation of assets);
o increased settlement delays;
o unusually high inflation rates (which in extreme cases can cause the
value of a country's assets to erode sharply);
o unusually large currency fluctuations and currency conversion costs;
and
o high national debt levels (which may impede an issuer's payment of
principal and/or interest on external debt).
o Illiquid Securities: The Fund may invest up to 15% of its net assets
in "illiquid securities," which are assets that may not be disposed of
in the ordinary course of business within seven days at roughly the
value at which the Fund has valued the assets. Some of these may be
"restricted securities," which cannot be sold to the public without
registration under the Securities Act of 1933 (in the absence of an
exemption) or because of other legal or contractual restrictions on
resale. Thus, while illiquid securities may offer the potential for
higher returns than more readily marketable securities, there is a
risk that the Fund will not be able to dispose of them promptly at an
acceptable price.
o Derivative Investment Techniques: The Fund may, but is not required
to, use certain derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange rates and
broad or specific market movements) or to enhance potential gain.
Among the derivative techniques the Fund might use are options,
futures and forward foreign currency contracts.
Writing put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at inopportune
times or for prices higher (in the case of put options) or lower (in
the case of call options) than current market values, by limiting the
amount of appreciation the Fund can realize on its investments, or by
causing the Fund to hold a security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between price
movements of futures contracts and price movements in the related
portfolio position of the Fund could cause losses on the hedging
instrument that are greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in
all circumstances and certain over-the-counter options may have no
markets. As a result, the Fund might not be able to close out a
transaction before expiration without incurring substantial losses (and
it is possible that the transaction cannot even be closed). In
addition, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the
initial premium.
Foreign currency transactions (such as forward foreign currency
contracts) can cause investment losses in a variety of ways. For
example, changes in currency exchange rates may result in poorer
overall performance for the Fund than if it had not engaged in such
transactions. There may also be an imperfect correlation between the
Fund's portfolio holdings of securities denominated in a particular
currency and the forward contracts entered into by the Fund. An
imperfect correlation of this type may prevent the Fund from achieving
the intended hedge or expose the Fund to the risk of currency exchange
loss.
o Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified under
the Investment Company Act of 1940), the Fund may borrow up to 10% of
the value of its total assets from qualified banks. Borrowing may
exaggerate the effect on the Fund's share value of any increase or
decrease in the value of the securities it holds. Money borrowed will
also be subject to interest costs.
o Temporary Defensive Positions: The Fund may occasionally take a
temporary defensive position and invest without limit in U.S.
Government securities, investment-grade debt securities, and cash and
cash equivalents such as commercial paper, short-term notes and other
money market securities. When the Fund assumes such a defensive
position it may not achieve its investment objective. Investing in
debt securities also involves both interest rate and credit risk.
Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. For example, as interest rates
decline the value of debt securities generally increases. Conversely,
rising interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Other Important Information:
European Monetary Union: The Fund may have investments in Europe. On
January 1, 1999, a new European currency called the "euro" was introduced
and adopted for use by eleven European countries. The transition to daily
usage of the euro will occur during the period from January 1, 1999
through December 31, 2001, at which time euro bills and coins will be put
into circulation. Certain European Union (EU) members, including the
United Kingdom, did not officially implement the euro on January 1, 1999
and may cause market disruptions when and if they decide to do so. Should
this occur, the Fund could experience investment losses.
Year 2000 Risks: Many computer software and hardware systems in use today
cannot distinguish between the year 2000 and the year 1900 because of the
way dates are encoded and calculated (the "Year 2000 Problem"). The
inability of computer-based systems to make this distinction could have a
seriously adverse effect on the handling of securities trades, pricing and
account services worldwide. The Fund's service providers are taking steps
that each believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that they use. Information
about the Year 2000 readiness of the issuers of the securities that the
Fund may purchase is also taken into consideration during the investment
decision-making process (though such information may not be readily
available, particularly in non-U.S. countries, and may be limited to
public filings or statements from company representatives that are not
independently verifiable).
The Fund believes these steps will be sufficient to avoid any material
adverse impact on the Fund. At this time, however, there can be no
assurance that significant problems will not occur (which either directly
or indirectly may cause the Fund to lose money).
MANAGEMENT
Investment adviser
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza, 700
South Federal Highway, Boca Raton, Florida 33432, provides advisory and
business management services to the Fund. IMI is an SEC-registered
investment adviser with over $____ billion in assets under management, and
provides similar services to the other series of The Universal Funds, the
five series of Mackenzie Solutions and the nineteen series of Ivy Fund.
For its services, IMI receives a fee that is equal, on an annual basis, to
1.00% of the Fund's average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or
add subadvisers and enter into sub-advisory agreements with these
subadvisers without the approval of the Fund's shareholders, as normally
would be required under the 1940 Act. If granted, such relief would
require shareholder notification in the event of any change in
subadvisers. The relief would also prohibit IMI from entering into a
sub-advisory agreement with any subadviser that is an "affiliated person,"
as defined in the 1940 Act, of the Trust or IMI, other than by reason of
serving as a subadviser to the Fund, without shareholder approval. In
addition, whenever a subadviser is hired or fired, IMI would be required
to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from each of the Funds. Fees paid to a subadviser if the Fund
employs multiple subadvisers will depend upon the fee rate negotiated with
IMI and upon the percentage of the Fund's assets allocated to that
subadviser by IMI, which may vary from time to time. Thus, the basis for
fees paid to any such subadviser will not be constant, and the relative
amounts of fees paid to the various subadvisers of the Fund will
fluctuate. These internal fluctuations, however, will not affect the total
advisory fees paid by the Fund, which will remain fixed on the terms
described above. IMI may, however, determine in its discretion to waive a
portion of its fee if internal fluctuations in the fee to be paid to the
subadvisers results in excess profit to IMI. Because IMI will pay each
subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
The Subadviser:
Peter Cundill & Associates (Bermuda) Ltd. ("Cundill"), the subadviser of
the Fund, is a Bermuda corporation incorporated in 1984. Cundill has
contracted Cundill Investment Research Ltd., of Suite 1200, Sun Life
Plaza, 1100 Melville Street, Vancouver, B.C. V6E 4A6, to provide certain
administrative and research services. For its services, Cundill receives a
fee from IMI that is equal, on an annual basis, to 0.50% of the Fund's
average net assets. Cundill also provides investment advisory services to
other discretionary accounts. Since the size and mandate of these accounts
differ, the portfolios are not identical.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who are responsible for providing
information on regional and country-specific economic and political
developments and monitoring individual companies.
Peter Cundill has over 30 years of value investing experience and has
managed Mackenzie Financial Corporation's Cundill Value Fund since 1975.
He is a Chartered Financial Analyst, a Chartered Accountant and holds a
Bachelor of Commerce degree from McGill University, Montreal.
Leslie Ferris is a member of the investment team. Ms. Ferris has over 16
years of investment industry experience in North American equity and
fixed income securities. Prior to joining Cundill in 1998, she was a
portfolio manager for Ivy Funds and Kemper Funds. Ms. Ferris is a
Chartered Financial Analyst, a Certified Public Accountant, and holds
an MBA from the University of Chicago.
Tim McElvaine is also a member of the investment team. Mr. McElvaine has
over 12 years of investment industry experience. He is a Chartered
Financial Analyst and a Chartered Accountant, and holds a Bachelor of
Commerce degree from Queen's University in Kingston, Ontario.
SHAREHOLDER INFORMATION
Pricing of Fund shares
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the close
of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock
Exchange on each day the Exchange is open for trading (normally any
weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange on
which it was purchased. If no sale is reported at that time, the average
between the last bid and asked prices is used. Securities and other Fund
assets for which market prices are not readily available are priced at
their "fair value" as determined by the Advisor in accordance with
procedures approved by the Fund's Board of Trustees. The Advisor may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the foreign
exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these
circumstances is designed to protect existing shareholders from the
actions of short-term investors trading into and out of the Fund in an
attempt to profit from short-term market movements. When such fair value
pricing occurs, however, there may be some period of time during which the
Fund's share price and/or performance information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are
received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the
Fund's transfer agent) or by your registered securities dealer. Each
purchase and redemption order is subject to any applicable sales charge
(see "Choosing the appropriate class of shares"). Since the Fund normally
invests in securities that are listed on foreign exchanges that may trade
on weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be able
to purchase or redeem the Fund's shares.
How To Buy Shares:
Please read these sections below carefully before investing.
Choosing the appropriate class of shares - The essential features of the
Fund's different classes of shares are described below. If you do not
specify on your Account Application which class of shares you are
purchasing, it will be assumed that you are purchasing Class A shares. The
Fund has adopted separate distribution plans pursuant to Rule 12b-1 under
the 1940 Act for its Class A, B and C shares that allow the Fund to pay
distribution and other fees for the sale and distribution of its shares
and for services provided to shareholders. Because these fees are paid out
of the Fund's assets on an on-going basis, over time they will increase
the cost of your investment and may cost you more than paying other types
of sales charges.
CLASS A SHARES: Class A shares are sold at net asset value plus a maximum
sales charge of 5.75% (the "offering price"). The sales charge may be
reduced or eliminated if certain conditions are met (see "Additional
Purchase Information" below). Class A shares are subject to a 0.25% Rule
12b-1 service fee.
CLASS B SHARES: Class B shares are offered at net asset value, without an
initial sales charge, but subject to a contingent deferred sales charge
("CDSC") that declines from 5% to zero on certain redemptions within six
years of purchase. Class B shares are subject to a 0.75% Rule 12b-1
distribution fee and a 0.25% Rule 12b-1 service fee, and convert
automatically into Class A shares eight years after purchase.
CLASS C SHARES: Class C shares are offered at net asset value, without an
initial sales charge, but subject to a CDSC of 1.00% for redemptions
within the first year of purchase. Class C shares are subject to a 0.75%
Rule 12b-1 distribution fee and a 0.25% Rule 12b-1 service fee.
CLASS I SHARES: Class I shares are offered to certain classes of investors
at net asset value, without any sales load or Rule 12b-1 fees.
The following table displays the various investment minimums, sales
charges and expenses that apply to each class.
------------------------------------------------------------------------
Class A Class B Class C Class I
------------------------------------------------------------------------
------------------------------------------------------------------------
Minimum
initial $1,000 $1,000 $1,000 $5,000,000
investment*
------------------------------------------------------------------------
------------------------------------------------------------------------
Minimum
subsequent $100 $100 $100 $10,000
investment*
------------------------------------------------------------------------
------------------------------------------------------------------------
Initial sales Maximum None None None
charge 5.75%, with
options for
a reduction
or waiver
------------------------------------------------------------------------
------------------------------------------------------------------------
CDSC None, Maximum 1.00% for the None
except on 5.00%, first year
certain NAV declines
purchases over six
years
------------------------------------------------------------------------
------------------------------------------------------------------------
Service and 0.25% 0.75% 0.75% None
distribution Service fee Distribution Distribution
fees fee and fee and 0.25%
0.25% service fee
service fee
------------------------------------------------------------------------
* Minimum initial and subsequent investments for retirement plans are
$25.
Additional Purchase Information:
o Class A Shares - Class A shares are sold at a public offering price
equal to their net asset value per share plus an initial sales charge,
as set forth below (which is reduced as the amount invested increases):
---------------------------------------------------------------------
Sales Charge Sales Portion of
as a Charge as a Public
Percentage of Percentage Offering Price
Amount Invested Public of Net Retained by
Offering Price Amount Dealer
Invested
---------------------------------------------------------------------
---------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
---------------------------------------------------------------------
---------------------------------------------------------------------
$50,000 but less than 5.25% 5.54% 4.50%
$100,000
---------------------------------------------------------------------
---------------------------------------------------------------------
$100,000 but less than 4.50% 4.71% 3.75%
$250,000
---------------------------------------------------------------------
---------------------------------------------------------------------
$250, 000 but less 3.00% 3.09% 2.50%
than $500,000
---------------------------------------------------------------------
$500,000 or over* 0.00% 0.00% 0.00%
---------------------------------------------------------------------
* A CDSC of 0.50% may apply to Class A shares that are redeemed within
twelve months of the end of the month in which they were purchased.
Class A shares that are acquired through reinvestment of dividends or
distributions are not subject to any sales charges.
How To Reduce Your Initial Sales Charge:
o "Rights of Accumulation" permits you to pay the sales charge that
applies to the cost or value (whichever is higher) of all Universal
Funds Class A shares you own.
o A "Letter of Intent" permits you to pay the sales charge that would
apply to your cumulative purchase of Fund shares over a 13-month
period (certain restrictions apply).
How To Eliminate Your Initial Sales Charge:
You may purchase Class A shares at NAV (without an initial sales charge
or a CDSC) through any one of the following methods:
o through certain investment advisors and financial planners who charge
a management, consulting or other fee for their services;
o under certain qualified retirement plans;
o as an employee or director of Mackenzie Investment Management Inc. or
its affiliates;
o as an employee of a selected dealer; or
o through the Merrill Lynch Daily K Plan (the "Plan"), provided the Plan
has at least $3 million in assets or over 500 or more eligible
employees. Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan has less than $3
million in assets or fewer than 500 eligible employees. For further
information see "Group Systematic Investment Program" in the SAI.
Certain trust companies, bank trust departments, credit unions, savings
and loans and other similar organizations may also be exempt from the
initial sales charge on Class A shares.
You may also purchase Class A shares at NAV if you are investing at
least $500,000 through a dealer or agent. Ivy Mackenzie Distributors,
Inc. ("IMDI"), the Fund's distributor, may pay the dealer or agent (out
of IMDI's own resources) for its distribution assistance according to
the following schedule:
---------------------------------------------
Purchase Amount Commission
---------------------------------------------
---------------------------------------------
First $3,000,000 0.50%
---------------------------------------------
---------------------------------------------
Next $2,000,000 0.25%
---------------------------------------------
---------------------------------------------
Over $5,000,000 0.10%
---------------------------------------------
IMDI may from time to time pay a bonus or other cash incentive to dealers
(other than IMDI) including, for example, those which employ a registered
representative who sells a minimum dollar amount of the shares of a Fund
and/or other funds distributed by IMDI during a specified time period.
The Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of certain dealers meeting criteria
established by the Distributor. This privilege will apply only to Class A
shares of the Fund that are purchased using proceeds obtained by such
clients through redemption of another mutual fund's shares on which a
sales charge was paid. Purchases must be made within 60 days of redemption
from the other fund, and the Class A shares purchased are subject to a
1.00% CDSC on shares redeemed within the first year after purchase.
o Class B and Class C Shares - Class B and Class C shares are not subject
to an initial sales charge but are subject to a CDSC. If you redeem
your Class C shares within one year of purchase they will be subject to
a CDSC of 1.00%, and Class B shares redeemed within six years of
purchase will be subject to a CDSC at the following rates:
-----------------------------------
CDSC as a
Percentage
Year Since Purchase of Dollar
Amount
Subject to
Charge
-----------------------------------
First 5.00%
-----------------------------------
-----------------------------------
Second 4.00%
-----------------------------------
-----------------------------------
Third 3.00%
-----------------------------------
-----------------------------------
Fourth 3.00%
-----------------------------------
-----------------------------------
Fifth 2.00%
-----------------------------------
-----------------------------------
Sixth 1.00%
-----------------------------------
-----------------------------------
Seventh and thereafter 0.00%
-----------------------------------
The CDSC for both Class B and Class C shares will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. No charge will be assessed
on increases in account value above the original purchase price or on
reinvested dividends and distributions.
Shares will be redeemed on a lot-by-lot basis in the following order:
o Shares held more than six years
o Shares acquired through reinvestment of dividends and distributions
o Shares subject to the lowest CDSC percentage; on a first-in, first-out
basis
(1) With the portion of the lot attributable to capital appreciation
redeemed first, which is not subject to a CDSC; then
(2) the portion of the lot attributable to your original basis,
which is subject to a CDSC
The CDSC for Class B shares is waived for:
o Certain post-retirement withdrawals from an IRA or other retirement
plan if you are over 59 1/2 years old.
o Redemptions by certain eligible 401(a) and 401(k) plans and certain
retirement plan rollovers.
o Redemptions resulting from a tax-free return of excess contribution to
an IRA.
o Withdrawals resulting from shareholder death or disability provided
that the redemption is requested within one year of death or
disability.
o Withdrawals through the Systematic Withdrawal Plan of up to 12% per
year of your account value at the time the plan is established.
Both Class B shares and Class C shares are subject to an ongoing
service and distribution fee at a combined annual rate of up to 1.00%
of the portfolio's average net assets attributable to its Class B or
Class C shares. The ongoing distribution fees will cause these shares
to have a higher expense ratio than that of Class A and Class I shares.
IMDI uses the money that it receives from the deferred sales charge and
the distribution fees to cover various promotional and sales-related
expenses, as well as expenses related to providing distributions
services, such as compensating selected dealers and agents for selling
these shares.
Approximately eight years after the original date of purchase, your
Class B shares will be converted automatically to Class A shares. Class
A shares are subject to lower annual expenses than Class B shares. The
conversion from Class B shares to Class A shares is not considered a
taxable event for federal income tax purposes. Class C shares do not
have a similar conversion privilege.
o Class I Shares - Class I shares are offered only to institutions and
certain individuals, and are not subject to an initial sales charge or
a CDSC, nor to ongoing service or distribution fees. Class I shares
also bear lower fees than Class A, Class B and Class C shares.
Submitting Your Purchase Order:
Initial Investments:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Universal Global Value Fund. You
should note on the check the class of shares you wish to purchase (see
page [XX] for minimum initial investments.) Deliver your application
materials to your registered representative or selling broker, or send
them to one of the addresses below:
BY REGULAR MAIL: BY COURIER:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy., Suite 300
Boca Raton, FL 33431-0922 Boca Raton, FL 33432-6114
Buying Additional Shares:
There are several ways to increase your investment in the Fund:
o BY MAIL - Send your check with a completed investment slip (attached to
your account statement) or written instructions indicating the
account registration, Fund number or name, and account number. Mail
to one of the addresses above.
o THROUGH YOUR BROKER - Deliver to your registered representative or
selling broker the investment slip attached to your statement, or
written instructions, along with your payment.
o BY WIRE - Purchases may also be made by wiring money from your bank
account to your Fund account. Your bank may charge a fee for wiring
funds. Before wiring any funds, please call IMSC at (800) 777-6472.
Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021 Account #xxxxxxxxxxxxx For
further credit to:
Your Fund Account Registration
Your Fund Number and Account Number
o BY AUTOMATIC INVESTMENT METHOD - You can authorize to have funds
electronically drawn each month from your bank account and invested as
a purchase of shares into your Fund account. Complete sections 6A and
7B of the Account Application.
How to Exchange Shares:
You may exchange your Fund shares for shares of another Universal fund,
subject to certain restrictions (see "Important exchange information").
Submitting Your Exchange Order:
You may submit an exchange request to IMSC as follows:
o BY MAIL: Send your written exchange request to IMSC at one of the
addresses on page X of this Prospectus. Be sure that all registered
owners listed on the account sign the request.
o BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange
transaction. To process your exchange order by telephone, you must
have telephone exchange privileges on your account. IMSC employs
reasonable procedures that require personal identification prior to
acting on exchange instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund or IMSC may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Important Exchange Information:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a capital gain
or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the exchange
privilege for the purpose of timing short-term market fluctuations. The
Fund may therefore limit the frequency of exchanges by a shareholder,
charge a redemption fee or cancel a shareholder's exchange privilege if at
any time it appears that such market-timing strategies are being used. For
example, shareholders exchanging more than five times in a 12-month period
may be considered to be using market-timing strategies.
How To Redeem Shares:
Submitting Your Redemption Order:
You may redeem your Fund shares through your registered securities dealer
or directly through IMSC. If you choose to redeem through your registered
securities dealer, the dealer is responsible for properly transmitting
redemption orders in a timely manner. If you choose to redeem directly
through IMSC, you have several ways to submit your request:
o BY MAIL - Send your written redemption request to IMSC at one of the
addresses on page XX of this Prospectus. Be sure that all registered
owners listed on the account sign the request. Medallion signature
guarantees and supporting legal documentation may be required. When you
redeem, IMSC will normally send redemption proceeds to you on the next
business day, but may take up to seven days (or longer in the case of
shares recently purchased by check).
o BY TELEPHONE - Call IMSC at (800) 777-6472 to redeem from your
individual, joint or custodial account. To process your redemption
order by telephone, you must have telephone redemption privileges on
your account. IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated
by telephone to confirm that such instructions are genuine. In the
absence of such procedures, the Fund or IMSC may be liable for any
losses due to unauthorized or fraudulent telephone instructions.
Requests by telephone can only be accepted for amounts up to $50,000.
o BY SYSTEMATIC WITHDRAWAL PLAN ("SWP") - You can authorize to have funds
electronically drawn each month from your Fund account and deposited
directly into your bank account. Certain minimum balances and minimum
distributions apply. Complete sections 6B of the Account Application to
add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption proceeds
through a variety of payment methods:
o BY CHECK - Unless otherwise instructed in writing, checks will be made
payable to the current account registration and sent to the address of
record.
o BY FEDERAL FUNDS WIRE - Proceeds will be wired on the next business day
to a pre-designated bank account. Your account will be charged $10 each
time redemption proceeds are wired to your bank, and your bank may also
charge you a fee for receiving a Federal Funds wire.
o BY ELECTRONIC FUNDS TRANSFER - For SWP redemptions only.
Important Redemption Information:
o A CDSC may apply to certain Class A share redemptions, to Class B
shares redeemed within six years of purchase, and to Class C shares
that are redeemed within one year of purchase.
o If you own shares of more than one class of the Fund, the Fund will
redeem first the shares having the highest 12b-1 fees, unless you
instruct otherwise.
o Within a class of shares, any shares subject to a CDSC will be redeemed
last unless you specifically elect otherwise.
o Shares will be redeemed in the order described under "Additional
Purchase Information - Class B and Class C shares".
o The Fund may (on 60 days' notice) redeem the accounts of shareholders
whose investment, including sales charges paid, has been less than
$1,000 for more than 12 months.
o The Fund may take up to seven days (or longer in the case of shares
recently purchased by check) to send redemption proceeds.
Dividends, distributions and taxes
o The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
o Dividends and distributions are "reinvested" in additional Fund shares
unless you request to receive them in cash.
o Reinvested dividends and distributions are added to your account at NAV
and are not subject to a CDSC regardless of which share class you own.
o Cash dividends and distributions can be sent to you:
o BY MAIL: a check will mailed to the address of record unless otherwise
instructed.
o BY ELECTRONIC FUNDS TRANSFER ("EFT"): your proceeds will be directly
deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at (800)
777-6472.
Dividends ordinarily will vary from one class to another. The Fund intends
to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a
year. The Fund may make an additional distribution of net investment
income and net realized capital gains to comply with the calendar year
distribution requirement under the excise tax provisions of Section 4982
of the Internal Revenue Code of 1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will be
taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses),
if any, are taxable to you as long-term capital gains, regardless of how
long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year. Instead,
the taxable portion of amounts held in a tax-deferred account generally
will be subject to tax as ordinary income only when distributed from that
account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October, November
or December with a record date in such a month and paid by the Fund during
January of the following calendar year. In certain years, you may be able
to claim a credit or deduction on your income tax return for your share of
foreign taxes paid by the Fund.
Upon the sale or other disposition of your Fund shares, you may realize a
capital gain or loss which will be long-term or short-term, generally
depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all distributions payable to you if you fail to provide the Fund
with your correct taxpayer identification number or to make required
certifications, or if you have been notified by the Internal Revenue
Service that you are subject to backup withholding. Backup withholding is
not an additional tax. Any amounts withheld may be credited against your
U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the
Fund under applicable state or local law.
<PAGE>
ACCOUNT APPLICATION
Please mail applications and checks to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, FL 33431-0922
- ------------------------------------------------------------------------------
This application should not be used for retirement accounts for
which The Universal Funds (IBT) is custodian.
- ------------------------------------------------------------------------------
1 Registration
Name ___________
===========
Address ___________
City ___________ State ____________ Zip __________
Phone # (day) (___)_______ Phone # (evening) (___)___________
___ Individual ___ UGMA / UTMA ___ Sole
proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other
- --------
Date of Trust ____________ Minor's state of residence
- ----------------
(FUND USE ONLY)
- ------------
Account Number
- ------------
Dealer / Branch / Rep
- ------------
Account Type / Soc Cd
2 Tax I.D.
Citizenship: ____ U.S. ____Other (please specify): ________________
Social Security # ____-____-____ or Tax identification # ___-__________
Under penalties of perjury, I certify by signing in Section 8 that: (1) the
number shown in this section is my correct taxpayer identification number (TIN),
and (2) I am not subject to backup withholding because: (a) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting interest or dividends on
your tax return.) Please see the "Dividends, distributions and taxes" section of
the Prospectus for additional information on completing this section.
3. Dealer information
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the Shareholder, and
agrees to notify IMSC of any purchases made under a Letter of Intent or Rights
of Accumulation.
Dealer Name _______
Branch Office Address _______
City _______ State _______ Zip Code _______
Representative's name _______
Representative's # _______ Representative's phone
# _______
Authorized signature of dealer __________________________________________
4. Investments
A. Enclosed is my check for ($1,000 minimum) $___________ made payable to
Universal Global Value Fund. Please invest it in Class A __ Class B ___ Class C
___ or Class I ___ shares.
B. I qualify for an elimination of the sales charge due to the following
privilege (applies only to Class A shares):
__ New Letter of Intent (if ROA or 90-day backdate privilege is
applicable, provide account(s) information below.)
__ ROA with the account(s) listed below.
__ Existing Letter of Intent with account(s) listed below.
Fund name: _______________ Fund name: ________________
Account #: _______________ Account #: ________________
If establishing a Letter of Intent, you will need to purchase Class A shares
over a thirteen-month period in accordance with the provisions in the
Prospectus. The Aggregate amount of these purchases will be at least equal to
the amount indicated below (see Prospectus for minimum amount required for
reduced sales charges).
____ $50,000 ____ $100,000 ____ $250,000 ____ $500,000
C. FOR DEALER USE ONLY
Confirmed trade orders:
________ Confirm # ________Number of shares ________ Trade
date
5 Distribution Options
I would like to reinvest dividends and capital gains into additional shares in
this account at net asset value unless a different option is checked below.
A. Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund.
Account number: _______
B. Pay all dividends and capital gains in cash.
I request the above cash distribution, selected in A or B above, be sent to:
_____ the address listed in the registration
_____ the special payee listed in Section 7A (by mail)
_____ the special payee listed in Section 7B (by EFT)
6 Optional Special Features
A. Automatic Investment Method (AIM)
___ I wish to have my bank account listed in section 7B automatically debited
via EFT on a predetermined frequency and invested into my Universal Global Value
Fund account listed below.
1. Withdraw $__________ for each time period indicated below and invest my
bank proceeds into the Fund. Share class: ___Class A ___ Class B ___ Class
C Account #: __________________________________
2. Debit my bank account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. Systematic Withdrawal Plans (SWP)**
___ I wish to have my Universal Global Value Fund account automatically debited
on a predetermined frequency and the proceeds sent to me per my instructions
below.
1. Withdraw ($50 minimum) $_____ for each time period indicated below from
the following Fund account:
Share Class ___ Class A ____ Class B ____ Class C
Account #: ______________________________________
2. Withdraw from my Universal Global Value Fund account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration.
___ sent to the special payee listed in section 7A or 7B.
Note: A minimum balance of $5,000 is required to establish a SWP.
C. Federal Funds Wire for Redemption Proceeds** By checking "yes" immediately
above, I authorize IMSC to honor telephone instructions for the redemption
of Fund shares up to $50,000. Proceeds may be wire transferred to the bank
account designated ($1,000 minimum). (Complete Section 7B).
D. Telephonic redemptions** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall
not exceed $50,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. To change this option once
established, written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be provided
automatically.
* There must be a period of at least seven calendar days between each investment
(AIM) / withdrawal (SWP) period.
**This option may not be used if shares are issued in certificate form.
7 Special Payee
A. Mailing Address: Please send all disbursements to this payee:
Name of bank or individual ___________
Account # (if applicable) _____________
Street ____________________________
City ______ State ______ Zip ______
B. Fed Wire / EFT Information
Financial Institution _________________
ABA # ___________________________
Account # _________________________
Street ____________________________
City _____ State _______ Zip ______
(please attach a voided check)
8 Signatures
Investors should be aware that the failure to check the "No" under Section
6D above means that the Telephone Redemption Privileges will be provided.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund may be liable for any losses due to unauthorized
or fraudulent telephone instructions. Please see "How to redeem shares" in
the Prospectus for more information on this privilege.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in Section
1. I have received a current Prospectus and understand its terms are
incorporated in this application by reference. I am certifying my taxpayer
information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
______________________________
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
______________________________
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated _________ __, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus and is available upon
request and without charge from IMDI at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI) may also be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. (please call
1-800-SEC-0330 for further details). Information about the Fund is also
available on the SEC's Internet Website (www.sec.gov), and copies of this
information may be obtained, upon payment of a copying fee, by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. __________
<PAGE>
[Front Cover Page]
PROSPECTUS
December __, 1999
THE UNIVERSAL FUNDS
Universal Global Value Fund
The Universal Funds (the "Trust") is a registered open-end investment company
currently consisting of two separate portfolios. This Prospectus relates to the
Advisor Class shares of Universal Global Value Fund (the "Fund"). The Fund also
offers Class A, Class B, Class C and Class I shares, which are described in a
separate prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy or accuracy of this Prospectus. Any
representation to the contrary is a criminal offense.
Investments in the Fund are not deposits of any bank and are not federally
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
[Insert all logos]
<PAGE>
TABLE OF CONTENTS
SUMMARY......................................................................1
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS.................4
MANAGEMENT...................................................................7
SHAREHOLDER INFORMATION......................................................9
ACCOUNT APPLICATION.........................................................15
<PAGE>
SUMMARY
Investment The Fund seeks long-term capital growth. Any income realized
objective will be incidental.
Principal The Fund invests at least 65% of its assets in equity
investment securities. The Fund's management team employs a contrarian
objective value philosophy (i.e., the team looks for securities which
are trading below their estimated intrinsic value), while
looking for investment opportunities around the world.
Principal The main risks to which the Fund is exposed in carrying out
risks its investment strategies are the following:
Management risk: Securities selected for the Fund may not perform
as well as the securities held by other mutual funds with
investment objectives that are similar to those of the Fund.
Market risk: Common stock represents a proportionate ownership
interest in a company. The market value of common stock can
fluctuate significantly even where "management risk" is not a
factor, so you could lose money if you redeem your Fund shares at
a time when the Fund's stock portfolio is not performing as well
as expected.
Foreign security and emerging market risk: Investing in foreign
securities involves a number of economic, financial and political
considerations that are not associated with the U.S. markets and
that could affect the Fund's performance unfavorably, depending
upon prevailing conditions at any given time. Among these
potential risks are:
o greater price volatility;
o comparatively weak supervision and regulation of securities
exchanges, brokers and issuers;
o higher brokerage costs;
o fluctuations in foreign-currency exchange rates and related
conversion costs;
o adverse tax consequences; and
o settlement delays.
The risks of investing in foreign securities are more acute in
countries with developing economies.
Investment Concentration Risk: Since the Fund may invest a
significant portion of its assets in a single country or industry
at a given time, the Fund could experience wider fluctuations in
value than would other mutual funds with more diversified
portfolios.
Who should The Fund may be appropriate for investors seeking long-term
invest* growth potential, but who can accept significant fluctuations in
capital value in the short-term.
* You should consult with your financial advisor before deciding whether the
Fund is an appropriate investment choice in light of your particular
financial needs and risk tolerance.
Performance Information
The Fund commenced operations on December __, 1999; therefore, no
performance information is available.
Fees and Expenses
The following tables describe the fees and expenses that you may pay if
you buy and hold shares of the Fund:
SHAREHOLDER FEES (fees paid directly from your investment)
Maximum sales charge (load) None
imposed on purchases (as a
percentage of offering price)......
Maximum deferred sales charge None (load) (as a percentage of purchase
price)...................................
Maximum sales charge (load) None
imposed on reinvested
dividends....
Redemption fee*..................... None
Exchange fee.........................None
* If you choose to receive your redemption proceeds via Federal Funds
wire, a $10 wire fee will be charged to your account.
<PAGE>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund
assets)
Management 1.00%
fees.............
Distribution None
and/or service
(12b-1) fees....
Other 0.95%
expenses.......
Total annual 1.95%
Fund operating
expenses........
Example
The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions, your
costs would be as follows:
Year
1st $198
3rd 612
<PAGE>
ADDITIONAL INFORMATION ABOUT INVESTMENT STRATEGIES AND RISKS
Principal strategies
The Fund seeks to achieve its principal objective of long-term capital
growth by investing primarily in the equity securities of companies
throughout the world. The Fund selects securities on a global basis, but
may invest a significant portion of its assets in the securities of
companies in a single country or a single industry, depending on
prevailing market conditions.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd.
("Cundill"), the Fund's sub-advisor, is based on a contrarian "value"
philosophy. Cundill looks for securities which are trading below their
estimated intrinsic value. To determine the intrinsic value of a
particular company, Cundill's primary focus is on the company's financial
statements. Other factors considered include the earnings, dividends,
business prospects, management capabilities and potential catalysts to
realize shareholder value. Securities are purchased where the price
represents a significant discount to Cundill's estimate of the company's
intrinsic value. Given the bottom-up or company specific approach, Cundill
does not forecast economies or corporate earnings and does not rely on
market timing.
Principal risks
General market risk: As with any mutual fund, the value of the Fund's
investments and the income it generates will vary daily and generally
reflect market conditions, interest rates and other issuer-specific,
political or economic developments.
The Fund's share value will decrease at any time during which its security
holdings or other investment techniques are not performing as well as
anticipated, and you could therefore lose money by investing in the Fund
depending upon the timing of your initial purchase and any subsequent
redemption.
Other risks: Since the Fund invests in the equity securities of foreign
issuers, it is more susceptible to the risks associated with foreign
securities than a fund that invests primarily in the securities of U.S.
issuers and/or debt securities. Following is a description of these risks,
along with the risks commonly associated with the other securities and
investment techniques that the Fund's portfolio manager considers
important in achieving the Fund's investment objective or in managing the
Fund's exposure to risk (and that could therefore have a significant
effect on the Fund's returns). Other investment techniques that the Fund
may use (such as derivative investments), but that are not likely to play
a key role in the Fund's overall investment strategy, are described in the
Fund's Statement of Additional Information (see back cover page for
information on how you can receive a free copy).
o Common Stocks: Common stocks represent a proportionate ownership
interest in a company. As a result, the value of common stock rises
and falls with a company's success or failure. The market value of
common stock can fluctuate significantly, with smaller companies being
particularly susceptible to price swings. Transaction costs in
smaller-company stocks may also be higher than those of larger
companies.
o Foreign Securities: Investing in foreign securities involves a number
of economic, financial and political considerations that are not
associated with the U.S. markets and that could affect the Fund's
performance favorably or unfavorably, depending upon prevailing
conditions at any given time. For example, the securities markets of
many foreign countries may be smaller, less liquid and subject to
greater price volatility than those in the U.S. Foreign investing may
also involve brokerage costs and tax considerations that are not
usually present in the U.S. markets.
Other factors that can affect the value of the Fund's foreign
investments include the comparatively weak supervision and regulation
by some foreign governments of securities exchanges, brokers and
issuers, and the fact that many foreign companies may not be subject to
uniform accounting, auditing and financial reporting standards. It may
also be difficult to obtain reliable information about the securities
and business operations of certain foreign issuers. Settlement of
portfolio transactions may also be delayed due to local restrictions or
communication problems, which can cause the Fund to miss attractive
investment opportunities or impair its ability to dispose of securities
in a timely fashion (resulting in a loss if the value of the securities
subsequently declines).
o Foreign Currencies: Many of the Fund's securities also are denominated
in foreign currencies and the value of the Fund's investments as
measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign-currency exchange rates and exchange control
regulations. Currency conversion can also be costly.
o Special Emerging Market Concerns: The risks of investing in foreign
securities are heightened in countries with developing economies.
Among these additional risks are the following:
o securities that are even less liquid and more volatile than those in
more developed foreign countries;
o less stable governments that are susceptible to sudden adverse actions
(such as nationalization of businesses, restrictions on foreign
ownership or prohibitions against repatriation of assets);
o increased settlement delays;
o unusually high inflation rates (which in extreme cases can cause the
value of a country's assets to erode sharply);
o unusually large currency fluctuations and currency conversion costs;
and
o high national debt levels (which may impede an issuer's payment of
principal and/or interest on external debt).
o Illiquid Securities: The Fund may invest up to 15% of its net assets
in "illiquid securities," which are assets that may not be disposed of
in the ordinary course of business within seven days at roughly the
value at which the Fund has valued the assets. Some of these may be
"restricted securities," which cannot be sold to the public without
registration under the Securities Act of 1933 (in the absence of an
exemption) or because of other legal or contractual restrictions on
resale. Thus, while illiquid securities may offer the potential for
higher returns than more readily marketable securities, there is a
risk that the Fund will not be able to dispose of them promptly at an
acceptable price.
o Derivative Investment Techniques: The Fund may, but is not required
to, use certain derivative investment techniques to hedge various
market risks (such as interest rates, currency exchange rates and
broad or specific market movements) or to enhance potential gain.
Among the derivative techniques the Fund might use are options,
futures and forward foreign currency contracts.
Writing put and call options could cause the Fund to lose money by
forcing the sale or purchase of portfolio securities at inopportune
times or for prices higher (in the case of put options) or lower (in
the case of call options) than current market values, by limiting the
amount of appreciation the Fund can realize on its investments, or by
causing the Fund to hold a security it might otherwise sell.
Futures transactions (and related options) involve other types of
risks. For example, the variable degree of correlation between price
movements of futures contracts and price movements in the related
portfolio position of the Fund could cause losses on the hedging
instrument that are greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in
all circumstances and certain over-the-counter options may have no
markets. As a result, the Fund might not be able to close out a
transaction before expiration without incurring substantial losses (and
it is possible that the transaction cannot even be closed). In
addition, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the
initial premium.
Foreign currency transactions (such as forward foreign currency
contracts) can cause investment losses in a variety of ways. For
example, changes in currency exchange rates may result in poorer
overall performance for the Fund than if it had not engaged in such
transactions. There may also be an imperfect correlation between the
Fund's portfolio holdings of securities denominated in a particular
currency and the forward contracts entered into by the Fund. An
imperfect correlation of this type may prevent the Fund from achieving
the intended hedge or expose the Fund to the risk of currency exchange
loss.
o Borrowing: For temporary or emergency purposes (such as meeting
shareholder redemption requests within the time periods specified
under the Investment Company Act of 1940), the Fund may borrow up to
10% of the value of its total assets from qualified banks. Borrowing
may exaggerate the effect on the Fund's share value of any increase or
decrease in the value of the securities it holds. Money borrowed will
also be subject to interest costs.
o Temporary Defensive Positions: The Fund may occasionally take a
temporary defensive position and invest without limit in U.S.
Government securities, investment-grade debt securities, and cash and
cash equivalents such as commercial paper, short-term notes and other
money market securities. When the Fund assumes such a defensive
position it may not achieve its investment objective. Investing in
debt securities also involves both interest rate and credit risk.
Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. For example, as interest rates
decline the value of debt securities generally increases. Conversely,
rising interest rates tend to cause the value of debt securities to
decrease. The market value of debt securities also tends to vary
according to the relative financial condition of the issuer. Bonds
with longer maturities tend to be more volatile than bonds with
shorter maturities.
Other Important Information:
European Monetary Union: The Fund may have investments in Europe. On
January 1, 1999, a new European currency called the "euro" was introduced
and adopted for use by eleven European countries. The transition to daily
usage of the euro will occur during the period from January 1, 1999
through December 31, 2001, at which time euro bills and coins will be put
into circulation. Certain European Union (EU) members, including the
United Kingdom, did not officially implement the euro on January 1, 1999
and may cause market disruptions when and if they decide to do so. Should
this occur, the Fund could experience investment losses.
Year 2000 Risks: Many computer software and hardware systems in use today
cannot distinguish between the year 2000 and the year 1900 because of the
way dates are encoded and calculated (the "Year 2000 Problem"). The
inability of computer-based systems to make this distinction could have a
seriously adverse effect on the handling of securities trades, pricing and
account services worldwide. The Fund's service providers are taking steps
that each believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that they use. Information
about the Year 2000 readiness of the issuers of the securities that the
Fund may purchase is also taken into consideration during the investment
decision-making process (though such information may not be readily
available, particularly in non-U.S. countries, and may be limited to
public filings or statements from company representatives that are not
independently verifiable).
The Fund believes these steps will be sufficient to avoid any material
adverse impact on the Fund. At this time, however, there can be no
assurance that significant problems will not occur (which either directly
or indirectly may cause the Fund to lose money).
MANAGEMENT
Investment adviser
Ivy Management, Inc. ("IMI"), located at Via Mizner Financial Plaza, 700
South Federal Highway, Boca Raton, Florida 33432, provides advisory and
business management services to the Fund. IMI is an SEC-registered
investment adviser with over $____ billion in assets under management, and
provides similar services to the other series of The Universal Funds, the
five series of Mackenzie Solutions and the nineteen series of Ivy Fund.
For its services, IMI receives a fee that is equal, on an annual basis, to
1.00% of the Fund's average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or
add subadvisers and enter into sub-advisory agreements with these
subadvisers without the approval of the Fund's shareholders, as normally
would be required under the 1940 Act. If granted, such relief would
require shareholder notification in the event of any change in
subadvisers. The relief would also prohibit IMI from entering into a
sub-advisory agreement with any subadviser that is an "affiliated person,"
as defined in the 1940 Act, of the Trust or IMI, other than by reason of
serving as a subadviser to the Fund, without shareholder approval. In
addition, whenever a subadviser is hired or fired, IMI would be required
to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from each of the Funds. Fees paid to a subadviser if the Fund
employs multiple subadvisers will depend upon the fee rate negotiated with
IMI and upon the percentage of the Fund's assets allocated to that
subadviser by IMI, which may vary from time to time. Thus, the basis for
fees paid to any such subadviser will not be constant, and the relative
amounts of fees paid to the various subadvisers of the Fund will
fluctuate. These internal fluctuations, however, will not affect the total
advisory fees paid by the Fund, which will remain fixed on the terms
described above. IMI may, however, determine in its discretion to waive a
portion of its fee if internal fluctuations in the fee to be paid to the
subadvisers results in excess profit to IMI. Because IMI will pay each
subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
The Subadviser:
Peter Cundill & Associates (Bermuda) Ltd. ("Cundill"), the subadviser of
the Fund, is a Bermuda corporation incorporated in 1984. Cundill has
contracted Cundill Investment Research Ltd., of Suite 1200, Sun Life
Plaza, 1100 Melville Street, Vancouver, B.C. V6E 4A6, to provide certain
administrative and research services. For its services, Cundill receives a
fee from IMI that is equal, on an annual basis, to 0.50% of the Fund's
average net assets. Cundill also provides investment advisory services to
other discretionary accounts. Since the size and mandate of these accounts
differ, the portfolios are not identical.
Portfolio Management:
The Fund is managed by a team of investment professionals that is
supported by research analysts who are responsible for providing
information on regional and country-specific economic and political
developments and monitoring individual companies.
Peter Cundill has over 30 years of value-investing experience and has
managed Mackenzie Financial Corporation's Cundill Value Fund since 1975.
He is a Chartered Financial Analyst, a Chartered Accountant and holds a
Bachelor of Commerce degree from McGill University, Montreal.
Leslie Ferris is a member of the investment team. Ms. Ferris has over
16 years of investment industry experience in North American equity and
fixed income securities. Prior to joining Cundill in 1998, she was a
portfolio manager for Ivy Funds and Kemper Funds. Ms. Ferris is a
Chartered Financial Analyst, a Certified Public Accountant, and holds
an MBA from the University of Chicago.
Tim McElvaine is also a member of the investment team. Mr. McElvaine has
over 12 years of investment industry experience. He is a Chartered
Financial Analyst and a Chartered Accountant, and holds a Bachelor of
Commerce degree from Queen's University in Kingston, Ontario.
SHAREHOLDER INFORMATION
Pricing of Fund shares
The Fund calculates its share price by dividing the value of the Fund's
net assets by the total number of its shares outstanding as of the close
of regular trading (usually 4:00 p.m. Eastern time) on the New York Stock
Exchange on each day the Exchange is open for trading (normally any
weekday that is not a national holiday).
Each portfolio security that is listed or traded on a recognized stock
exchange is valued at the security's last sale price on the exchange on
which it was purchased. If no sale is reported at that time, the average
between the last bid and asked prices is used. Securities and other Fund
assets for which market prices are not readily available are priced at
their "fair value" as determined by the Advisor in accordance with
procedures approved by the Fund's Board of Trustees. The Advisor may also
price a foreign security at its "fair value" if events materially
affecting the value of the security occur between the close of the foreign
exchange on which the security is principally traded and the time as of
which the Fund prices its shares. Fair-value pricing under these
circumstances is designed to protect existing shareholders from the
actions of short-term investors trading into and out of the Fund in an
attempt to profit from short-term market movements. When such fair- value
pricing occurs, however, there may be some period of time during which the
Fund's share price and/or performance information is not available.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are
received in proper form by Ivy Mackenzie Services Corp. ("IMSC") (the
Fund's transfer agent) or by your registered securities dealer. Each
purchase and redemption order is subject to any applicable sales charge
(see "Choosing the appropriate class of shares"). Since the Fund normally
invests in securities that are listed on foreign exchanges that may trade
on weekends or other days when the Fund does not price its shares, the
Fund's share value may change on days when shareholders will not be able
to purchase or redeem the Fund's shares.
How To Buy Shares:
Please read these sections below carefully before investing.
Advisor Class shares are offered through this prospectus only to the
following investors:
o Trustees or other fiduciaries purchasing shares for employee benefit
plans that are sponsored by organizations that have at least 1,000
employees;
o Any account with assets of at least $10,000 if (a) a financial
planner, trust company, bank trust department or registered investment
adviser has investment direction, and where the investor pays such
person as compensation for his advice and other services an annual fee
of at least 0.50% on the assets in the account, or (b) such account is
established under a "wrap fee" program and the account holder pays the
sponsor of he program an annual fee of at least 0.50% on the assets in
the account;
o Officers and Trustees of Ivy Fund, Mackenzie Solutions and The
Universal Funds (and their relatives);
o Directors or employees of Mackenzie Investment Management Inc. or its
affiliates;
o Directors, officers, partners, registered representatives, employees
and retired employees (and their relatives) of dealers having a sales
agreement with IMDI (or trustees or custodians of any qualified
retirement plan or IRA established for the benefit of any such
person.)
The following investment minimums, sales charges and expenses apply.
-------------------------------
Advisor Class
-------------------------------
-------------------------------
Minimum
initial $10,000
investment*
-------------------------------
-------------------------------
Minimum
subsequent $250
investment*
-------------------------------
-------------------------------
Initial sales None
charge
-------------------------------
-------------------------------
CDSC None
-------------------------------
-------------------------------
Service and None
distribution
fees
-------------------------------
* Minimum initial and subsequent investments for retirement plans are
$25.
Submitting Your Purchase Order:
Initial Investments:
Complete and sign the Account Application appearing at the end of this
Prospectus. Enclose a check payable to Universal Global Value Fund. You
should note on the check that you wish to invest in Advisor Class shares
(see page [XX] for minimum initial investments.) Deliver your application
materials to your registered representative or selling broker, or send
them to one of the addresses below:
BY REGULAR MAIL: BY COURIER:
Ivy Mackenzie Services Corp. Ivy Mackenzie Services Corp.
P.O. Box 3022 700 South Federal Hwy., Suite 300
Boca Raton, FL 33431-0922 Boca Raton, FL 33432-6114
Buying Additional Shares:
There are several ways to increase your investment in the Fund:
o BY MAIL - Send your check with a completed investment slip (attached to
your account statement) or written instructions indicating the
account registration, Fund number or name, and account number. Mail
to one of the addresses above.
o THROUGH YOUR BROKER - Deliver to your registered representative or
selling broker the investment slip attached to your statement, or
written instructions, along with your payment.
o BY WIRE - Purchases may also be made by wiring money from your bank
account to your Fund account. Your bank may charge a fee for wiring
funds. Before wiring any funds, please call IMSC at (800) 777-6472.
Wiring instructions are as follows:
First Union National Bank of Florida
Jacksonville, FL
ABA #063000021
Account #xxxxxxxxxxxxx
For further credit to:
Your Fund Account Registration
Your Fund Number and Account Number
o BY AUTOMATIC INVESTMENT METHOD - You can authorize to have funds
electronically drawn each month from your bank account and invested as
a purchase of shares into your Fund account. Complete sections 6A and
7B of the Account Application.
How to Exchange Shares:
You may exchange your Fund shares for shares of another Universal fund,
subject to certain restrictions (see "Important exchange information").
Submitting Your Exchange Order:
You may submit an exchange request to IMSC as follows:
o BY MAIL: Send your written exchange request to IMSC at one of the
addresses on page X of this Prospectus. Be sure that all registered
owners listed on the account sign the request.
o BY TELEPHONE: Call IMSC at 800.777.6472 to authorize an exchange
transaction. To process your exchange order by telephone, you must
have telephone exchange privileges on your account. IMSC employs
reasonable procedures that require personal identification prior to
acting on exchange instructions communicated by telephone to confirm
that such instructions are genuine. In the absence of such procedures,
the Fund or IMSC may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
Important Exchange Information:
You must exchange into the same share class you currently own.
Exchanges are considered taxable events and may result in a capital gain
or a capital loss for tax purposes.
It is the policy of the Fund to discourage the use of the exchange
privilege for the purpose of timing short-term market fluctuations. The
Fund may therefore limit the frequency of exchanges by a shareholder,
charge a redemption fee or cancel a shareholder's exchange privilege if at
any time it appears that such market-timing strategies are being used. For
example, shareholders exchanging more than five times in a 12-month period
may be considered to be using market-timing strategies.
How To Redeem Shares:
Submitting Your Redemption Order:
You may redeem your Fund shares through your registered securities dealer
or directly through IMSC. If you choose to redeem through your registered
securities dealer, the dealer is responsible for properly transmitting
redemption orders in a timely manner. If you choose to redeem directly
through IMSC, you have several ways to submit your request:
o BY MAIL - Send your written redemption request to IMSC at one of the
addresses on page XX of this Prospectus. Be sure that all registered
owners listed on the account sign the request. Medallion signature
guarantees and supporting legal documentation may be required. When
you redeem, IMSC will normally send redemption proceeds to you on the
next business day, but may take up to seven days (or longer in the
case of shares recently purchased by check).
o BY TELEPHONE - Call IMSC at (800) 777-6472 to redeem from your
individual, joint or custodial account. To process your redemption
order by telephone, you must have telephone redemption privileges on
your account. IMSC employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated
by telephone to confirm that such instructions are genuine. In the
absence of such procedures, the Fund or IMSC may be liable for any
losses due to unauthorized or fraudulent telephone instructions.
Requests by telephone can only be accepted for amounts up to $50,000.
o BY SYSTEMATIC WITHDRAWAL PLAN ("SWP") - You can authorize to have
funds electronically drawn each month from your Fund account and
deposited directly into your bank account. Certain minimum balances
and minimum distributions apply. Complete sections 6B of the Account
Application to add this feature to your account.
Receiving Your Redemption Proceeds - You can receive redemption proceeds
through a variety of payment methods:
o BY CHECK - Unless otherwise instructed in writing, checks will be made
payable to the current account registration and sent to the address of
record.
o BY FEDERAL FUNDS WIRE - Proceeds will be wired on the next business
day to a pre-designated bank account. Your account will be charged $10
each time redemption proceeds are wired to your bank, and your bank
may also charge you a fee for receiving a Federal Funds wire.
o BY ELECTRONIC FUNDS TRANSFER - For SWP redemptions only.
Important Redemption Information:
o If you own shares of more than one class of the Fund, the Fund will
redeem first the shares having the highest 12b-1 fees, unless you
instruct otherwise.
o The Fund may (on 60 days' notice) redeem the accounts of shareholders
whose investment, including sales charges paid, has been less than
$10,000 for more than 12 months.
o The Fund may take up to seven days (or longer in the case of shares
recently purchased by check) to send redemption proceeds.
Dividends, distributions and taxes
o The Fund generally declares and pays dividends and capital gain
distributions (if any) at least once a year.
o Dividends and distributions are "reinvested" in additional Fund shares
unless you request to receive them in cash.
o Reinvested dividends and distributions are added to your account at
NAV and are not subject to a CDSC regardless of which share class you
own.
o Cash dividends and distributions can be sent to you:
o BY MAIL: a check will mailed to the address of record unless otherwise
instructed.
o BY ELECTRONIC FUNDS TRANSFER ("EFT"): your proceeds will be directly
deposited into your bank account.
To change your dividend and/or distribution options, call IMSC at (800)
777-6472.
Dividends ordinarily will vary from one class to another. The Fund intends
to declare and pay dividends annually. The Fund will distribute net
investment income and net realized capital gains, if any, at least once a
year. The Fund may make an additional distribution of net investment
income and net realized capital gains to comply with the calendar year
distribution requirement under the excise tax provisions of Section 4982
of the Internal Revenue Code of 1986, as amended (the "Code").
Dividends paid out of the Fund's investment company taxable income
(including dividends, interest and net short-term capital gains) will be
taxable to you as ordinary income. If a portion of the Fund's income
consists of dividends paid by U.S. corporations, a portion of the
dividends paid by the Fund may be eligible for the corporate
dividends-received deduction. Distributions of net capital gains (the
excess of net long-term capital gains over net short-term capital losses),
if any, are taxable to you as long-term capital gains, regardless of how
long you have held your shares. Dividends are taxable to you in the same
manner whether received in cash or reinvested in additional Fund shares.
If shares of the Fund are held in a tax-deferred account, such as a
retirement plan, income and gain will not be taxable each year. Instead,
the taxable portion of amounts held in a tax-deferred account generally
will be subject to tax as ordinary income only when distributed from that
account.
A distribution will be treated as paid to you on December 31 of the
current calendar year if it is declared by the Fund in October, November
or December with a record date in such a month and paid by the Fund during
January of the following calendar year. In certain years, you may be able
to claim a credit or deduction on your income tax return for your share of
foreign taxes paid by the Fund.
Upon the sale or other disposition of your Fund shares, you may realize a
capital gain or loss, which will be long term or short term, generally
depending upon how long you held your shares.
The Fund may be required to withhold U.S. Federal income tax at the rate
of 31% of all distributions payable to you if you fail to provide the Fund
with your correct taxpayer identification number or to make required
certifications, or if you have been notified by the Internal Revenue
Service that you are subject to backup withholding. Backup withholding is
not an additional tax. Any amounts withheld may be credited against your
U.S. Federal income tax liability.
Fund distributions may be subject to state, local and foreign taxes.
You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the
Fund under applicable state or local law.
ACCOUNT APPLICATION
Please mail applications and checks to:
Ivy Mackenzie Services Corp.
P.O. Box 3022, Boca Raton, FL 33431-0922
- ------------------------------------------------------------------------------
This application should not be used for retirement accounts for
which The Universal Funds (IBT) is custodian.
- ------------------------------------------------------------------------------
1 Registration
Name ___________
===========
Address ___________
City ___________ State ____________ Zip __________
Phone # (day) (___)_______ Phone # (evening) (___)___________
___ Individual ___ UGMA / UTMA ___ Sole
proprietor
___ Joint tenant ___ Corporation ___ Trust
___ Estate ___ Partnership ___ Other
- --------
Date of Trust ____________ Minor's state of residence
- ----------------
(FUND USE ONLY)
- ------------
Account Number
- ------------
Dealer / Branch / Rep
- ------------
Account Type / Soc Cd
2 Tax I.D.
Citizenship: ____ U.S. ____Other (please specify): ________________
Social Security # ____-____-____ or Tax identification # ___-__________
Under penalties of perjury, I certify by signing in Section 8 that: (1) the
number shown in this section is my correct taxpayer identification number (TIN),
and (2) I am not subject to backup withholding because: (a) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (b)
the IRS has notified me that I am no longer subject to backup withholding.
(Cross out item (2) if you have been notified by the IRS that you are currently
subject to backup withholding because of underreporting interest or dividends on
your tax return.) Please see the "Dividends, distributions and taxes" section of
the Prospectus for additional information on completing this section.
3. Dealer information
The undersigned ("Dealer") agrees to all applicable provisions in this
Application, guarantees the signature and legal capacity of the Shareholder, and
agrees to notify IMSC of any purchases made under a Letter of Intent or Rights
of Accumulation.
Dealer Name _______
Branch Office Address _______
City _______ State _______ Zip Code _______
Representative's name _______
Representative's # _______ Representative's phone
# _______
Authorized signature of dealer __________________________________________
4. Investments
A. Enclosed is my check ($10,000 minimum) for $ made payable to Universal Global
Value Fund. Please invest it Advisor Class shares.
B. FOR DEALER USE ONLY
Confirmed trade orders:
________ Confirm # ________Number of shares ________ Trade
date
5 Distribution Options
I would like to reinvest dividends and capital gains into additional shares in
this account at net asset value unless a different option is checked below.
A. __ Pay all dividends in cash and reinvest capital gains into additional
shares in this Fund.
Account number: ______________________
B. Pay all dividends and capital gains in cash.
I request the above cash distribution, selected in A or B above, be sent to:
_____ the address listed in the registration
_____ the special payee listed in Section 7A (by mail)
_____ the special payee listed in Section 7B (by EFT)
6 Optional Special Features
A. Automatic Investment Method (AIM)
___ I wish to have my bank account listed in section 7B automatically debited
via EFT on a predetermined frequency and invested into my Universal Global Value
Fund account listed below.
1. Withdraw $__________ for each time period indicated below and invest my
bank proceeds into the Fund.
Account #: __________________________________
2. Debit my bank account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
B. Systematic Withdrawal Plans (SWP)**
___ I wish to have my Universal Global Value Fund account automatically debited
on a predetermined frequency and the proceeds sent to me per my instructions
below.
1. Withdraw ($50 minimum) $_____ for each time period indicated below from
the following Fund account:
Account #: ______________________________________
2. Withdraw from my Universal Global Value Fund account:
_____ Annually (on the ___ day of the month of _____).
_____ Semiannually (on the __ day of the months of _____ and ______).
_____ Quarterly (on the ___ day of the first / second / third month of
each calendar quarter. (circle one)
_____ Monthly* ___ once per month on the ___ day
___ twice per month on the ___ days
___ 3 times per month on the ___ days
___ 4 times per month on the ___ days
3. I request the withdrawal proceeds be:
___ sent to the address listed in the registration.
___ sent to the special payee listed in section 7A or 7B.
Note: A minimum balance of $10,000 is required to establish a SWP.
C. Federal Funds Wire for Redemption Proceeds** ___ yes ___ no
By checking "yes" immediately above, I authorize IMSC to honor telephone
instructions for the redemption of Fund shares up to $50,000. Proceeds may
be wire transferred to the bank account designated ($1,000 minimum).
(Complete Section 7B).
D. Telephonic redemptions** ___ yes ___ no
By checking "yes" immediately above, the Fund or its agents are authorized
to honor telephone instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the redemption shall
not exceed $50,000 and the proceeds are to be payable to the shareholder of
record and mailed to the address of record. To change this option once
established, written instructions must be received from the shareholder of
record or the current registered representative.
If neither box is checked, the telephone redemption privilege will be provided
automatically.
* There must be a period of at least seven calendar days between each investment
(AIM) / withdrawal (SWP) period.
**This option may not be used if shares are issued in certificate form.
7 Special Payee
A. Mailing Address: Please send all disbursements to this payee:
Name of bank or individual ___________
Account # (if applicable) _____________
Street ____________________________
City ______ State ______ Zip ______
<PAGE>
B. Fed Wire / EFT Information
Financial Institution _________________
ABA # ___________________________
Account # _________________________
Street ____________________________
City _____ State _______ Zip ______
(please attach a voided check)
8 Signatures
Investors should be aware that the failure to check the "No" under Section
6D above means that the Telephone Redemption Privileges will be provided.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption instructions communicated by
telephone to confirm that such instructions are genuine. In the absence of
such procedures, the Fund may be liable for any losses due to unauthorized
or fraudulent telephone instructions. Please see "How to redeem shares" in
the Prospectus for more information on this privilege.
I certify to my legal capacity to purchase or redeem shares of the Fund
for my own account or for the account of the organization named in Section
1. I have received a current Prospectus and understand its terms are
incorporated in this application by reference. I am certifying my taxpayer
information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
______________________________
Signature of Owner, Custodian, Date
Trustee or Corporate Officer
______________________________
Signature of Joint Owner, Date
Co-Trustee or Corporate Officer
(Remember to sign Section 8)
<PAGE>
[Back Cover Page]
HOW TO RECEIVE MORE INFORMATION ABOUT THE FUND
Additional information about the Fund and its investments is contained in the
Fund's Statement of Additional Information dated ________ __, 1999 (the "SAI"),
which is incorporated by reference into this Prospectus and is available upon
request and without charge from IMDI at the following address and phone number:
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
(800) 456-5111
Information about the Fund (including the SAI) may also be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. (please call
1-800-SEC-0330 for further details). Information about the Fund is also
available on the SEC's Internet Website (www.sec.gov), and copies of this
information may be obtained, upon payment of a copying fee, by writing the
Public Reference Section of the SEC, Washington, D.C. 20549-6009.
SHAREHOLDER INQUIRIES
Please call Ivy Mackenzie Services Corp., the Fund's transfer agent, at
1-800-777-6472 regarding any other inquiries about the Fund.
Investment Company Act File No. ___________
<PAGE>
UNIVERSAL EUROPEAN OPPORTUNITIES FUND
series of
THE UNIVERSAL FUNDS
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
December ___, 1999
The Universal Funds (the "Trust") is an open-end management investment
company that currently consists of two fully managed diversified portfolios.
This Statement of Additional Information ("SAI") relates to the Class A, B, C
and I shares of Universal European Opportunities Fund (the "Fund"). The other
portfolio of the Trust is described in a separate prospectus and SAI.
The Universal European Opportunities Fund is the successor entity to Ivy
European Opportunities Fund, a diversified series of shares of Ivy Fund, before
the Fund's shareholders approved a proposal to reorganize the Fund as a series
of the Trust. The Fund will not commence operations until after the closing of
the reorganization transaction. This reorganization is expected to occur on
___________, 1999 or as soon as practicable thereafter. Accordingly, the Fund is
not offering its shares for purchase, and will not accept subscriptions for such
shares, until after the reorganization takes place.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated December ___, 1999 (the "Prospectus"), which may
be obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Advisor Class
shares, which are described in a separate prospectus and SAI that may also be
obtained without charge from the Distributor.
The Financial Statements contained in the Semi-annual Report to
Shareholders of the Fund dated June 30,1999 are incorporated by reference into
and are hereby deemed to be part of this Statement of Additional Information.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................4
INVESTMENT RESTRICTIONS ...............................................6
COMMON STOCKS..........................................................6
CONVERTIBLE SECURITIES.................................................6
DEBT SECURITIES........................................................7
IN GENERAL.......................................................7
INVESTMENT-GRADE DEBT SECURITIES.................................7
LOW-RATED DEBT SECURITIES........................................7
U.S.GOVERNMENT SECURITIES........................................8
ZERO COUPON BONDS................................................9
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........10
ILLIQUID SECURITIES...................................................10
FOREIGN SECURITIES....................................................11
DEPOSITORY RECEIPTS...................................................12
EMERGING MARKETS......................................................12
FOREIGN SOVEREIGN DEBT OBLIGATIONS..............................13
BRADY BONDS.....................................................14
FOREIGN CURRENCIES....................................................14
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................15
OTHER INVESTMENT COMPANIES............................................16
REPURCHASE AGREEMENTS.................................................16
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................17
COMMERCIAL PAPER......................................................17
BORROWING.............................................................17
WARRANTS..............................................................17
OPTIONS TRANSACTIONS..................................................18
IN GENERAL......................................................18
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................19
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................19
RISKS OF OPTIONS TRANSACTIONS...................................20
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................21
IN GENERAL......................................................21
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........22
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............23
SECURITIES INDEX FUTURES CONTRACTS....................................24
RISKS OF SECURITIES INDEX FUTURES...............................25
COMBINED TRANSACTIONS...........................................26
PORTFOLIO TURNOVER..........................................................28
TRUSTEES AND OFFICERS.......................................................29
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..............................31
INVESTMENT ADVISORY AND OTHER SERVICES......................................32
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................32
DISTRIBUTION SERVICES.................................................35
RULE 18F-3 PLAN.................................................35
RULE 12B-1 DISTRIBUTION PLANS...................................36
CUSTODIAN.............................................................37
FUND ACCOUNTING SERVICES..............................................38
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................38
ADMINISTRATOR.........................................................39
AUDITORS..............................................................39
BROKERAGE ALLOCATION........................................................39
CAPITALIZATION AND VOTING RIGHTS............................................40
SPECIAL RIGHTS AND PRIVILEGES...............................................41
AUTOMATIC INVESTMENT METHOD...........................................42
EXCHANGE OF SHARES....................................................42
INITIAL SALES CHARGE SHARES.....................................42
CONTINGENT DEFERRED SALES CHARGE SHARES...............................43
CLASS A.........................................................43
CLASS B.........................................................43
CLASS C.........................................................44
CLASS I.........................................................44
ALL CLASSES.....................................................44
LETTER OF INTENT......................................................44
RETIREMENT PLANS......................................................45
INDIVIDUAL RETIREMENT ACCOUNTS..................................45
ROTH IRAS.......................................................46
QUALIFIED PLANS.................................................47
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................48
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................48
SIMPLE PLANS....................................................49
REINVESTMENT PRIVILEGE................................................49
RIGHTS OF ACCUMULATION................................................49
SYSTEMATIC WITHDRAWAL PLAN............................................50
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................50
REDEMPTIONS.................................................................51
CONVERSION OF CLASS B SHARES................................................52
NET ASSET VALUE.............................................................53
TAXATION....................................................................54
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............55
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................56
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................57
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................57
DISTRIBUTIONS.........................................................58
DISPOSITION OF SHARES.................................................59
FOREIGN WITHHOLDING TAXES.............................................59
BACKUP WITHHOLDING....................................................60
PERFORMANCE INFORMATION.....................................................61
AVERAGE ANNUAL TOTAL RETURN...........................................61
CUMULATIVE TOTAL RETURN...............................................61
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.................62
FINANCIAL STATEMENTS........................................................63
APPENDIX A..................................................................64
<PAGE>
GENERAL INFORMATION
The Fund is organized as separate, diversified portfolio of the Trust, an
open-end management investment company organized as a Massachusetts business
trust on October 6, 1999. The Fund commenced operations as of May 3, 1999.
Descriptions in this SAI of a particular investment practice or technique
in which the Fund may engage or a financial instrument which the Fund may
purchase are meant to describe the spectrum of investments that IMI and/or a
Fund's subadvisor, in their discretion, might, but are not required to, use in
managing the Fund's portfolio assets. IMI and/or a Fund's subadvisor may, in
their discretion, at any time employ such practice, technique or instrument for
one or more funds but not for all funds advised by them. Furthermore, it is
possible that certain types of financial instruments or investment techniques
described herein may not be available, permissible, economically feasible or
effective for their intended purposes in some or all markets, in which case the
Fund would not use them. Certain practices, techniques, or instruments may not
be principal activities of the Fund but, to the extent employed, could from time
to time have a material impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
The Fund's investment objective is long-term capital growth by
investing in the securities markets of Europe. The Fund's subadviser, Henderson
Investment Management Limited ("Henderson Investors"), will invest the Fund's
assets in the securities of European companies, including those companies
operating in the emerging markets of Europe and small capitalization companies
operating in the developed markets of Europe. The Fund may also invest in larger
capitalization European companies and European companies which have been subject
to special circumstances, e.g., privatized companies or companies which provide
exceptional value. Although the majority of the Fund's assets will be invested
in equity securities, the Fund may also invest in cash, short-term or long-term
fixed income securities issued by corporations and governments of Europe if
considered appropriate in relation to the then current economic or market
conditions in any country.
The Fund seeks to achieve its investment objective by investing primarily
in the equity securities of companies domiciled or otherwise doing business (as
described below) in European countries. Under normal circumstances, the Fund
will invest at least 65% of its total assets in the equity securities of
"European companies," which include any issuer (a) that is organized under the
laws of a European country; (b) that derives 50% or more of its total revenues
from goods produced or sold, investments made or services performed in Europe;
or (c) for which the principal trading market is in Europe. The equity
securities in which the Fund may invest include common stock, preferred stock
and common stock equivalents such as warrants and convertible debt securities.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), American
Depository Shares ("ADSs"), European Depository Shares ("EDSs") and Global
Depository Shares ("GDSs"). The Fund does not expect to concentrate its
investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's Investors Service, Inc. ("Moody's") or BB or below by Standard
& Poor's Ratings Services ("S&P") or, if unrated, considered by Henderson
Investors to be of comparable quality (commonly referred to as "high yield" or
"junk" bonds). The Fund will not invest in debt securities rated less than C by
either Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign
debt of countries that have restructured or are in the process of restructuring
their sovereign debt. The Fund may also purchase securities on a "when-issued"
or firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. In addition, the Fund may invest
up to 5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when Henderson Investors believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, investment grade debt securities (i.e., those rated Baa or higher by
Moody's or BBB or higher by S&P or, if unrated, considered by Henderson
Investors to be of comparable quality), warrants, and cash or cash equivalents
such as domestic or foreign bank obligations (including certificates of deposit,
time deposits and bankers' acceptances), short-term notes, repurchase
agreements, and domestic or foreign commercial paper.
The Fund may borrow money in accordance with the provisions of the 1940
Act. The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
For hedging purposes, the Fund may purchase put and call options on
securities and stock indices, provided the premium paid for such options does
not exceed 5% of the Fund's net assets. The Fund may also sell covered put
options with respect to up to 10% of the value of its net assets, and may write
covered call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in (and
options on) stock index, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets. The Fund may also write or buy straddles or spreads.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can
experience an immediate drop in value if the demand for the securities does not
continue to support the offering price. Information about the issuers of IPO
securities is also difficult to acquire since they are new to the market and may
not have lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable" (i.e., they cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rule 144A)
or because they are subject to other legal or contractual delays in or
restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until relatively recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
BRADY BONDS
The Fund may invest in Brady Bonds, which are securities created through
the exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines,
Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation components:
the collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, the Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
The Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1
by S&P or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of any
increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, Fund
would need to negotiate directly with the counterparty.
The Fund will realize a gain (or a loss) on a closing purchase transaction
with respect to a call or a put previously written by the Fund if the premium,
plus commission costs, paid by the Fund to purchase the call or the put is less
(or greater) than the premium, less commission costs, received by the Fund on
the sale of the call or the put. A gain also will be realized if a call or a put
that the Fund has written lapses unexercised, because the Fund would retain the
premium. Any such gains (or losses) are considered short-term capital gains (or
losses) for Federal income tax purposes. Net short-term capital gains, when
distributed by the Fund, are taxable as ordinary income. See "Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are issued
by a regulated clearing organization (such as the Options Clearing Corporation),
which, in effect, guarantees the completion of every exchange-traded option
transaction. In contrast, the terms of OTC options are negotiated by the Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When the Fund purchases an OTC option,
it relies on the party from whom it has purchased the option (the
"counterparty") to make delivery of the instrument underlying the option. If the
counterparty fails to do so, the Fund will lose any premium paid for the option,
as well as any expected benefit of the transaction. Accordingly, IMI will assess
the creditworthiness of each counterparty to determine the likelihood that the
terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a put
option on an underlying security owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that it
owns and at the same time write a call option on the same security with the same
exercise price and expiration date. Depending on whether the underlying security
appreciates or depreciates in value, the Fund would sell the underlying security
for the exercise price either upon exercise of the call option written by it or
by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that the Fund will be able to close out an
OTC option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, the Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its Custodian
in a segregated account (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that, when added to the amounts deposited with an FCM
as margin, equal the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an efficient
means of regulating the Fund's exposure to the equity markets. The Fund will not
engage in transactions in futures contracts for speculation, but only as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase. An index futures
contract is a contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering into a contract
to buy units of an index is commonly referred to as purchasing a contract or
holding a long position in the index. Entering into a contract to sell units of
an index is commonly referred to as selling a contract or holding a short
position. The value of a unit is the current value of the stock index. For
example, the S&P 500 Index is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in the Prospectus under
"Investment Objective and Policies," and the investment restrictions set forth
below are fundamental policies of the Fund and may not be changed with respect
to the approval of a majority (as defined in the 1940 Act) of the outstanding
voting shares of the Fund. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in the
subadviser's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due to the
existence of a trading market or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(iii) purchase or sell real estate limited partnership interests;
(iv) sell securities short, except for short sales "against the box";
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
subadviser, for the sale or purchase of portfolio securities shall not
be considered participation in a joint securities trading account;
(vi) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(vii) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that invest
in or sponsor such programs).
(ix) Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that
may be invested in any security or other asset or describes a policy
regarding quality standards, such percentage limitation or standard
shall, unless otherwise indicated, apply to the Fund only at the time
a transaction is entered into. Accordingly, if a percentage limitation
is adhered to at the time of investment, a later increase or decrease
in the percentage which results from circumstances not involving any
affirmative action by the Fund, such as a change in market conditions
or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business addresses
and principal occupations during the past five years are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
[To be provided]
<PAGE>
COMPENSATION TABLE
THE UNIVERSAL FUNDS
(FISCAL YEAR ENDED DECEMBER 31, 1999)
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ACCRUED ANNUAL FROM TRUST AND
NAME, COMPENSATION AS PART OF FUND BENEFITS UPON FUND COMPLEX
POSITION FROM TRUST EXPENSES RETIREMENT PAID TO TRUSTEES
[To be provided]
To the knowledge of the Trust, as of September 30, 1999, no shareholder
owned beneficially or of record 5% or more of the outstanding shares of any
class of Universal European Opportunities Fund, with the following exceptions:
CLASS A
Carlo Baldanza & Silvana Hernandez JT TEN, 5818 S 37th Street, Greenacres,
FL 33463, owned of record 270.314 shares (99.33%);
CLASS B
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 9,037.881 shares (91.07%), Carol
Brademas, Box 2141, Mishawka, IN 46546-2141, owned of record 791.677 shares
(7.97%);
CLASS C
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record 1.794
shares (100.00%);
CLASS I
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record 1.794
shares (100.00%); and
ADVISOR CLASS
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record
89,818.552 shares (99.99%).
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted
to make personal securities transactions, subject to the requirements and
restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the
"Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to the
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Advisory Agreement").
IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc.
("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding
common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto, Ontario, Canada, a public corporation organized under the laws of
Ontario and whose shares are listed for trading on the TSE. MFC is registered in
Ontario as a mutual fund dealer. IMI currently acts as manager and investment
adviser to all of the underlying funds that are a series of Ivy Fund and all of
the underlying funds that are a series of Mackenzie Solutions.
The Advisory Agreement obligates IMI to make investments for the account
of the Fund in accordance with its best judgment and within the investment
objectives and restrictions set forth in the Prospectus, the 1940 Act and the
provisions of the Code relating to regulated investment companies, subject to
policy decisions adopted by the Board. IMI determines the securities to be
purchased or sold by the Fund and place orders with brokers or dealers who deal
in such securities.
Under the Advisory Agreement, IMI also provides certain business
management services. IMI is obligated to (1) coordinate with the Fund's
Custodian and monitor the services it provides to the Fund; (2) coordinate with
and monitor any other third parties furnishing services to the Fund; (3) provide
the Fund with necessary office space, telephones and other communications
facilities as are adequate for the Fund's needs; (4) provide the services of
individuals competent to perform administrative and clerical functions that are
not performed by employees or other agents engaged by the Fund or by IMI acting
in some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for investment advisory services is not available.
Under the Advisory Agreement, the Trust pays the following expenses: (1)
the fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) to an annual
rate of 1.95% of the Fund's average net assets, which may lower the Fund's
expenses and increase its yield.
The Advisory Agreement will continue in effect with respect to the Fund
from year to year, only so long as the continuance is specifically approved at
least annually (i) by the vote of a majority of the Independent Trustees and
(ii) either (a) by the vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Fund or (b) by the vote of a majority of the
entire Board. If the question of continuance of the Agreement (or adoption of
any new agreement) is presented to the shareholders, continuance (or adoption)
shall be effected with respect to the Fund only if approved by the affirmative
vote of a majority of the outstanding voting securities of the Fund. See
"Capitalization and Voting Rights."
The Advisory Agreement may be terminated with respect to the Fund at any
time, without payment of any penalty, by the vote of a majority of the Board, or
by a vote of a majority of the outstanding voting securities of the Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Advisory Agreement shall terminate automatically in the event of its
assignment.
SUBADVISOR
The Trust and IMI, on behalf of the Fund, have entered into a
subadvisory contract with an independent investment adviser (the "Subadvisory
Contract") under which the subadviser develops, recommends and implements an
investment program and strategy for the Fund's portfolio and is responsible for
making all portfolio security and brokerage decisions, subject to the
supervision of IMI and, ultimately, the Board. Henderson Investment Management
Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as
subadviser to the Fund pursuant to the Subadvisory Contract. For its services,
Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of
the Fund's average net assets. As of February 1, 1999, Henderson also serves as
subadviser with respect to 50% of the net assets of Ivy International Small
Companies Fund, for which Henderson also receives a fee from IMI. Henderson is
an indirect, wholly owned subsidiary of AMP Limited, an Australian life
insurance and financial services company located in New South Wales, Australia.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding compensation paid pursuant to the Subadvisory Contract is not
available.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from each of the Funds. Fees paid to a subadviser if the Fund employs
multiple subadvisers will depend upon the fee rate negotiated with IMI and upon
the percentage of the Fund's assets allocated to that subadviser by IMI, which
may vary from time to time. Thus, the basis for fees paid to any such subadviser
will not be constant, and the relative amounts of fees paid to the various
subadvisers of the Fund will fluctuate. These internal fluctuations, however,
will not affect the total advisory fees paid by the Fund, which will remain
fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new subadvisers
and entering into sub-advisory agreements, IMI will negotiate fees with those
subadvisers and, because these fees are paid by IMI and not directly by the
Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and any
increase will inure to its detriment. The fee paid to IMI by the Fund and the
fees paid to the subadvisers by IMI are considered by the Board in approving the
Fund's advisory and sub-advisory arrangements. Any change in fees paid by a Fund
to IMI would require shareholder approval.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of the Fund's shares pursuant to a Distribution Agreement with the
Trust dated December __, 1999 as amended from time to time (the "Distribution
Agreement"). IMDI distributes shares of the Fund through broker-dealers who are
members of the National Association of Securities Dealers, Inc. and who have
executed dealer agreements with IMDI. IMDI distributes shares of the Fund on a
continuous basis, but reserves the right to suspend or discontinue distribution
on that basis. IMDI is not obligated to sell any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at the Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding sales commissions received by IMDI is not available.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of the Fund. The
Distribution Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by IMDI on 60 days' written notice to the Fund
or by the Fund by vote of either a majority of the outstanding voting securities
of the Fund or a majority of the Independent Trustees on 60 days' written notice
to IMDI. The Distribution Agreement shall terminate automatically in the event
of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has adopted a Rule 18f-3 plan on behalf of the Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of the Fund
represent an equal pro rata interest in the Fund and generally have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions, except that
each class bears certain class-specific expenses and has separate voting rights
on certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of the Fund may be exchanged for shares of the same class
of another Universal fund; and (iii) the Fund's Class B shares will convert
automatically into Class A shares of the Fund after a period of eight years,
based on the relative net asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued daily and paid
monthly, at the annual rate of up to 0.25% of the average daily net assets
attributable to its Class A, Class B or Class C shares, as the case may be. This
fee constitutes reimbursement to IMDI for fees paid by IMDI. The services for
which service fees may be paid include, among other things, advising clients or
customers regarding the purchase, sale or retention of shares of the Fund,
answering routine inquiries concerning the Fund and assisting shareholders in
changing options or enrolling in specific plans. Pursuant to each Plan, service
fee payments made out of or charged against the assets attributable to the
Fund's Class A, Class B or Class C shares must be in reimbursement for services
rendered for or on behalf of the affected class. The expenses not reimbursed in
any one month may be reimbursed in a subsequent month. The Class A Plan does not
provide for the payment of interest or carrying charges as distribution
expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. This
fee constitutes compensation to IMDI and is not dependent on IMDI's expenses
incurred. IMDI may reallow to dealers all or a portion of the service and
distribution fees as IMDI may determine from time to time. The distribution fee
compensates IMDI for expenses incurred in connection with activities primarily
intended to result in the sale of the Fund's Class B or Class C shares,
including the printing of prospectuses and reports for persons other than
existing shareholders and the preparation, printing and distribution of sales
literature and advertising materials. Pursuant to each Class B and Class C Plan,
IMDI may include interest, carrying or other finance charges in its calculation
of distribution expenses, if not prohibited from doing so pursuant to an order
of or a regulation adopted by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to the
Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Independent Trustees shall be committed to the discretion of the
Trustees who are not "interested persons" of the Trust.
IMDI may make payments for distribution assistance and for administrative
and accounting services from resources that may include the management fees paid
by the Fund. IMDI also may make payments (such as the service fee payments
described above) to unaffiliated broker-dealers for services rendered in the
distribution of the Fund's shares. To qualify for such payments, shares may be
subject to a minimum holding period. However, no such payments will be made to
any dealer or broker if at the end of each year the amount of shares held does
not exceed a minimum amount. The minimum holding period and minimum level of
holdings will be determined from time to time by IMDI.
A report of the amount expended pursuant to each Plan, and the purposes
for which such expenditures were incurred, must be made to the Board for its
review at least quarterly.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding service fees and distribution fees paid to IMDI is not available.
Each Plan may be amended at any time with respect to the class of shares
of the Fund to which the Plan relates by vote of the Trustees, including a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of considering such amendment. Each Plan may be terminated at any time
with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or any Plan is terminated (or not renewed)
with respect to any of the Fund (or class of shares thereof), each may continue
in effect with respect to any other fund (or Class of shares thereof) as to
which they have not been terminated (or have been renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman
& Co. (the "Custodian"), a private bank and member of the principal securities
exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the
"Custodian"), maintains custody of the assets of the Fund held in the United
States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
The Fund commenced operations on May 3, 1999, and accordingly information
regarding fees paid for these services is not available.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund pays a monthly fee at an annual rate of $20.00 for each open
Class A, Class B, Class C and Advisor Class account. The Fund with Class I
shares pays a monthly fee at an annual rate of $10.25 per open Class I account.
In addition, the Fund pays a monthly fee at an annual rate of $4.58 per account
that is closed plus certain out-of-pocket expenses. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., 0.10%) fee, based on the average daily net asset value of the
omnibus account (or a combination thereof).
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for these services is not available.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund with Class
I shares pays MIMI a monthly fee at the annual rate of 0.01% of its average
daily net assets for Class I.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for these services is not available.
Outside of providing administrative services to the Trust, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
AUDITORS
______________________, independent public accountants, has been selected
as auditors for the Trust. The audit services performed by ____________________
include audits of the annual financial statements of each of the funds of the
Trust. Other services provided principally relate to filings with the SEC and
the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or the subadvisor places orders for the purchase and sale of the Fund's
portfolio securities. All portfolio transactions are effected at the best price
and execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Funds for such purchases and sales (although the
price paid generally includes undisclosed compensation to the dealer). The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers normally reflect the spread between the bid and asked
prices. In connection with OTC transactions, IMI and/or the subadvisor attempts
to deal directly with the principal market makers, except in those circumstances
where IMI and/or the subadvisor believes that a better price and execution are
available elsewhere.
IMI and/or the subadvisor selects broker-dealers to execute transactions
and evaluates the reasonableness of commissions on the basis of quality,
quantity, and the nature of the firms' professional services. Commissions to be
charged and the rendering of investment services, including statistical,
research, and counseling services by brokerage firms, are factors to be
considered in the placing of brokerage business. The types of research services
provided by brokers may include general economic and industry data, and
information on securities of specific companies. Research services furnished by
brokers through whom the Trust effects securities transactions may be used by
IMI and/or the subadvisor in servicing all of its accounts. In addition, not all
of these services may be used by IMI and/or the subadvisor in connection with
the services it provides to the Fund or the Trust. IMI and/or the subadvisor may
consider sales of shares of Ivy funds as a factor in the selection of
broker-dealers and may select broker-dealers who provide it with research
services. IMI and/or the subadvisor will not, however, execute brokerage
transactions other than at the best price and execution.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding brokerage commissions paid is not available.
Brokerage commissions vary from year to year in accordance with the extent
to which a particular Fund is more or less actively traded.
The Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. The Fund will accept securities only to increase its
holdings in a portfolio security or to take a new portfolio position in a
security that IMI and/or the subadvisor deems to be a desirable investment for
the Fund. While no minimum has been established, it is expected that the Fund
will not accept securities having an aggregate value of less than $1 million.
The Trust may reject in whole or in part any or all offers to pay for the Fund
shares with securities and may discontinue accepting securities as payment for
the Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of the Fund, and the Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Declaration of Trust permits the Trustees to create separate series or
portfolios and to divide any series or portfolio into one or more classes. The
Trustees have authorized [one] series, each of which represents the Fund. The
Trustees have further authorized the issuance of Class A, Class B, Class C,
Class I and Advisor Class shares for Mackenzie European Opportunities Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting them differently, separate votes by the shareholders of each fund
are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general, such as ratification of the selection
of independent public accountants, will be voted upon collectively by the
shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the
shares of the Fund (or of the Trust) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by each fund of the Trust, the matter shall have been
effectively acted upon with respect to that fund if a majority of the
outstanding voting securities of the fund votes for the approval of the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other fund of the Trust; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Trust.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Shareholders will be assisted in communicating with other shareholders in
connection with the removal of a Trustee.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Trust or its Trustees. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any shareholder
of the Fund held personally liable for the obligations of the Fund. The risk of
a shareholder of the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and, thus, should be considered remote. No series of the
Trust is liable for the obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
prospectus. The Fund offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Fund reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
<PAGE>
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an exchange
privilege with other Universal funds. Before effecting an exchange, shareholders
of the Fund should obtain and read the currently effective prospectus for the
Universal fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their Class
A shares ("outstanding Class A shares") for Class A shares of another Universal
fund ("new Class A Shares") on the basis of the relative net asset value per
Class A share, plus an amount equal to the difference, if any, between the sales
charge previously paid on the outstanding Class A shares and the sales charge
payable at the time of the exchange on the new Class A shares. (The additional
sales charge will be waived for Class A shares that have been invested for a
period of 12 months or longer.)
The Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply on to Class A Shares of the
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made within 60 days of
redemption from the other fund, and the Class A shares purchased are subject to
a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of the Fund by its
registered representatives under the NAV transfer privilege. Additional
information on sales charge reductions or waivers may be obtained from IMDI at
the address listed on the cover of this Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders may exchange their Class A shares that are
subject to a contingent deferred sales charge ("CDSC"), as described in the
Prospectus ("outstanding Class A shares"), for Class A shares of another
Universal fund ("new Class A shares") on the basis of the relative net asset
value per Class A share, without the payment of any CDSC that would otherwise be
due upon the redemption of the outstanding Class A shares. Class A shareholders
of the Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the redemption
of the new Class A shares, the holding period of the outstanding Class A shares
is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Universal fund
("new Class B shares") on the basis of the relative net asset value per Class B
share, without the payment of any CDSC that would otherwise be due upon the
redemption of the outstanding Class B shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule (or period) following an exchange if such schedule is higher (or such
period is longer) than the CDSC schedule (or period) applicable to the new Class
B shares.
Class B shares of the Fund acquired through an exchange of Class B shares
of another Universal fund will be subject to that fund's CDSC schedule (or
period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Universal fund from which the exchange
was made.
For purposes of both the conversion feature and computing the CDSC that
may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of the Fund.
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Universal fund
("new Class C shares") on the basis of the relative net asset value per Class C
share, without the payment of any CDSC that would otherwise be due upon
redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within
one year of the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following paragraph,
Class I shareholders may exchange their outstanding Class I shares for Class I
shares of another Universal fund on the basis of the relative net asset value
per share.
ALL CLASSES: The minimum value of shares which may be exchanged into an
Universal fund in which shares are not already held is $1,000. No exchange out
of the Fund (other than by a complete exchange of all Fund shares) may be made
if it would reduce the shareholder's interest in the Fund to less than $1,000.
Each exchange will be made on the basis of the relative net asset value
per share of the Universal funds involved in the exchange next computed
following receipt by IMSC of telephone instructions by IMSC or a properly
executed request. Exchanges, whether written or telephonic, must be received by
IMSC by the close of regular trading on the Exchange (normally 4:00 p.m.,
eastern time) to receive the price computed on the day of receipt. Exchange
requests received after that time will receive the price next determined
following receipt of the request. The exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice to the extent required by
applicable law. See "Redemptions."
An exchange of shares between any of the Universal funds will result in a
taxable gain or loss. Generally, this will be a capital gain or loss (long-term
or short-term, depending on the holding period of the shares) in the amount of
the difference between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement plan
will not be taxable to the plan and will not be taxed to the participant until
distribution. Each investor should consult his or her tax adviser regarding the
tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares of
the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent may
be submitted by an individual, his or her spouse and children under the age of
21, or a trustee or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any investor may submit
a Letter of Intent stating that he or she will invest, over a period of 13
months, at least $50,000 in Class A shares of the Fund. A Letter of Intent may
be submitted at the time of an initial purchase of Class A shares of the Fund or
within 90 days of the initial purchase, in which case the Letter of Intent will
be back dated. A shareholder may include, as an accumulation credit, the value
(at the applicable offering price) of all Class A shares of the Fund held of
record by him or her as of the date of his or her Letter of Intent. During the
term of the Letter of Intent, the Transfer Agent will hold Class A shares
representing 5% of the indicated amount (less any accumulation credit value) in
escrow. The escrowed Class A shares will be released when the full indicated
amount has been purchased. If the full indicated amount is not purchased during
the term of the Letter of Intent, the investor is required to pay IMDI an amount
equal to the difference between the dollar amount of sales charge that he or she
has paid and that which he or she would have paid on his or her aggregate
purchases if the total of such purchases had been made at a single time. Such
payment will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy or the Trust
to sell the indicated amount of Class A shares, and the investor should read
carefully all the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Universal funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as the
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Universal
fund if that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as the funding medium for a
Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to purchase
shares of one or more Ivy funds through a qualified retirement plan, a Custodial
Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension plan. A profit
sharing plan permits an annual contribution to be made in an amount determined
each year by the self-employed individual within certain limits prescribed by
law. A money purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for qualified plans
and the annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000 or
25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and Retirement
Plan for the benefit of their eligible employees. Similar contribution and
deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following death,
disability, separation from service, attainment of age 59-1/2, or incurring a
financial hardship. A 10% penalty tax generally applies to distributions to an
individual before he or she reaches age 59-1/2, unless the individual (1) has
reached age 55 and separated from service; (2) dies or becomes disabled; (3)
uses the withdrawal to pay tax-deductible medical expenses; (4) takes the
withdrawal as part of a series of substantially equal payments over his or her
life expectancy or the joint life expectancy of himself or herself and a
designated beneficiary; or (5) rolls over the distribution. There is no set-up
fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest all
or a part of the proceeds of the redemption back into Class A shares of the Fund
at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in
computing taxable gain or loss on a redemption if the reinvestment privilege
is exercised. See "Taxation."
RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000 or
more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code). Rights of Accumulation is also applicable to current purchases of all of
the funds of the Universal funds by any of the persons enumerated above, where
the aggregate quantity of Class A shares of such funds and of any other
investment company distributed by IMDI, previously purchased or acquired and
currently owned, determined at the higher of current offering price or amount
invested, plus the Class A shares being purchased, amounts to $50,000.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (other than a Class I shareholder) may establish a
Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or
by delivery to IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account. A Withdrawal Plan may not be established if the investor
is currently participating in the Automatic Investment Method. A Withdrawal Plan
may involve the depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment programs
established by employee or other groups using systematic payroll deductions or
other systematic payment arrangements. The Trust does not itself organize, offer
or administer any such programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment requirements for
purchases by individuals in conjunction with programs organized and offered by
others. Unless shares of the Fund are purchased in conjunction with IRAs (see
"How to Buy Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code. The Trust
reserves the right to refuse purchases at any time or suspend the offering of
shares in connection with group systematic investment programs, and to restrict
the offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the Prospectus, to
shareholders using group systematic investment programs.
With respect to each shareholder account established on or after September
15, 1972 under a group systematic investment program, the Trust and IMI each
currently charge a maintenance fee of $3.00 (or portion thereof) that for each
twelve-month period (or portion thereof) that the account is maintained. The
Trust may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Trust reserves the right to change these fees from time to time without
advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch
and, on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or more in
assets invested in broker/dealer funds not advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM") that are made available
pursuant to a Service Agreement between Merrill Lynch and the fund's
principal underwriter or distributor and in funds advised or managed
by MLAM (collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the
Plan has $3 million or more in assets, excluding money market funds,
invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next determined
after a proper redemption request has been received by IMSC, less any applicable
CDSC.
Unless a shareholder requests that the proceeds of any redemption be wired
to his or her bank account, payment for shares tendered for redemption is made
by check within seven days after tender in proper form, except that the Trust
reserves the right to suspend the right of redemption or to postpone the date of
payment upon redemption beyond seven days, (i) for any period during which the
Exchange is closed (other than customary weekend and holiday closings) or during
which trading on the Exchange is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by the Fund is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
The Trust may redeem those accounts of shareholders who have maintained an
investment, including sales charges paid, of less than $1,000 in the Fund for a
period of more than 12 months. All accounts below that minimum will be redeemed
simultaneously when MIMI deems it advisable. The $1,000 balance will be
determined by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder by certified
mail of its intention to redeem such account, and the shareholder shall have 60
days from the date of such letter to invest such additional sums as shall raise
the value of such account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter of
notification, the Trust will redeem the shares held in such account and transmit
the redemption in value thereof to the shareholder. However, those shareholders
who are investing pursuant to the Automatic Investment Method will not be
redeemed automatically unless they have ceased making payments pursuant to the
plan for a period of at least six consecutive months, and these shareholders
will be given six-months' notice by the Trust before such redemption.
Shareholders in a qualified retirement, pension or profit sharing plan who wish
to avoid tax consequences must "rollover" any sum so redeemed into another
qualified plan within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the same Fund, based on the relative
net asset values per share of the two classes, no later than the month following
the eighth anniversary of the initial issuance of such Class B shares of the
Fund occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its income and gains that it distributes to
shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for Federal income tax purposes. The straddle
rules may affect the character of gains or losses realized by the Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to the Fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses
attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting
in the shares being treated as sold at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income; any resulting loss and any loss from an actual disposition of the shares
would be reported as ordinary loss to the extent of any net gains reported in
prior years. Under another election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund may be treated
as debt securities that are issued originally at a discount. Generally, the
amount of the original issue discount ("OID") is treated as interest income and
is included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or portion
of their sales loads into account for purposes of determining the amount of gain
or loss realized on the disposition of their shares. This prohibition generally
applies where (1) the shareholder incurs a sales load in acquiring the shares of
the Fund, (2) the shares are disposed of before the 91st day after the date on
which they were acquired, and (3) the shareholder subsequently acquires shares
in the same Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may be
subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign income and
similar taxes paid by the Fund, and will be entitled either to deduct his or her
pro rata share of foreign income and similar taxes in computing his or her
taxable income or to use it as a foreign tax credit against his or her U.S.
Federal income taxes, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers who
have limited creditable foreign taxes and no foreign source income other than
passive investment-type income, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, if the Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to the Fund, gains from
the sale of securities generally will be treated as derived from U.S. sources
and section 988 gains will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000
to purchase shares of a specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is assumed that all
dividends and capital gains distributions made by the Fund are reinvested at net
asset value in additional shares of the same class during the designated period.
In calculating the ending redeemable value for Class A shares and assuming
complete redemption at the end of the applicable period, the maximum 5.75% sales
charge is deducted from the initial $1,000 payment and, for Class B and Class C
shares, the applicable CDSC imposed upon redemption of Class B or Class C shares
held for the period is deducted. Standardized Return quotations for the Fund do
not take into account any required payments for federal or state income taxes.
Standardized Return quotations for Class B shares for periods of over eight
years will reflect conversion of the Class B shares to Class A shares at the end
of the eighth year. Standardized Return quotations are determined to the nearest
1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I (where
applicable) shares of the Fund for the periods indicated. In determining the
average annual total return for a specific class of shares of the Fund,
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration. For any account fees that vary with the size of the account
of the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
[insert table]
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund's
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial
investment of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is the
value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The following table summarizes the calculation of Cumulative Total Return
for period indicated, assuming the maximum 5.75% sales charge has been assessed.
[insert table]
The following table summarizes the calculation of Cumulative Total Return
for period indicated, assuming the maximum 5.75% sales charge has not been
assessed.
[insert table]
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods used
in calculating performance quotations should be considered when comparing
performance information regarding the Fund's shares with information published
for other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of the
Fund's shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its performance
rankings and listings reported in such newspapers or business or consumer
publications as, among others: AAII Journal, Barron's, Boston Business Journal,
Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's unaudited Portfolio of Investments as of June 30, 1999,
unaudited Statement of Assets and Liabilities as of June 30, 1999, unaudited
Statement of Operations for the period May 3, 1999 to June 30, 1999, unaudited
Financial Highlights and unaudited Notes to Financial Statements which are
included in the Fund's Semi-annual Report to Shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
UNIVERSAL EUROPEAN OPPORTUNITIES FUND
series of
THE UNIVERSAL FUNDS
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
December ___, 1999
The Universal Funds (the "Trust") is an open-end management investment
company that currently consists of two fully managed diversified portfolios.
This Statement of Additional Information ("SAI") relates to the Advisor Class
shares of Universal European Opportunities Fund (the "Fund"). The other
portfolio of the Trust is described in a separate prospectus and SAI.
The Universal European Opportunities Fund is the successor entity to Ivy
European Opportunities Fund, a diversified series of shares of Ivy Fund, before
the Fund's shareholders approved a proposal to reorganize the Fund as a series
of the Trust. The Fund will not commence operations until after the closing of
the reorganization transaction. This reorganization is expected to occur on
___________, 1999 or as soon as practicable thereafter. Accordingly, the Fund is
not offering its shares for purchase, and will not accept subscriptions for such
shares, until after the reorganization takes place.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Funds dated December ___, 1999 (the "Prospectus"), which may
be obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Class A, B, C
and I shares, which are described in a separate prospectus and SAI that may also
be obtained without charge from the Distributor.
The Financial Statements contained in the Semi-annual Report to
Shareholders of the Fund dated June 30,1999 are incorporated by reference into
and are hereby deemed to be part of this Statement of Additional Information.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION..........................................................4
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................4
INVESTMENT RESTRICTIONS ...............................................6
COMMON STOCKS..........................................................6
CONVERTIBLE SECURITIES.................................................6
DEBT SECURITIES........................................................7
IN GENERAL.......................................................7
INVESTMENT-GRADE DEBT SECURITIES.................................7
LOW-RATED DEBT SECURITIES........................................7
U.S.GOVERNMENT SECURITIES........................................8
ZERO COUPON BONDS................................................9
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES.........10
ILLIQUID SECURITIES...................................................10
FOREIGN SECURITIES....................................................11
DEPOSITORY RECEIPTS...................................................12
EMERGING MARKETS......................................................12
FOREIGN SOVEREIGN DEBT OBLIGATIONS..............................13
BRADY BONDS.....................................................14
FOREIGN CURRENCIES....................................................14
FOREIGN CURRENCY EXCHANGE TRANSACTIONS................................15
OTHER INVESTMENT COMPANIES............................................16
REPURCHASE AGREEMENTS.................................................16
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................17
COMMERCIAL PAPER......................................................17
BORROWING.............................................................17
WARRANTS..............................................................17
OPTIONS TRANSACTIONS..................................................18
IN GENERAL......................................................18
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................19
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................19
RISKS OF OPTIONS TRANSACTIONS...................................20
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................21
IN GENERAL......................................................21
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........22
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............23
SECURITIES INDEX FUTURES CONTRACTS....................................24
RISKS OF SECURITIES INDEX FUTURES...............................25
COMBINED TRANSACTIONS...........................................26
PORTFOLIO TURNOVER..........................................................28
TRUSTEES AND OFFICERS.......................................................29
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..............................31
INVESTMENT ADVISORY AND OTHER SERVICES......................................32
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................32
DISTRIBUTION SERVICES.................................................35
RULE 18F-3 PLAN.................................................35
RULE 12B-1 DISTRIBUTION PLANS...................................36
CUSTODIAN.............................................................37
FUND ACCOUNTING SERVICES..............................................38
TRANSFER AGENT AND DIVIDEND PAYING AGENT..............................38
ADMINISTRATOR.........................................................39
AUDITORS..............................................................39
BROKERAGE ALLOCATION........................................................39
CAPITALIZATION AND VOTING RIGHTS............................................40
SPECIAL RIGHTS AND PRIVILEGES...............................................41
AUTOMATIC INVESTMENT METHOD...........................................42
EXCHANGE OF SHARES....................................................42
INITIAL SALES CHARGE SHARES.....................................42
CONTINGENT DEFERRED SALES CHARGE SHARES...............................43
CLASS A.........................................................43
CLASS B.........................................................43
CLASS C.........................................................44
CLASS I.........................................................44
ALL CLASSES.....................................................44
LETTER OF INTENT......................................................44
RETIREMENT PLANS......................................................45
INDIVIDUAL RETIREMENT ACCOUNTS..................................45
ROTH IRAS.......................................................46
QUALIFIED PLANS.................................................47
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT").............................48
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS........................48
SIMPLE PLANS....................................................49
REINVESTMENT PRIVILEGE................................................49
RIGHTS OF ACCUMULATION................................................49
SYSTEMATIC WITHDRAWAL PLAN............................................50
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................50
REDEMPTIONS.................................................................51
CONVERSION OF CLASS B SHARES................................................52
NET ASSET VALUE.............................................................53
TAXATION....................................................................54
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS...............55
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES................56
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES....................57
DEBT SECURITIES ACQUIRED AT A DISCOUNT................................57
DISTRIBUTIONS.........................................................58
DISPOSITION OF SHARES.................................................59
FOREIGN WITHHOLDING TAXES.............................................59
BACKUP WITHHOLDING....................................................60
PERFORMANCE INFORMATION.....................................................61
AVERAGE ANNUAL TOTAL RETURN...........................................61
CUMULATIVE TOTAL RETURN...............................................61
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION.................62
FINANCIAL STATEMENTS........................................................63
APPENDIX A..................................................................64
<PAGE>
GENERAL INFORMATION
The Fund is organized as separate, diversified portfolio of the Trust, an
open-end management investment company organized as a Massachusetts business
trust on October 6, 1999. The Fund commenced operations as of May 3, 1999.
Descriptions in this SAI of a particular investment practice or technique
in which the Fund may engage or a financial instrument which the Fund may
purchase are meant to describe the spectrum of investments that IMI and/or a
Fund's subadvisor, in their discretion, might, but are not required to, use in
managing the Fund's portfolio assets. IMI and/or a Fund's subadvisor may, in
their discretion, at any time employ such practice, technique or instrument for
one or more funds but not for all funds advised by them. Furthermore, it is
possible that certain types of financial instruments or investment techniques
described herein may not be available, permissible, economically feasible or
effective for their intended purposes in some or all markets, in which case the
Fund would not use them. Certain practices, techniques, or instruments may not
be principal activities of the Fund but, to the extent employed, could from time
to time have a material impact on the Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the
Fund's investment techniques, are set forth below.
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
The Fund's investment objective is long-term capital growth by investing
in the securities markets of Europe. The Fund's subadviser, Henderson Investment
Management Limited ("Henderson Investors"), will invest the Fund's assets in the
securities of European companies, including those companies operating in the
emerging markets of Europe and small capitalization companies operating in the
developed markets of Europe. The Fund may also invest in larger capitalization
European companies and European companies which have been subject to special
circumstances, e.g., privatized companies or companies which provide exceptional
value. Although the majority of the Fund's assets will be invested in equity
securities, the Fund may also invest in cash, short-term or long-term fixed
income securities issued by corporations and governments of Europe if considered
appropriate in relation to the then current economic or market conditions in any
country.
The Fund seeks to achieve its investment objective by investing primarily
in the equity securities of companies domiciled or otherwise doing business (as
described below) in European countries. Under normal circumstances, the Fund
will invest at least 65% of its total assets in the equity securities of
"European companies," which include any issuer (a) that is organized under the
laws of a European country; (b) that derives 50% or more of its total revenues
from goods produced or sold, investments made or services performed in Europe;
or (c) for which the principal trading market is in Europe. The equity
securities in which the Fund may invest include common stock, preferred stock
and common stock equivalents such as warrants and convertible debt securities.
These may include securities issued pursuant to initial public offerings
("IPOs"). The Fund may engage in short-term trading. The Fund may also invest in
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts ("GDRs"), American
Depository Shares ("ADSs"), European Depository Shares ("EDSs") and Global
Depository Shares ("GDSs"). The Fund does not expect to concentrate its
investments in any particular industry.
The Fund may invest up to 35% of its net assets in debt securities, but
will not invest more than 20% of its net assets in debt securities rated Ba or
below by Moody's Investors Service, Inc. ("Moody's") or BB or below by Standard
& Poor's Ratings Services ("S&P") or, if unrated, considered by Henderson
Investors to be of comparable quality (commonly referred to as "high yield" or
"junk" bonds). The Fund will not invest in debt securities rated less than C by
either Moody's or S&P. The Fund may purchase Brady Bonds and other sovereign
debt of countries that have restructured or are in the process of restructuring
their sovereign debt. The Fund may also purchase securities on a "when-issued"
or firm commitment basis, engage in foreign currency exchange transactions and
enter into forward foreign currency contracts. In addition, the Fund may invest
up to 5% of its net assets in zero coupon bonds.
For temporary defensive purposes or when Henderson Investors believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, investment grade debt securities (i.e., those rated Baa or higher by
Moody's or BBB or higher by S&P or, if unrated, considered by Henderson
Investors to be of comparable quality), warrants, and cash or cash equivalents
such as domestic or foreign bank obligations (including certificates of deposit,
time deposits and bankers' acceptances), short-term notes, repurchase
agreements, and domestic or foreign commercial paper.
The Fund may borrow money in accordance with the provisions of the 1940
Act. The Fund may also invest in other investment companies in accordance with
the provisions of the 1940 Act, and may invest up to 15% of its net assets in
illiquid securities.
For hedging purposes, the Fund may purchase put and call options on
securities and stock indices, provided the premium paid for such options does
not exceed 5% of the Fund's net assets. The Fund may also sell covered put
options with respect to up to 10% of the value of its net assets, and may write
covered call options so long as not more than 25% of the Fund's net assets are
subject to being purchased upon the exercise of the calls.
For hedging purposes only, the Fund may engage in transactions in (and
options on) stock index, interest rate and foreign currency futures contracts,
provided that the Fund's equivalent exposure in such contracts does not exceed
15% of its total assets. The Fund may also write or buy straddles or spreads.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
INITIAL PUBLIC OFFERINGS
Securities issued through an initial public offering (IPO) can experience an
immediate drop in value if the demand for the securities does not continue to
support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have
lengthy operating histories. A Fund may engage in short-term trading in
connection with its IPO investments, which could produce higher trading costs
and adverse tax consequences. The number of securities issued in an IPO is
limited, so it is likely that IPO securities will represent a smaller component
of a Fund's portfolio as the Fund's assets increase (and thus have a more
limited effect on the Fund's performance).
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
LOW-RATED DEBT SECURITIES. Securities rated lower than Baa by Moody's or
BBB by S&P, and comparable unrated securities (commonly referred to as "high
yield" or "junk" bonds), including many emerging markets bonds, are considered
to be predominantly speculative with respect to the issuer's continuing ability
to meet principal and interest payments. The lower the ratings of corporate debt
securities, the more their risks render them like equity securities. Such
securities carry a high degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), and generally involve greater
volatility of price and risk of principal and income (and may be less liquid)
than securities in the higher rating categories. (See Appendix A for a more
complete description of the ratings assigned by Moody's and S&P and their
respective characteristics.)
Lower rated and unrated securities are especially subject to adverse
changes in general economic conditions and to changes in the financial condition
of their issuers. Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest. Also, an increase
in interest rates would likely have an adverse impact on the value of such
obligations. During an economic downturn or period of rising interest rates,
highly leveraged issuers may experience financial stress which could adversely
affect their ability to service their principal and interest payment
obligations. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities
may adversely affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than income-bearing high
yield securities, may be more speculative and may be subject to greater
fluctuations in value due to changes in interest rates.
Changes in interest rates may have a less direct or dominant impact on
high yield bonds than on higher quality issues of similar maturities. However,
the price of high yield bonds can change significantly or suddenly due to a host
of factors including changes in interest rates, fundamental credit quality,
market psychology, government regulations, U.S. economic growth and, at times,
stock market activity. High yield bonds may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Fund may have to replace the security with a lower yielding
security.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of the
Fund to accurately value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such securities, and
cause large fluctuations in the daily net asset value of the Fund's shares.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for high yield
securities become relatively less liquid, it may be more difficult to value the
securities, requiring additional research and elements of judgment. These
securities may also involve special registration responsibilities, liabilities
and costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high yield security. For these reasons, it is
the policy of IMI not to rely exclusively on ratings issued by established
credit rating agencies, but to supplement such ratings with its own independent
and on-going review of credit quality. The achievement of the Fund's investment
objectives by investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds. Should the rating of
a portfolio security be downgraded, IMI will determine whether it is in the best
interest of the Fund to retain or dispose of such security. However, should any
individual bond held by the Fund be downgraded below a rating of C, IMI
currently intends to dispose of such bond based on then existing market
conditions.
Prices for high yield securities may be affected by legislative and
regulatory developments. For example, Federal rules require savings and loan
institutions to gradually reduce their holdings of this type of security. Also,
Congress has from time to time considered legislation that would restrict or
eliminate the corporate tax deduction for interest payments in these securities
and regulate corporate restructurings. Such legislation may significantly
depress the prices of outstanding securities of this type.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities. Securities guaranteed by the U.S. Government include:
(1) direct obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to principal and
interest by the U.S. Treasury (such as GNMA certificates, which are
mortgage-backed securities). When such securities are held to maturity, the
payment of principal and interest is unconditionally guaranteed by the U.S.
Government, and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject to variations
in market value due to fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable" (i.e., they cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rule 144A)
or because they are subject to other legal or contractual delays in or
restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until relatively recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy towards the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce principal
and interest arrearages on their debt. The commitment on the part of these
governments, agencies and others to make such disbursements may be conditioned
on a governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Fund) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
BRADY BONDS
The Fund may invest in Brady Bonds, which are securities created through
the exchange of existing commercial bank loans to public and private entities in
certain emerging markets for new bonds in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan debt restructurings
have been implemented to date in Argentina, Brazil, Bulgaria, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Peru, the Philippines,
Poland, Uruguay, and Venezuela.
Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar) and are actively traded in over-the-counter secondary markets.
Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the same maturity as the cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at that time and is adjusted at regular
intervals thereafter.
Brady Bonds are often viewed as having three or four valuation components:
the collateralized repayment of principal at final maturity; the collateralized
interest payments; the uncollateralized interest payments; and any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In light of the residual risk of Brady
Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady
Bonds may be viewed as speculative.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, the Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
The Fund may invest in commercial paper that is rated Prime-1 by Moody's or A-1
by S&P or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of any
increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund were not exercised by the date of its expiration, the Fund
would lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, Fund
would need to negotiate directly with the counterparty.
The Fund will realize a gain (or a loss) on a closing purchase transaction
with respect to a call or a put previously written by the Fund if the premium,
plus commission costs, paid by the Fund to purchase the call or the put is less
(or greater) than the premium, less commission costs, received by the Fund on
the sale of the call or the put. A gain also will be realized if a call or a put
that the Fund has written lapses unexercised, because the Fund would retain the
premium. Any such gains (or losses) are considered short-term capital gains (or
losses) for Federal income tax purposes. Net short-term capital gains, when
distributed by the Fund, are taxable as ordinary income. See "Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are issued
by a regulated clearing organization (such as the Options Clearing Corporation),
which, in effect, guarantees the completion of every exchange-traded option
transaction. In contrast, the terms of OTC options are negotiated by the Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When the Fund purchases an OTC option,
it relies on the party from whom it has purchased the option (the
"counterparty") to make delivery of the instrument underlying the option. If the
counterparty fails to do so, the Fund will lose any premium paid for the option,
as well as any expected benefit of the transaction. Accordingly, IMI will assess
the creditworthiness of each counterparty to determine the likelihood that the
terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, the Fund generally would write call
options only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a put
option on an underlying security owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that it
owns and at the same time write a call option on the same security with the same
exercise price and expiration date. Depending on whether the underlying security
appreciates or depreciates in value, the Fund would sell the underlying security
for the exercise price either upon exercise of the call option written by it or
by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that the Fund will be able to close out an
OTC option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, the Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, the Fund is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its Custodian
in a segregated account (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that, when added to the amounts deposited with an FCM
as margin, equal the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an efficient
means of regulating the Fund's exposure to the equity markets. The Fund will not
engage in transactions in futures contracts for speculation, but only as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase. An index futures
contract is a contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering into a contract
to buy units of an index is commonly referred to as purchasing a contract or
holding a long position in the index. Entering into a contract to sell units of
an index is commonly referred to as selling a contract or holding a short
position. The value of a unit is the current value of the stock index. For
example, the S&P 500 Index is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in the Prospectus under
"Investment Objective and Policies," and the investment restrictions set forth
below are fundamental policies of the Fund and may not be changed with respect
to the approval of a majority (as defined in the 1940 Act) of the outstanding
voting shares of the Fund. The Fund has adopted the following fundamental
investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by the
Prospectus and this SAI.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are
not fundamental and which may be changed without shareholder approval, to the
extent permitted by applicable law, regulation or regulatory policy. Under
these restrictions, the Fund may not:
(i) invest more than 15% of its net assets taken at market value at the
time of investment in "illiquid securities." Illiquid securities may
include securities subject to legal or contractual restrictions on
resale (including private placements), repurchase agreements maturing
in more than seven days, certain options traded over the counter that
the Fund has purchased, securities being used to cover certain options
that the Fund has written, securities for which market quotations are
not readily available, or other securities which legally or in the
subadviser's opinion, subject to the Board's supervision, may be
deemed illiquid, but shall not include any instrument that, due to the
existence of a trading market or to other factors, is liquid;
(ii) purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that it may purchase shares of other investment companies subject to
such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder;
(iii) purchase or sell real estate limited partnership interests;
(iv) sell securities short, except for short sales "against the box";
(v) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Fund's
subadviser, for the sale or purchase of portfolio securities shall not
be considered participation in a joint securities trading account;
(vi) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(vii) make investments in securities for the purpose of exercising control
over or management of the issuer; or
(viii) invest in interests in oil, gas and/or mineral exploration or
development programs (other than securities of companies that invest
in or sponsor such programs).
(ix) Whenever an investment objective, policy or restriction set forth in
the Prospectus or this SAI states a maximum percentage of assets that
may be invested in any security or other asset or describes a policy
regarding quality standards, such percentage limitation or standard
shall, unless otherwise indicated, apply to the Fund only at the time
a transaction is entered into. Accordingly, if a percentage limitation
is adhered to at the time of investment, a later increase or decrease
in the percentage which results from circumstances not involving any
affirmative action by the Fund, such as a change in market conditions
or a change in the Fund's asset level or other circumstances beyond
the Fund's control, will not be considered a violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Fund's Board of Trustees (the "Board") is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business addresses
and principal occupations are:
POSITION WITH BUSINESS AFFILIATIONS
NAME, ADDRESS, AGE THE TRUST AND PRINCIPAL OCCUPATIONS
[To be provided]
<PAGE>
COMPENSATION TABLE
THE UNIVERSAL FUNDS
(FISCAL YEAR ENDED DECEMBER 31, 1999)
PENSION OR TOTAL
RETIREMENT ESTIMTATED COMPENSATION
BENEFITS ANNUAL FROM TRUST AND
AGGREGATE ACCRUED AS BENEFITS FUND COMPLEX
NAME, COMPENSATION PART OF FUND UPON PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT TRUSTEES
[To be provided]
To the knowledge of the Trust, as of September 30, 1999, no shareholder
owned beneficially or of record 5% or more of the outstanding shares of any
class of the Fund, with the following exceptions:
CLASS A
Carlo Baldanza & Silvana Hernandez JT TEN, 5818 S 37th Street, Greenacres,
FL 33463, owned of record 270.314 shares (99.33%);
CLASS B
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E, 3rd Floor,
Jacksonville, FL 32246, owned of record 9,037.881 shares (91.07%), Carol
Brademas, Box 2141, Mishawka, IN 46546-2141, owned of record 791.677 shares
(7.97%);
CLASS C
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record 1.794
shares (100.00%);
CLASS I
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record 1.794
shares (100.00%); and
ADVISOR CLASS
Mackenzie Investment Management Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, FL 33432, owned of record
89,818.552 shares (99.99%).
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted
to make personal securities transactions, subject to the requirements and
restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the
"Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory services to the
Fund pursuant to a Business Management and Investment Advisory Agreement (the
"Advisory Agreement").
IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc.
("MIMI"). MIMI, a Delaware corporation, has approximately 10% of its outstanding
common stock listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto, Ontario, Canada, a public corporation organized under the laws of
Ontario and whose shares are listed for trading on the TSE. MFC is registered in
Ontario as a mutual fund dealer. IMI currently acts as manager and investment
adviser to all of the underlying funds that are a series of Ivy Fund and all of
the underlying funds that are a series of Mackenzie Solutions.
The Advisory Agreement obligates IMI to make investments for the account
of the Fund in accordance with its best judgment and within the investment
objectives and restrictions set forth in the Prospectus, the 1940 Act and the
provisions of the Code relating to regulated investment companies, subject to
policy decisions adopted by the Board. IMI determines the securities to be
purchased or sold by the Fund and place orders with brokers or dealers who deal
in such securities.
Under the Advisory Agreement, IMI also provides certain business
management services. IMI is obligated to (1) coordinate with the Fund's
Custodian and monitor the services it provides to the Fund; (2) coordinate with
and monitor any other third parties furnishing services to the Fund; (3) provide
the Fund with necessary office space, telephones and other communications
facilities as are adequate for the Fund's needs; (4) provide the services of
individuals competent to perform administrative and clerical functions that are
not performed by employees or other agents engaged by the Fund or by IMI acting
in some other capacity pursuant to a separate agreement or arrangements with the
Fund; (5) maintain or supervise the maintenance by third parties of such books
and records of the Trust as may be required by applicable Federal or state law;
(6) authorize and permit IMI's directors, officers and employees who may be
elected or appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the Trust, after
approval by the Trust as may be required by applicable law, including without
limitation the rules and regulations of the SEC and of state securities
commissions and other regulatory agencies.
The Fund pays IMI a monthly fee for providing business management and
investment advisory services at an annual rate of 1.00% of the Fund's average
net assets.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for investment advisory services is not available.
Under the Advisory Agreement, the Trust pays the following expenses: (1)
the fees and expenses of the Trust's Independent Trustees; (2) the salaries and
expenses of any of the Trust's officers or employees who are not affiliated with
IMI; (3) interest expenses; (4) taxes and governmental fees, including any
original issue taxes or transfer taxes applicable to the sale or delivery of
shares or certificates therefor; (5) brokerage commissions and other expenses
incurred in acquiring or disposing of portfolio securities; (6) the expenses of
registering and qualifying shares for sale with the SEC and with various state
securities commissions; (7) accounting and legal costs; (8) insurance premiums;
(9) fees and expenses of the Trust's Custodian and Transfer Agent and any
related services; (10) expenses of obtaining quotations of portfolio securities
and of pricing shares; (11) expenses of maintaining the Trust's legal existence
and of shareholders' meetings; (12) expenses of preparation and distribution to
existing shareholders of periodic reports, proxy materials and prospectuses; and
(13) fees and expenses of membership in industry organizations.
IMI currently limits the Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification expenses, and extraordinary expenses) to an annual
rate of 1.95% of the Fund's average net assets, which may lower the Fund's
expenses and increase its yield.
The initial term of the Advisory Agreement is two years from ______, 1999
(the Advisory Agreement's commencement date). The Advisory Agreement will
continue in effect with respect to the Fund from year to year, only so long as
the continuance is specifically approved at least annually (i) by the vote of a
majority of the Independent Trustees and (ii) either (a) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund or (b) by the vote of a majority of the entire Board. If the question
of continuance of the Agreement (or adoption of any new agreement) is presented
to the shareholders, continuance (or adoption) shall be effected with respect to
the Fund only if approved by the affirmative vote of a majority of the
outstanding voting securities of the Fund. See "Capitalization and Voting
Rights."
The Advisory Agreement may be terminated with respect to the Fund at any
time, without payment of any penalty, by the vote of a majority of the Board, or
by a vote of a majority of the outstanding voting securities of the Fund, on 60
days' written notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Advisory Agreement shall terminate automatically in the event of its
assignment.
SUBADVISOR
The Trust and IMI, on behalf of the Fund, have entered into a
subadvisory contract with an independent investment adviser (the "Subadvisory
Contract") under which the subadviser develops, recommends and implements an
investment program and strategy for the Fund's portfolio and is responsible for
making all portfolio security and brokerage decisions, subject to the
supervision of IMI and, ultimately, the Board. Henderson Investment Management
Limited ("Henderson"), 3 Finsbury Avenue, London, England EC2M 2PA, serves as
subadviser to the Fund pursuant to the Subadvisory Contract. For its services,
Henderson receives a fee from IMI that is equal, on an annual basis, to .50% of
the Fund's average net assets. As of February 1, 1999, Henderson also serves as
subadviser with respect to 50% of the net assets of Ivy International Small
Companies Fund, for which Henderson also receives a fee from IMI. Henderson is
an indirect, wholly owned subsidiary of AMP Limited, an Australian life
insurance and financial services company located in New South Wales, Australia.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding compensation paid pursuant to the Subadvisory Contract is not
available.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
The subadviser's fees will be paid by IMI out of the advisory fees that it
receives from each of the Funds. Fees paid to a subadviser if the Fund employs
multiple subadvisers will depend upon the fee rate negotiated with IMI and upon
the percentage of the Fund's assets allocated to that subadviser by IMI, which
may vary from time to time. Thus, the basis for fees paid to any such subadviser
will not be constant, and the relative amounts of fees paid to the various
subadvisers of the Fund will fluctuate. These internal fluctuations, however,
will not affect the total advisory fees paid by the Fund, which will remain
fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new subadvisers
and entering into sub-advisory agreements, IMI will negotiate fees with those
subadvisers and, because these fees are paid by IMI and not directly by the
Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and any
increase will inure to its detriment. The fee paid to IMI by the Fund and the
fees paid to the subadvisers by IMI are considered by the Board in approving the
Fund's advisory and sub-advisory arrangements. Any change in fees paid by a Fund
to IMI would require shareholder approval.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the exclusive
distributor of the Fund's shares pursuant to a Distribution Agreement with the
Trust dated December __, 1999 as amended from time to time (the "Distribution
Agreement"). IMDI distributes shares of the Fund through broker-dealers who are
members of the National Association of Securities Dealers, Inc. and who have
executed dealer agreements with IMDI. IMDI distributes shares of the Fund on a
continuous basis, but reserves the right to suspend or discontinue distribution
on that basis. IMDI is not obligated to sell any specific amount of Fund shares.
The Fund has authorized IMDI to accept on its behalf purchase and
redemption orders. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at the Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under Federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
The Distribution Agreement will continue in effect for successive one-year
periods, provided that such continuance is specifically approved at least
annually by the vote of a majority of the Independent Trustees, cast in person
at a meeting called for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities of the Fund. The
Distribution Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by IMDI on 60 days' written notice to the Fund
or by the Fund by vote of either a majority of the outstanding voting securities
of the Fund or a majority of the Independent Trustees on 60 days' written notice
to IMDI. The Distribution Agreement shall terminate automatically in the event
of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors/trustees and filed with the SEC. The
Board has adopted a Rule 18f-3 plan on behalf of the Fund. The key features of
the Rule 18f-3 plan are as follows: (i) shares of each class of the Fund
represent an equal pro rata interest in the Fund and generally have identical
voting, dividend, liquidation, and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions, except that
each class bears certain class-specific expenses and has separate voting rights
on certain matters that relate solely to that class or in which the interests of
shareholders of one class differ from the interests of shareholders of another
class; (ii) subject to certain limitations described in the Prospectus, shares
of a particular class of the Fund may be exchanged for shares of the same class
of another Universal fund; and (iii) the Fund's Class B shares will convert
automatically into Class A shares of the Fund after a period of eight years,
based on the relative net asset value of such shares at the time of conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman
& Co. (the "Custodian"), a private bank and member of the principal securities
exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the
"Custodian"), maintains custody of the assets of the Fund held in the United
States. Rules adopted under the 1940 Act permit the Trust to maintain its
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Pursuant to those rules, the Custodian has entered into
subcustodial agreements for the holding of the Fund's foreign securities. With
respect to the Fund, the Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business, subject to
its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to the Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for these services is not available.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, IMSC, a
wholly owned subsidiary of MIMI, is the transfer agent for the Fund. Under the
Agreement, the Fund pays a monthly fee at an annual rate of $20.00 for each open
Class A, Class B, Class C and Advisor Class account. The Fund pays a monthly fee
at an annual rate of $10.25 per open Class I account. In addition, the Fund pays
a monthly fee at an annual rate of $4.58 per account that is closed plus certain
out-of-pocket expenses. Certain broker-dealers that maintain shareholder
accounts with the Fund through an omnibus account provide transfer agent and
other shareholder-related services that would otherwise be provided by IMSC if
the individual accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per account fee for
each open account within the omnibus account, or a fixed rate (e.g., 0.10%) fee,
based on the average daily net asset value of the omnibus account (or a
combination thereof).
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for these services is not available.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund with Class
I shares pays MIMI a monthly fee at the annual rate of 0.01% of its average
daily net assets for Class I.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding fees paid for these services is not available.
AUDITORS
__________________, independent public accountants, has been selected as
auditors for the Trust. The audit services performed by ___________________
include audits of the annual financial statements of each of the funds of the
Trust. Other services provided principally relate to filings with the SEC and
the preparation of the funds' tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or the subadvisor places orders for the purchase and sale of the Fund's
portfolio securities. All portfolio transactions are effected at the best price
and execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Funds for such purchases and sales (although the
price paid generally includes undisclosed compensation to the dealer). The
prices paid to underwriters of newly-issued securities usually include a
concession paid by the issuer to the underwriter, and purchases of after-market
securities from dealers normally reflect the spread between the bid and asked
prices. In connection with OTC transactions, IMI and/or the subadvisor attempts
to deal directly with the principal market makers, except in those circumstances
where IMI and/or the subadvisor believes that a better price and execution are
available elsewhere.
IMI and/or the subadvisor selects broker-dealers to execute transactions
and evaluates the reasonableness of commissions on the basis of quality,
quantity, and the nature of the firms' professional services. Commissions to be
charged and the rendering of investment services, including statistical,
research, and counseling services by brokerage firms, are factors to be
considered in the placing of brokerage business. The types of research services
provided by brokers may include general economic and industry data, and
information on securities of specific companies. Research services furnished by
brokers through whom the Trust effects securities transactions may be used by
IMI and/or the subadvisor in servicing all of its accounts. In addition, not all
of these services may be used by IMI and/or the subadvisor in connection with
the services it provides to the Fund or the Trust. IMI and/or the subadvisor may
consider sales of shares of Ivy funds as a factor in the selection of
broker-dealers and may select broker-dealers who provide it with research
services. IMI and/or the subadvisor will not, however, execute brokerage
transactions other than at the best price and execution.
The Fund commenced operations on May 3, 1999, and accordingly, information
regarding brokerage commissions paid is not available.
Brokerage commissions vary from year to year in accordance with the extent
to which a particular Fund is more or less actively traded.
The Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. The Fund will accept securities only to increase its
holdings in a portfolio security or to take a new portfolio position in a
security that IMI and/or the subadvisor deems to be a desirable investment for
the Fund. While no minimum has been established, it is expected that the Fund
will not accept securities having an aggregate value of less than $1 million.
The Trust may reject in whole or in part any or all offers to pay for the Fund
shares with securities and may discontinue accepting securities as payment for
the Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of the Fund, and the Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Trust consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
The Declaration of Trust permits the Trustees to create separate series or
portfolios and to divide any series or portfolio into one or more classes. The
Trustees have authorized two series, each of which represents the Fund. The
Trustees have further authorized the issuance of Class A, Class B, Class C,
Class I and Advisor Class shares for the Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting them differently, separate votes by the shareholders of each fund
are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general, such as ratification of the selection
of independent public accountants, will be voted upon collectively by the
shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the
shares of the Fund (or of the Trust) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by each fund of the Trust, the matter shall have been
effectively acted upon with respect to that fund if a majority of the
outstanding voting securities of the fund votes for the approval of the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other fund of the Trust; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Trust.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Shareholders will be assisted in communicating with other shareholders in
connection with the removal of a Trustee.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Trust or its Trustees. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any shareholder
of the Fund held personally liable for the obligations of the Fund. The risk of
a shareholder of the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself would be unable
to meet its obligations and, thus, should be considered remote. No series of the
Trust is liable for the obligations of any other series of the Trust.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
prospectus. The Trust offers, and (except as noted below) bears the cost of
providing, to investors the following rights and privileges. The Trust reserves
the right to amend or terminate any one or more of these rights and privileges.
Notice of amendments to or terminations of rights and privileges will be
provided to shareholders in accordance with applicable law.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
See "Automatic Investment Method" in the Prospectus. To begin the plan, complete
Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an exchange
privilege with other Universal funds. Before effecting an exchange, shareholders
of the Fund should obtain and read the currently effective prospectus for the
Universal fund into which the exchange is to be made.
RETIREMENT PLANS
Shares may be purchased in connection with several types of tax-deferred
retirement plans. Shares of more than one fund distributed by IMDI may be
purchased in a single application establishing a single account under the plan,
and shares held in such an account may be exchanged among the Universal funds in
accordance with the terms of the applicable plan and the exchange privilege
available to all shareholders. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
For shareholders whose retirement accounts are diversified across several
Ivy funds, the annual maintenance fee will be limited to not more than $20.
The following discussion describes the tax treatment of certain
tax-deferred retirement plans under current Federal income tax law. State income
tax consequences may vary. An individual considering the establishment of a
retirement plan should consult with an attorney and/or an accountant with
respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as the
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in an Universal
fund if that fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (or his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includable in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. In general,
distributions from an IRA to an individual before he or she reaches age 59-1/2
are subject to a nondeductible penalty tax equal to 10% of the taxable amount of
the distribution. The 10% penalty tax does not apply to amounts withdrawn from
an IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAS: Shares of the Fund also may be used as the funding medium for a
Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA (other than the amount of
nondeductible contributions) are taxable and subject to a 10% tax penalty unless
an exception applies. Exceptions to the 10% penalty include: reaching age 59
1/2, death, disability, deductible medical expenses, the purchase of health
insurance for certain unemployed individual and qualified higher education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to purchase
shares of one or more Ivy funds through a qualified retirement plan, a Custodial
Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension plan. A profit
sharing plan permits an annual contribution to be made in an amount determined
each year by the self-employed individual within certain limits prescribed by
law. A money purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for qualified plans
and the annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000 or
25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and Retirement
Plan for the benefit of their eligible employees. Similar contribution and
deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT"): Section 403(b)(7) of the Internal Revenue Code of 1986,
as amended (the "Code") permits public school systems and certain charitable
organizations to use mutual fund shares held in a custodial account to fund
deferred compensation arrangements with their employees. A custodial account
agreement is available for those employers whose employees wish to purchase
shares of the Trust in conjunction with such an arrangement. The special
application for a 403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only following death,
disability, separation from service, attainment of age 59-1/2, or incurring a
financial hardship. A 10% penalty tax generally applies to distributions to an
individual before he or she reaches age 59-1/2, unless the individual (1) has
reached age 55 and separated from service; (2) dies or becomes disabled; (3)
uses the withdrawal to pay tax-deductible medical expenses; (4) takes the
withdrawal as part of a series of substantially equal payments over his or her
life expectancy or the joint life expectancy of himself or herself and a
designated beneficiary; or (5) rolls over the distribution. There is no set-up
fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if the employer maintains or
maintained any other qualified retirement plan with respect to which any
contributions or benefits have been credited.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (other than a Class I shareholder) may establish a
Systematic Withdrawal Plan (a "Withdrawal Plan"), by telephone instructions or
by delivery to IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $5,000
in his or her account. A Withdrawal Plan may not be established if the investor
is currently participating in the Automatic Investment Method. A Withdrawal Plan
may involve the depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Trust or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment programs
established by employee or other groups using systematic payroll deductions or
other systematic payment arrangements. The Trust does not itself organize, offer
or administer any such programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment requirements for
purchases by individuals in conjunction with programs organized and offered by
others. Unless shares of the Fund are purchased in conjunction with IRAs (see
"How to Buy Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code. The Trust
reserves the right to refuse purchases at any time or suspend the offering of
shares in connection with group systematic investment programs, and to restrict
the offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the Prospectus, to
shareholders using group systematic investment programs.
With respect to each shareholder account established on or after September
15, 1972 under a group systematic investment program, the Trust and IMI each
currently charge a maintenance fee of $3.00 (or portion thereof) that for each
twelve-month period (or portion thereof) that the account is maintained. The
Trust may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Trust reserves the right to change these fees from time to time without
advance notice.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next determined
after a proper redemption request has been received by IMSC.
Unless a shareholder requests that the proceeds of any redemption be wired
to his or her bank account, payment for shares tendered for redemption is made
by check within seven days after tender in proper form, except that the Trust
reserves the right to suspend the right of redemption or to postpone the date of
payment upon redemption beyond seven days, (i) for any period during which the
Exchange is closed (other than customary weekend and holiday closings) or during
which trading on the Exchange is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by the Fund is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
The Trust may redeem those Advisor Class accounts of shareholders who have
maintained an investment, including sales charges paid, of less than $10,000 in
the Fund for a period of more than 12 months. All Advisor Class accounts below
that minimum will be redeemed simultaneously when MIMI deems it advisable. The
$10,000 balance will be determined by actual dollar amounts invested by the
shareholder, unaffected by market fluctuations. The Trust will notify any such
shareholder by certified mail of its intention to redeem such account, and the
shareholder shall have 60 days from the date of such letter to invest such
additional sums as shall raise the value of such account above that minimum.
Should the shareholder fail to forward such sum within 60 days of the date of
the Trust's letter of notification, the Trust will redeem the shares held in
such account and transmit the redemption in value thereof to the shareholder.
However, those shareholders who are investing pursuant to the Automatic
Investment Method will not be redeemed automatically unless they have ceased
making payments pursuant to the plan for a period of at least six consecutive
months, and these shareholders will be given six-months' notice by the Trust
before such redemption. Shareholders in a qualified retirement, pension or
profit sharing plan who wish to avoid tax consequences must "rollover" any sum
so redeemed into another qualified plan within 60 days. The Trustees of the
Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. Delivery of the proceeds of a wire
redemption request of $250,000 or more may be delayed by the Fund for up to
seven days if deemed appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the telephonic
redemption privilege without prior notice. The Trust cannot be responsible for
the efficiency of the Federal wire system of the shareholder's dealer of record
or bank. The shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its income and gains that it distributes to
shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for Federal income tax purposes. The straddle
rules may affect the character of gains or losses realized by the Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to the Fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES Gains or losses
attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting
in the shares being treated as sold at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income; any resulting loss and any loss from an actual disposition of the shares
would be reported as ordinary loss to the extent of any net gains reported in
prior years. Under another election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund may be treated
as debt securities that are issued originally at a discount. Generally, the
amount of the original issue discount ("OID") is treated as interest income and
is included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or portion
of their sales loads into account for purposes of determining the amount of gain
or loss realized on the disposition of their shares. This prohibition generally
applies where (1) the shareholder incurs a sales load in acquiring the shares of
the Fund, (2) the shares are disposed of before the 91st day after the date on
which they were acquired, and (3) the shareholder subsequently acquires shares
in the same Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may be
subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign income and
similar taxes paid by the Fund, and will be entitled either to deduct his or her
pro rata share of foreign income and similar taxes in computing his or her
taxable income or to use it as a foreign tax credit against his or her U.S.
Federal income taxes, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers who
have limited creditable foreign taxes and no foreign source income other than
passive investment-type income, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, if the Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to the Fund, gains from
the sale of securities generally will be treated as derived from U.S. sources
and section 988 gains will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000
to purchase shares of a specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is assumed that all
dividends and capital gains distributions made by the Fund are reinvested at net
asset value in additional shares of the same class during the designated period.
In calculating the ending redeemable value for Class A shares and assuming
complete redemption at the end of the applicable period, the maximum 5.75% sales
charge is deducted from the initial $1,000 payment and, for Class B and Class C
shares, the applicable CDSC imposed upon redemption of Class B or Class C shares
held for the period is deducted. Standardized Return quotations for the Fund do
not take into account any required payments for federal or state income taxes.
Standardized Return quotations for Class B shares for periods of over eight
years will reflect conversion of the Class B shares to Class A shares at the end
of the eighth year. Standardized Return quotations are determined to the nearest
1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
The following tables summarize the calculation of Standardized and
Non-Standardized Return for the Class A, Class B, Class C and Class I (where
applicable) shares of the Fund for the periods indicated. In determining the
average annual total return for a specific class of shares of the Fund,
recurring fees, if any, that are charged to all shareholder accounts are taken
into consideration. For any account fees that vary with the size of the account
of the Fund, the account fee used for purposes of the following computations is
assumed to be the fee that would be charged to the mean account size of the
Fund.
[insert table]
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund's
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial
investment of $1,000 to purchase shares of a
specific class
ERV = ending redeemable value: ERV is the
value, at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
The following table summarize the calculation of Cumulative Total Return
for period indicated, assuming the maximum 5.75% sales charge has been assessed.
[insert table]
The following table summarize the calculation of Cumulative Total Return
for period indicated, assuming the maximum 5.75% sales charge has not been
assessed.
[insert table]
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Trust's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods used
in calculating performance quotations should be considered when comparing
performance information regarding the Fund's shares with information published
for other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of the
Fund's shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its performance
rankings and listings reported in such newspapers or business or consumer
publications as, among others: AAII Journal, Barron's, Boston Business Journal,
Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's unaudited Portfolio of Investments as of June 30, 1999,
unaudited Statement of Assets and Liabilities as of June 30, 1999, unaudited
Statement of Operations for the period May 3, 1999 to June 30, 1999, unaudited
Financial Highlights and unaudited Notes to Financial Statements which are
included in the Fund's Semi-Annual Report to Shareholders, are incorporated by
reference into this SAI.
<PAGE>
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
UNIVERSAL GLOBAL VALUE FUND
series of
THE UNIVERSAL FUNDS
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
________ __, 1999
The Universal Funds (the "Trust") is an open-end management investment
company that currently consists of two fully managed portfolios, each of which
is diversified. This Statement of Additional Information ("SAI") relates to the
Class A, B, C, and I shares of Universal Global Value Fund (the "Fund"). The
other portfolio of the Trust is described in a separate prospectus and SAI.
This SAI is not a prospectus and should be read in conjunction with
the prospectus for the Fund dated _____ __, 1999 (the "Prospectus"), which may
be obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. The Fund also offers Advisor Class
shares, which are described in a separate prospectus and SAI that may also be
obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
Page #
GENERAL INFORMATION..........................................................1
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS..................................1
COMMON STOCKS..........................................................2
CONVERTIBLE SECURITIES.................................................2
SMALL COMPANIES........................................................3
DEBT SECURITIES........................................................3
IN GENERAL.......................................................3
INVESTMENT-GRADE DEBT SECURITIES.................................3
U.S. GOVERNMENT SECURITIES.......................................4
ZERO COUPON BONDS................................................5
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES..........5
ILLIQUID SECURITIES....................................................5
FOREIGN SECURITIES.....................................................6
DEPOSITORY RECEIPTS....................................................7
EMERGING MARKETS.......................................................7
FOREIGN CURRENCIES.....................................................9
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.................................9
OTHER INVESTMENT COMPANIES............................................10
REPURCHASE AGREEMENTS.................................................10
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS.....................11
COMMERCIAL PAPER......................................................11
BORROWING.............................................................11
WARRANTS..............................................................11
OPTIONS TRANSACTIONS..................................................12
IN GENERAL......................................................12
WRITING OPTIONS ON INDIVIDUAL SECURITIES........................13
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES.....................13
RISKS OF OPTIONS TRANSACTIONS...................................14
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS....................15
IN GENERAL......................................................15
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS..........16
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS...............17
SECURITIES INDEX FUTURES CONTRACTS..............................18
RISKS OF SECURITIES INDEX FUTURES...............................19
COMBINED TRANSACTIONS...........................................20
INVESTMENT RESTRICTIONS.....................................................20
ADDITIONAL RESTRICTIONS.....................................................22
PORTFOLIO TURNOVER..........................................................22
MANAGEMENT OF THE FUNDS.....................................................23
TRUSTEES AND OFFICERS.................................................23
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI..............................24
INVESTMENT ADVISORY AND OTHER SERVICES......................................24
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES..................24
INVESTMENT MANAGER....................................................24
SUB-ADVISOR...........................................................26
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT..27
DISTRIBUTION SERVICES.................................................27
RULE 18F-3 PLAN.................................................28
RULE 12B-1 DISTRIBUTION PLANS...................................28
CUSTODIAN.............................................................30
FUND ACCOUNTING SERVICES..............................................30
DIVIDEND TRANSFER AGENT AND PAYING AGENT..............................30
ADMINISTRATOR.........................................................30
AUDITORS....................................................................31
BROKERAGE ALLOCATION........................................................31
CAPITALIZATION AND VOTING RIGHTS............................................32
SPECIAL RIGHTS AND PRIVILEGES...............................................33
AUTOMATIC INVESTMENT METHOD...........................................33
EXCHANGE OF SHARES....................................................34
LETTER OF INTENT......................................................34
RETIREMENT PLANS......................................................34
INDIVIDUAL RETIREMENT ACCOUNTS..................................35
ROTH IRAs.......................................................36
QUALIFIED PLANS.................................................36
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT...............................37
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs........................38
SIMPLE PLANS....................................................38
REINVESTMENT PRIVILEGE................................................38
REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION......................38
SYSTEMATIC WITHDRAWAL PLAN............................................39
GROUP SYSTEMATIC INVESTMENT PROGRAM...................................39
REDEMPTIONS.................................................................40
CONVERSION OF CLASS B SHARES................................................41
NET ASSET VALUE.............................................................42
TAXATION....................................................................42
TAXATION OF THE FUND AND ITS SHAREHOLDERS.............................43
DISTRIBUTIONS.........................................................43
DISPOSITION OF SHARES.................................................44
BACKUP WITHHOLDING....................................................45
PERFORMANCE INFORMATION.....................................................45
AVERAGE ANNUAL TOTAL RETURN.....................................45
CUMULATIVE TOTAL RETURN.........................................46
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION...........47
FINANCIAL STATEMENTS........................................................47
APPENDIX A..................................................................48
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the
Trust, an open-end management investment company organized as a Massachusetts
business trust on October 6, 1999. The Fund commenced operations as of ______
__, 1999.
Descriptions in this SAI of a particular investment practice or
technique in which the Fund may engage or a financial instrument which the Fund
may purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case the Fund would not use them. Certain practices,
techniques, or instruments may not be principal activities of the Fund but, to
the extent employed, could from time to time have a material impact on the
Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the Fund's investment
techniques, are set forth below.
The Fund seeks long-term capital growth. Any income realized will be
incidental. The Fund seeks to achieve its principal objective of long-term
capital growth by investing primarily in the equity securities of companies
throughout the world. The Fund selects securities on a global basis, but may
invest a significant portion of its assets in the securities of companies in a
single country or a single industry, depending on prevailing market conditions.
Under normal conditions, the Fund invests at least 65% of its assets in equity
securities.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd.,
the Fund's sub-advisor, is based on a contrarian "value" philosophy. The
sub-advisor looks for securities which are trading below their estimated
intrinsic value. To determine the intrinsic value of a particular company, the
sub-advisor focuses on the balance sheet of the company rather than the income
statement. In addition to reviewing the assets, the sub-advisor considers the
earnings, dividends, prospects and management capabilities of the company.
Essentially, the sub-advisor revalues the assets and liabilities of the company
to reflect the sub-advisor's estimate of fair value. Securities are purchased
where there is a substantial discount of price to the estimate of the company's
intrinsic value. Because the approach is to look for undervalued securities, the
sub-advisor does not forecast economies or corporate earnings and does not rely
on market timing.
The Fund may invest in warrants, and securities issued on a
"when-issued" or firm commitment basis, and may engage in foreign currency
exchange transactions and enter into forward foreign currency contracts. The
Fund may also invest up to 10% of its total assets in other investment companies
and up to 15% of its net assets in illiquid securities. The Fund may not, invest
more than 5% of its total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes
that circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided
the premium paid for such options does not exceed 5% of the Fund's net assets.
The Fund may also sell covered put options with respect to up to 10% of the
value of its net assets, and may write covered call options so long as not more
than 25% of the Fund's net assets is subject to being purchased upon the
exercise of the calls. For hedging purposes only, the Fund may engage in
transactions in (and options on) stock index and foreign currency futures
contracts, provided that the Fund's equivalent exposure in such contracts does
not exceed 15% of its total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common
stock shares represent a proportionate ownership interest in a company. As a
result, the value of common stock rises and falls with a company's success or
failure. The market value of common stock can fluctuate significantly, with
smaller companies being particularly susceptible to price swings. Transaction
costs in smaller company stocks may also be higher than those of larger
companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include
corporate bonds, notes, debentures, preferred stock and other securities that
may be converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that
provide for a stream of income. Like all debt securities, there can be no
assurance of income or principal payments because the issuers of the convertible
securities may default on their obligations. Convertible securities generally
offer lower yields than non-convertible securities of similar quality because of
their conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises and falls
inversely with fluctuations in interest rates. As interest rates decline, the
value of debt securities generally increases. Conversely, rising interest rates
tend to cause the value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter maturities. The
market value of debt securities also varies according to the relative financial
condition of the issuer. In general, lower-quality bonds offer higher yields due
to the increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor' Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership
of a pool of mortgage loans. For example, GNMA certificates are such securities
in which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain
Federal agencies are neither direct obligations of nor guaranteed by the U.S.
Treasury; however, they involve Federal sponsorship in one way or another. Some
are backed by specific types of collateral, some are supported by the issuer's
right to borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the issuer, others
are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to, Federal Land Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association, Federal Home Loan Mortgage Association,
and Student Loan Marketing Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest. Zero coupon bonds
are issued at a significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While
such purchases may often offer attractive opportunities for investment not
otherwise available on the open market, the securities so purchased are often
"restricted securities" or "not readily marketable" (i.e., they cannot be sold
to the public without registration under the Securities Act of 1933, as amended
(the "1933 Act"), or the availability of an exemption from registration (such as
Rule 144A) or because they are subject to other legal or contractual delays in
or restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that
are generally considered to have relatively stable and friendly governments,
there is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon. The inability of the Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Further, the inability to dispose of portfolio securities due to
settlement problems could result either in losses to the Fund because of
subsequent declines in the value of the portfolio security or, if the Fund has
entered into a contract to sell the security, in possible liability to the
purchaser. It may be more difficult for the Fund's agents to keep currently
informed about corporate actions such as stock dividends or other matters that
may affect the prices of portfolio securities. Communications between the United
States and foreign countries may be less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Moreover, individual foreign
economies may differ favorably or unfavorably from the United States economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository
instruments, the issuance of which is typically administered by a U.S. or
foreign bank or trust company. These instruments evidence ownership of
underlying securities issued by a U.S. or foreign corporation. ADRs are publicly
traded on exchanges or over-the-counter ("OTC") in the United States.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, information concerning the
issuer may not be as current or as readily available as in the case of sponsored
depository instruments, and their prices may be more volatile than if they were
sponsored by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be
subject to potentially higher risks than investments in developed countries.
Such risks include (i) less social, political and economic stability; (ii) a
small market for securities and/or a low or nonexistent volume of trading, which
result in a lack of liquidity and in greater price volatility; (iii) certain
national policies that may restrict the Fund's investment opportunities,
including restrictions on investment in issuers or industries deemed sensitive
to national interests; (iv) foreign taxation; (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (vi) the absence, until relatively
recently in certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases
with sufficient cash or short-term securities to create unleveraged substitutes
for investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of
other portfolio transactions. Because currency control is of great importance to
the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of
other investment companies. As a shareholder of an investment company, the Fund
would bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by bank holding companies, corporations and finance
companies. The Fund may invest in commercial paper that is rated Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's
Corporation ("S&P") or, if not rated by Moody's or S&P, is issued by companies
having an outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund was not exercised by the date of its expiration, the Fund would
lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration
of less than one year) pursuant to which the purchaser, in return for the
premium paid, has the right to buy the security underlying the option at the
specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium, has the obligation, upon exercise
of the option, to deliver the underlying security against payment of the
exercise price. A put option is a similar contract pursuant to which the
purchaser, in return for the premium paid, has the right to sell the security
underlying the option at the specified exercise price at any time during the
term of the option. The writer of the put option, who receives the premium, has
the obligation, upon exercise of the option, to buy the underlying security at
the exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
The Fund will realize a gain (or a loss) on a closing purchase
transaction with respect to a call or a put previously written by the Fund if
the premium, plus commission costs, paid by the Fund to purchase the call or the
put is less (or greater) than the premium, less commission costs, received by
the Fund on the sale of the call or the put. A gain also will be realized if a
call or a put that the Fund has written lapses unexercised, because the Fund
would retain the premium. Any such gains (or losses) are considered short-term
capital gains (or losses) for Federal income tax purposes. Net short-term
capital gains, when distributed by the Fund, are taxable as ordinary income. See
"Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are
issued by a regulated clearing organization (such as the Options Clearing
Corporation), which, in effect, guarantees the completion of every
exchange-traded option transaction. In contrast, the terms of OTC options are
negotiated by the Fund and its counterparty (usually a securities dealer or a
financial institution) with no clearing organization guarantee. When the Fund
purchases an OTC option, it relies on the party from whom it has purchased the
option (the "counterparty") to make delivery of the instrument underlying the
option. If the counterparty fails to do so, the Fund will lose any premium paid
for the option, as well as any expected benefit of the transaction. Accordingly,
IMI will assess the creditworthiness of each counterparty to determine the
likelihood that the terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may write (sell)
covered call options on the Fund's securities in an attempt to realize a greater
current return than would be realized on the securities alone. The Fund may also
write covered call options to hedge a possible stock or bond market decline
(only to the extent of the premium paid to the Fund for the options). In view of
the investment objectives of the Fund, it generally would write call options
only in circumstances where the investment adviser to the Fund does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a
put option on an underlying security owned by the Fund as a defensive technique
in order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that
it owns and at the same time write a call option on the same security with the
same exercise price and expiration date. Depending on whether the underlying
security appreciates or depreciates in value, the Fund would sell the underlying
security for the exercise price either upon exercise of the call option written
by it or by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the
Fund seeks to close out an option position. Furthermore, if trading restrictions
or suspensions are imposed on the options markets, the Fund may be unable to
close out a position. Finally, trading could be interrupted, for example,
because of supply and demand imbalances arising from a lack of either buyers or
sellers, or the options exchange could suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty or by a transaction in the secondary market, if any such market
exists. Transfer of an OTC option is usually prohibited absent the consent of
the original counterparty. There is no assurance that the Fund will be able to
close out an OTC option position at a favorable price prior to its expiration.
An OTC counterparty may fail to deliver or to pay, as the case may be. In the
event of insolvency of the counterparty, the Fund might be unable to close out
an OTC option position at any time prior to its expiration. Although the Fund
may be able to offset to some extent any adverse effects of being unable to
liquidate an option position, the Fund may experience losses in some cases as a
result of such inability.
When conducted outside the U.S., options transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level
of its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, it is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of
the underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its
Custodian in a segregated account (and mark-to-market on a daily basis) cash or
liquid securities that, when added to the amounts deposited with an FCM as
margin, are equal to the market value of the instruments underlying the
contract. Alternatively, the Fund may "cover" its position by owning the
instruments underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to that of the
index on which the futures contract is based), or by holding a call option
permitting the Fund to purchase the same futures contract at a price no higher
than the price of the contract written by the Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will
maintain with its Custodian in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the amounts deposited
with an FCM as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund, or covering the difference if the
price is higher.
When selling a put option on a futures contract, the Fund will
maintain with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist at a time
when the Fund seeks to close out a futures or a futures option position, and the
Fund would remain obligated to meet margin requirements until the position is
closed. In addition, there can be no assurance that an active secondary market
will continue to exist.
Currency futures contracts and options thereon may be traded on
foreign exchanges. Such transactions may not be regulated as effectively as
similar transactions in the United States; may not involve a clearing mechanism
and related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an
efficient means of regulating the Fund's exposure to the equity markets. The
Fund will not engage in transactions in futures contracts for speculation, but
only as a hedge against changes resulting from market conditions in the values
of securities held in the Fund' portfolio or which it intends to purchase. An
index futures contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is made. Entering
into a contract to buy units of an index is commonly referred to as purchasing a
contract or holding a long position in the index. Entering into a contract to
sell units of an index is commonly referred to as selling a contract or holding
a short position. The value of a unit is the current value of the stock index.
For example, the S&P 500 Index is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its
securities through transactions in index futures (and therefore the extent of
its gain or loss on such transactions) depends on the degree to which price
movements in the underlying index correlate with price movements in the Fund's
securities. Inasmuch as such securities will not duplicate the components of an
index, the correlation probably will not be perfect. Consequently, the Fund will
bear the risk that the prices of the securities being hedged will not move in
the same amount as the hedging instrument. This risk will increase as the
composition of the Fund's portfolio diverges from the composition of the hedging
instrument.
Although the Fund intends to establish positions in these instruments
only when there appears to be an active market, there is no assurance that a
liquid market will exist at a time when the Fund seeks to close a particular
option or futures position. Trading could be interrupted, for example, because
of supply and demand imbalances arising from a lack of either buyers or sellers.
In addition, the futures exchanges may suspend trading after the price has risen
or fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking
delivery of the underlying securities, generally these obligations are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale price, the Fund
generally realizes a capital gain, or if it is more, the Fund generally realizes
a capital loss. Conversely, if an offsetting sale price is more than the
original purchase price, the Fund generally realizes a capital gain, or if it is
less, the Fund generally realizes a capital loss. The transaction costs must
also be included in these calculations.
The Fund will only enter into index futures contracts or futures
options that are standardized and traded on a U.S. or foreign exchange or board
of trade, or similar entity, or quoted on an automated quotation system. The
Fund will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with a futures commission merchant
("FCM") as margin, are equal to the market value of the futures contract.
Alternatively, the Fund may "cover" its position by purchasing a put option on
the same futures contract with a strike price as high as or higher than the
price of the contract held by the Fund.
When selling an index futures contract, the Fund will maintain with
its Custodian (and mark-to-market on a daily basis) cash or liquid securities
that, when added to the amounts deposited with an FCM as margin, are equal to
the market value of the instruments underlying the contract. Alternatively, the
Fund may "cover" its position by owning the instruments underlying the contract
(or, in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section of
the Prospectus, together with the investment restrictions set forth below, are
fundamental policies of the Fund and may not be changed without the approval of
a majority of the outstanding voting shares of the Fund. The Fund has adopted
the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by its
Prospectus.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(v) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account;
(vii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes. All borrowings will
be repaid before any additional investments are made;
(viii) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities restricted as to disposition under the Federal securities
laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, and except that the Fund may invest in securities of other
investment companies subject to the restrictions in Section 12(d)(1)
of the Investment Company Act of 1940 (the "1940 Act").
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction
of the Trustees. Information about the Fund's investment manager and other
service providers appears in the "Investment Advisory and Other Services"
section, below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund' day-to-day operations.
The Trustees and Executive Officers of the Trust, their business
addresses and principal occupations during the past five years are:
NAME, ADDRESS, AGE POSITION WITH BUSINESS AFFILIATIONS AND PRINCIPAL
THE TRUST OCCUPATIONS
* Deemed to be an "interested person" of the Trust, as defined under the
1940 Act.
Class A shares of the Fund may be purchased without an initial sales
charge or contingent deferred sales charge by officers and Trustees of the Trust
(and their relatives). As of the date of this SAI, the Officers and Trustees of
the Trust as a group owned no Fund shares.
COMPENSATION TABLE
NAME/ POSITION AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM TRUST* BENEFITS BENEFITS FROM TRUST AND
ACCRUED AS A UPON FUND COMPLEX
PART OF FUND RETIRE-MENT PAID TO
EXPENSES TRUSTEES**
* Estimated for the Fund's initial fiscal year ending December 31, 1999.
** Estimated for the Fund's initial fiscal year ending December 31, 1999.
The Fund complex consists of The Universal Funds, Mackenzie Solutions
and Ivy Fund. During the fiscal year ending December 31, 1998, none of
the listed Trustees received compensation from Ivy Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are
permitted to make personal securities transactions, subject to the requirements
and restrictions set forth in IMI's Code of Ethics and Business Conduct Policy
(the "Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on _________, 1999. Before
that, the Advisory Agreement was approved at a meeting held on __________, 1999
by the Fund's Board of Trustees, including a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of the Fund nor have
any direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management
Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca
Raton, Florida 33432, a Delaware corporation with approximately 10% of its
outstanding common stock listed on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West,
Toronto, Ontario, Canada, a public corporation organized under the laws of
Ontario whose shares are listed for trading on the TSE. MFC is registered in
Ontario as a mutual fund dealer. IMI currently acts as manager and investment
adviser to the other series of The Universal Funds, the five series of Mackenzie
Solutions and the nineteen series of Ivy Fund.
The Advisory Agreement obligates IMI to make investments for the
accounts of the Fund in accordance with its best judgment and within the
investment objectives and restrictions set forth in the Prospectus, the 1940 Act
and the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), relating to regulated investment companies, and subject to policy
decisions adopted by the Trustees. Under the Advisory Agreement, IMI is also
obligated to (1) coordinate with the Fund's Custodian and monitor the services
it provides to the Fund; (2) coordinate with and monitor any other third parties
furnishing services to the Fund; (3) provide the Fund with necessary office
space, telephones and other communications facilities as needed; (4) provide the
services of individuals competent to perform administrative and clerical
functions that are not performed by employees or other agents engaged by the
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Fund as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Fund to
serve in such capacities; and (7) take such other action with respect to the
Fund, upon their approval, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement
at an annual rate of 1.00% of the Fund's average net assets. The Fund is also
responsible for the following expenses: (1) the fees and expenses of the Fund's
Independent Trustees; (2) the salaries and expenses of any of the Fund's
officers or employees who are not affiliated with IMI; (3) interest expenses;
(4) taxes and governmental fees, including any original issue taxes or transfer
taxes applicable to the sale or delivery of shares or certificates therefor; (5)
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying shares for
sale with the SEC and with various state securities commissions; (7) accounting
and legal costs; (8) insurance premiums; (9) fees and expenses of the Fund's
Custodian and Transfer Agent and any related services; (10) expenses of
obtaining quotations of portfolio securities and of pricing shares; (11)
expenses of maintaining the Fund' legal existence and of shareholders' meetings;
(12) expenses of preparation and distribution to existing shareholders of
periodic reports, proxy materials and prospectuses; and (13) fees and expenses
of membership in industry organizations.
SUB-ADVISOR
Peter Cundill & Associates (Bermuda) Ltd. ("Cundill"), through its
subsidiary Cundill Investment Research Limited, located at Suite 1200, Sun Life
Plaza, 1100 Melville Street, Vancouver, B.C. V6E 4A6, serves as Sub-Advisor to
the Fund pursuant to a subadvisory agreement with IMI (the "Subadvisory
Agreement"). The Subadvisory Agreement was approved by the sole shareholder of
the Fund on __________, 1999. Before that, the Subadvisory Agreement was
approved at a meeting held on ________, 1999 by the Fund's Board of Trustees,
including a majority of the Independent Trustees. For its services, Cundill
receives a fee from the Advisor that is equal, on an annual basis, to .50% of
the Fund's average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that
will permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
Each subadviser's fees will be paid by IMI out of the advisory fees
that it receives from each of the Funds. Fees paid to a subadviser if the Fund
employs multiple subadvisers will depend upon the fee rate negotiated with IMI
and upon the percentage of the Fund's assets allocated to that subadviser by
IMI, which may vary from time to time. Thus, the basis for fees paid to any such
subadviser will not be constant, and the relative amounts of fees paid to the
various subadvisers of the Fund will fluctuate. These internal fluctuations,
however, will not affect the total advisory fees paid by the Fund, which will
remain fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new
subadvisers and entering into sub-advisory agreements, IMI will negotiate fees
with those subadvisers and, because these fees are paid by IMI and not directly
by the Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and
any increase will inure to its detriment. The fee paid to IMI by the Fund and
the fees paid to the subadvisers by IMI are considered by the Board in approving
the Fund's advisory and sub-advisory arrangements. Any change in fees paid by a
Fund to IMI would require shareholder approval.
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT
The initial term of the Advisory Agreement is two years from ________,
1999. The initial term of the Subadvisory Agreement is two years from _________,
1999. Each Agreement will continue in effect with respect to the Fund from year
to year, or for more than the initial period, as the case may be, only so long
as such continuance is specifically approved at least annually (i) by the vote
of a majority of the Independent Trustees and (ii) either (a) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund or (b) by the vote of a majority of the entire Board. If the question
of continuance of either Agreement (or adoption of any new agreement) is
presented to shareholders, continuance (or adoption) shall occur only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
Each Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Advisory Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to a
Distribution Agreement with the Fund dated ________, 1999 (the "Distribution
Agreement"). The Board approved the Distribution Agreement on __________,
1999. IMDI distributes shares of the Fund through broker-dealers who are
members of the National Association of Securities Dealers, Inc. and who have
executed dealer agreements with IMDI. IMDI distributes shares of the Fund
continuously, but reserves the right to suspend or discontinue distribution
on that basis. IMDI is not obligated to sell any specific amount of Fund
shares.
The Fund has authorized IMDI to accept purchase and redemption orders
on its behalf. IMDI is also authorized to designate other intermediaries to
accept purchase and redemption orders on the Fund's behalf. The Fund will be
deemed to have received a purchase or redemption order when an authorized
intermediary or, if applicable, an intermediary's authorized designee, accepts
the order. Client orders will be priced at the Fund's Net Asset Value next
computed after an authorized intermediary or the intermediary's authorized
designee accepts them.
Pursuant to the Distribution Agreement, IMDI is entitled to deduct a
commission on all Class A Fund shares sold equal to the difference, if any,
between the public offering price, as set forth in the Fund's then-current
prospectus, and the net asset value on which such price is based. Out of that
commission, IMDI may reallow to dealers such concession as IMDI may determine
from time to time. In addition, IMDI is entitled to deduct a CDSC on the
redemption of Class A shares sold without an initial sales charge and Class B
and Class C shares, in accordance with, and in the manner set forth in, the
Prospectus.
Under the Distribution Agreement, the Fund bears, among other
expenses, the expenses of registering and qualifying its shares for sale under
federal and state securities laws and preparing and distributing to existing
shareholders periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under
the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for the Fund for
successive one-year periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Independent
Trustees, cast in person at a meeting called for that purpose and by the vote of
either a majority of the entire Board or a majority of the outstanding voting
securities of the Fund. The Distribution Agreement may be terminated with
respect to the Fund at any time, without payment of any penalty, by IMDI on 60
days' written notice to the Fund or by the Fund by vote of either a majority of
the outstanding voting securities of the Fund or a majority of the Independent
Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall
terminate automatically in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3
under the 1940 Act, which permits a registered open-end investment company to
issue multiple classes of shares in accordance with a written plan approved by
the investment company's board of directors and filed with the SEC. At a meeting
held on _________, 1999, the Trustees adopted a Rule 18f-3 plan on behalf of the
Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each
class of the Fund represent an equal pro rata interest in the Fund and generally
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications, terms and conditions, except
that each class bears certain class-specific expenses and has separate voting
rights on certain matters that relate solely to that class or in which the
interests of shareholders of one class differ from the interests of shareholders
of another class and (ii) the Fund's Class B shares will convert automatically
into Class A shares of the Fund after a period of eight years, based on the
relative net asset value of such shares at the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf of the
Fund, in accordance with Rule 12b-1 under the 1940 Act, separate Rule 12b-1
distribution plans pertaining to the Fund's Class A, Class B and Class C shares
(each, a "Plan"). In adopting each Plan, a majority of the Independent Trustees
have concluded in accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its shareholders.
The Trustees of the Trust believe that the Plans should result in greater sales
and/or fewer redemptions of the Fund's shares, although it is impossible to know
for certain the level of sales and redemptions of the Fund's shares in the
absence of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays to IMDI a service fee, accrued daily
and paid monthly, at the annual rate of up to 0.25% of the average daily net
assets attributable to its Class A, Class B or Class C shares, respectively. The
services for which service fees may be paid include, among other things,
advising clients or customers regarding the purchase, sale or retention of Fund
shares, answering routine inquiries concerning the Fund and assisting
shareholders in changing options or enrolling in specific plans. Pursuant to
each Plan, service fee payments made out of or charged against the assets
attributable to the Fund' Class A, Class B or Class C shares must be in
reimbursement for services rendered for or on behalf of the affected class. The
expenses not reimbursed in any one month may be reimbursed in a subsequent
month. The Class A Plan does not provide for the payment of interest or carrying
charges as distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays IMDI a
distribution fee, accrued daily and paid monthly, at the annual rate of 0.75% of
the average daily net assets attributable to its Class B or Class C shares. IMDI
may reallow to dealers all or a portion of the service and distribution fees as
IMDI may determine from time to time. The distribution fees compensate IMDI for
expenses incurred in connection with activities primarily intended to result in
the sale of the Fund's Class B or Class C shares, including the printing of
prospectuses and reports for persons other than existing shareholders and the
preparation, printing and distribution of sales literature and advertising
materials. Pursuant to the Class B and Class C Plan, IMDI may include interest,
carrying or other finance charges in its calculation of distribution expenses,
if not prohibited from doing so pursuant to an order of or a regulation adopted
by the SEC.
Among other things, each Plan provides that (1) IMDI will submit to
the Board at least quarterly, and the Trustees will review, written reports
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made; (2) each Plan will continue in effect only so long as
such continuance is approved at least annually, and any material amendment
thereto is approved, by the votes of a majority of the Board, including the
Independent Trustees, cast in person at a meeting called for that purpose; (3)
payments by the Fund under each Plan shall not be materially increased without
the affirmative vote of the holders of a majority of the outstanding shares of
the relevant class; and (4) while each Plan is in effect, the selection and
nomination of Trustees who are not "interested persons" (as defined in the 1940
Act) of the Fund shall be committed to the discretion of Trust who are not
"interested persons" of the Fund.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may include the
management fees paid by the Fund. IMDI also may make payments (such as the
service fee payments described above) to unaffiliated broker-dealers for
services rendered in the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each year the
amount of shares held does not exceed a minimum amount. The minimum holding
period and minimum level of holdings will be determined from time to time by
IMDI.
A report of the amount expended pursuant to each Plan, and the
purposes for which such expenditures were incurred, must be made to the Board
for its review at least quarterly. As of the date of this SAI, no payments had
been made under the Plans with respect to the Fund.
Each Plan may be amended at any time with respect to the class of
shares of the Fund to which the Plan relates by vote of the Trustees, including
a majority of the Independent Trustees, cast in person at a meeting called for
the purpose of considering such amendment. Each Plan may be terminated at any
time with respect to the class of shares of the Fund to which the Plan relates,
without payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting securities of that
class.
If the Distribution Agreement or any Plan is terminated (or not
renewed) with respect to the Fund (or class of shares thereof), each may
continue in effect with respect to any other Class of shares as to which they
have not been terminated (or have been renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers
Harriman & Co. (the "Custodian"), a private bank and member of the principal
securities exchanges, located at 40 Water Street, Boston, Massachusetts 02109
(the "Custodian"), maintains custody of the Fund's assets. Rules adopted under
the 1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for he
holding of the Fund's foreign securities. With respect to he Fund, the Custodian
may receive, as partial payment for its services to the Fund, a portion of the
Trust's brokerage business, subject to its ability to provide best price and
execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, the Fund had
made no payments for transfer agency services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., .10%) fee, based on the average daily net asset value of the omnibus
account (or a combination thereof). As of the date of this SAI, no payments have
been made with respect to the provision of these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides
certain administrative services to the Fund. As compensation for these services,
the Fund (except with respect to its Class I shares) pays MIMI a monthly fee at
the annual rate of 0.10% of the Fund's average daily net assets. The Fund pays
MIMI a monthly fee at the annual rate of 0.01% of its average daily net assets
for Class I shares.
Outside of providing administrative services to the Fund, as described
above, MIMI may also act on behalf of IMDI in paying commissions to
broker-dealers with respect to sales of Class B and Class C shares of the Fund.
As of the date of this SAI, no payments have been made with respect to the
provision of these services for the Fund.
AUDITORS
[ ], independent certified public
accountants, have been selected as auditors for the Fund. The audit services
performed by [ ] include audits of the annual financial
statements of the Fund. Other services provided principally relate to filings
with the SEC and the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Cundill places orders for the purchase and sale of the Fund's portfolio
securities. All portfolio transactions are effected at the best price and
execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Fund for such purchases and sales (although the price
paid generally includes undisclosed compensation to the dealer). The prices paid
to underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter, and purchases of after-market securities from
dealers normally reflect the spread between the bid and asked prices. In
connection with OTC transactions, IMI and/or Cundill attempts to deal directly
with the principal market makers, except in those circumstances where IMI and/or
Cundill believes that a better price and execution are available elsewhere.
IMI and/or Cundill selects broker-dealers to execute transactions and
evaluates the reasonableness of commissions on the basis of quality, quantity,
and the nature of the firms' professional services. Commissions to be charged
and the rendering of investment services, including statistical, research, and
counseling services by brokerage firms, are factors to be considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers through
whom the Trust effects securities transactions may be used by IMI and/or Cundill
in servicing all of its accounts. In addition, not all of these services may be
used by IMI and/or Cundill in connection with the services it provides to the
Fund or the Trust. IMI and/or Cundill may consider sales of shares of other IMI
or Cundill managed funds as a factor in the selection of broker-dealers and may
select broker-dealers who provide it with research services. IMI and/or Cundill
will not, however, execute brokerage transactions other than at the best price
and execution.
The Fund may, under some circumstances, accept securities in lieu of
cash as payment for Fund shares. The Fund will accept securities only to
increase its holdings in a portfolio security or to take a new portfolio
position in a security that IMI and/or Cundill deems to be a desirable
investment for the Fund. While no minimum has been established, it is expected
that the Fund will not accept securities having an aggregate value of less than
$1 million. The Trust may reject in whole or in part any or all offers to pay
for the Fund shares with securities and may discontinue accepting securities as
payment for the Fund shares at any time without notice. The Trust will value
accepted securities in the manner and at the same time provided for valuing
portfolio securities of the Fund, and the Fund shares will be sold for net asset
value determined at the same time the accepted securities are valued. The Trust
will only accept securities delivered in proper form and will not accept
securities subject to legal restrictions on transfer. The acceptance of
securities by the Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Fund consists of an unlimited number of
shares of beneficial interest (no par value per share). When issued, shares of
each class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
Under its Declaration of Trust, the Trust may create separate series
or portfolios and divide any series or portfolio into one or more classes. The
Trustees have authorized two series, each of which represents a fund. The
Trustees have further authorized the issuance of Class A, Class B, Class C,
Class I and Advisor Class shares for the Fund.
Shareholders have the right to vote for the election of Trustees of
the Trust and on any and all matters on which they may be entitled to vote by
law or by the provisions of the Trust's By-Laws. The Trust is not required to
hold a regular annual meeting of shareholders, and it does not intend to do so.
Shares of each class of the Fund entitle their holders to one vote per share
(with proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting them differently, separate votes by the shareholders of each fund
are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general will be voted upon collectively by the
shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of
the outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of
the shares of the Fund (or of the Trust) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy; or
(2) more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by each fund of the Trust, the matter shall have been
effectively acted upon with respect to that fund if a majority of the
outstanding voting securities of the fund votes for the approval of the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other fund of the Trust; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Trust.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Shareholders will be assisted in communicating with other shareholders in
connection with the removal of a Trustee.
The Trust's shares do not have cumulative voting rights and
accordingly the holders of more than 50% of the outstanding shares could elect
the entire Board, in which case the holders of the remaining shares would not be
able to elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding
other than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Trust or its Trustees. The Declaration of Trust also provides
for indemnification out of Fund property for all loss and expense of any
shareholder of the Fund held personally liable for the obligations of the Fund.
The risk of a shareholder of the Trust incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and, thus, should be considered remote.
No Fund is liable for the obligations of any other Fund.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Fund offers (and except as noted below) bears the cost of
providing, to investors the following additional rights and privileges. The Fund
reserves the right to amend or terminate any one or more of these rights and
privileges. Notice of amendments to or terminations of rights and privileges
will be provided to shareholders in accordance with applicable law.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to
have specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an
exchange privilege with other Universal funds. Before effecting an exchange,
shareholders of the Fund should obtain and read the currently effective
prospectus for the Universal fund into which the exchange is to be made.
INITIAL SALES CHARGE SHARES. Class A shareholders may exchange their
Class A shares ("outstanding Class A shares") for Class A shares of another
Universal fund ("new Class A Shares") on the basis of the relative net asset
value per Class A share, plus an amount equal to the difference, if any, between
the sales charge previously paid on the outstanding Class A shares and the sales
charge payable at the time of the exchange on the new Class A shares. (The
additional sales charge will be waived for Class A shares that have been
invested for a period of 12 months or longer.)
The Fund may, from time to time, waive the initial sales charge on its
Class A shares sold to clients of The Legend Group and United Planners Financial
Services of America, Inc. This privilege will apply on to Class A Shares of the
Fund that are purchased using all or a portion of the proceeds obtained by such
clients through redemptions of shares of a mutual fund (other than one of the
Funds) on which a sales charge was paid (the "NAV transfer privilege").
Purchases eligible for the NAV transfer privilege must be made within 60 days of
redemption from the other fund, and the Class A shares purchased are subject to
a 1.00% CDSC on shares redeemed within the first year after purchase. The NAV
transfer privilege also applies to Fund shares purchased directly by clients of
such dealers as long as their accounts are linked to the dealer's master
account. The normal service fee, as described in the "Initial Sales Charge
Alternative - Class A Shares" section of the Prospectus, will be paid to those
dealers in connection with these purchases. IMDI may from time to time pay a
special cash incentive to The Legend Group or United Planners Financial Services
of America, Inc. in connection with sales of shares of the Fund by its
registered representatives under the NAV transfer privilege. Additional
information on sales charge reductions or waivers may be obtained from IMDI at
the address listed on the cover of this Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGE SHARES
CLASS A: Class A shareholders may exchange their Class A shares that
are subject to a contingent deferred sales charge ("CDSC"), as described in the
Prospectus ("outstanding Class A shares"), for Class A shares of another
Universal fund ("new Class A shares") on the basis of the relative net asset
value per Class A share, without the payment of any CDSC that would otherwise be
due upon the redemption of the outstanding Class A shares. Class A shareholders
of the Fund exercising the exchange privilege will continue to be subject to the
Fund's CDSC period following an exchange if such period is longer than the CDSC
period, if any, applicable to the new Class A shares.
For purposes of computing the CDSC that may be payable upon the
redemption of the new Class A shares, the holding period of the outstanding
Class A shares is "tacked" onto the holding period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B shares
("outstanding Class B shares") for Class B shares of another Universal fund
("new Class B shares") on the basis of the relative net asset value per Class B
share, without the payment of any CDSC that would otherwise be due upon the
redemption of the outstanding Class B shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to the Fund's CDSC
schedule (or period) following an exchange if such schedule is higher (or such
period is longer) than the CDSC schedule (or period) applicable to the new
Class B shares.
Class B shares of the Fund acquired through an exchange of Class B
shares of another Universal fund will be subject to that fund's CDSC schedule
(or period) if such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the Universal fund from which the exchange
was made.
For purposes of both the conversion feature and computing the CDSC
that may be payable upon the redemption of the new Class B shares (prior to
conversion), the holding period of the outstanding Class B shares is "tacked"
onto the holding period of the new Class B shares.
The following CDSC table applies to Class B shares of the Fund.
CONTINGENT DEFERRED SALES CHARGE AS
A PERCENTAGE OF DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
CLASS C: Class C shareholders may exchange their Class C shares
("outstanding Class C shares") for Class C shares of another Universal fund
("new Class C shares") on the basis of the relative net asset value per Class C
share, without the payment of any CDSC that would otherwise be due upon
redemption. (Class C shares are subject to a CDSC of 1.00% if redeemed within
one year of the date of purchase.)
CLASS I: Subject to the restrictions set forth in the following
paragraph, Class I shareholders may exchange their outstanding Class I shares
for Class I shares of another Universal fund on the basis of the relative net
asset value per share.
ALL CLASSES: The minimum value of shares which may be exchanged into
an Universal fund in which shares are not already held is $1,000. No exchange
out of the Fund (other than by a complete exchange of all Fund shares) may be
made if it would reduce the shareholder's interest in the Fund to less than
$1,000.
Each exchange will be made on the basis of the relative net asset
value per share of the Universal funds involved in the exchange next computed
following receipt by IMSC of telephone instructions by IMSC or a properly
executed request. Exchanges, whether written or telephonic, must be received by
IMSC by the close of regular trading on the Exchange (normally 4:00 p.m.,
eastern time) to receive the price computed on the day of receipt. Exchange
requests received after that time will receive the price next determined
following receipt of the request. The exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice to the extent required by
applicable law. See "Redemptions."
An exchange of shares between any of the Universal funds will result
in a taxable gain or loss. Generally, this will be a capital gain or loss
(long-term or short-term, depending on the holding period of the shares) in the
amount of the difference between the net asset value of the shares surrendered
and the shareholder's tax basis for those shares. However, in certain
circumstances, shareholders will be ineligible to take sales charges into
account in computing taxable gain or loss on an exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred retirement
plan will not be taxable to the plan and will not be taxed to the participant
until distribution. Each investor should consult his or her tax adviser
regarding the tax consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in Class A shares
of the Fund made pursuant to a non-binding Letter of Intent. A Letter of Intent
may be submitted by an individual, his or her spouse and children under the age
of 21, or a trustee or other fiduciary of a single trust estate or single
fiduciary account. (See the Account Application in the Prospectus.) Any investor
may submit a Letter of Intent stating that he or she will invest, over a period
of 13 months, at least $50,000 in Class A shares of the Fund. A Letter of Intent
may be submitted at the time of an initial purchase of Class A shares of the
Fund or within 90 days of the initial purchase, in which case the Letter of
Intent will be backdated. A shareholder may include, as an accumulation credit,
the value (at the applicable offering price) of all Class A shares of the Fund
held of record by him or her as of the date of his or her Letter of Intent.
During the term of the Letter of Intent, IMSC will hold Class A shares
representing 5% of the indicated amount (less any accumulation credit value) in
escrow. The escrowed Class A shares will be released when the full indicated
amount has been purchased. If the full indicated amount is not purchased during
the term of the Letter of Intent, the investor is required to pay IMDI an amount
equal to the difference between the dollar amount of sales charge that he or she
has paid and that which he or she would have paid on his or her aggregate
purchases if the total of such purchases had been made at a single time. Such
payment will be made by an automatic liquidation of Class A shares in the escrow
account. A Letter of Intent does not obligate the investor to buy (or the Trust)
to sell the indicated amount of Class A shares, and the investor should read
carefully all the provisions of the letter before signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with several types
of tax-deferred retirement plans. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts
as described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
The following discussion describes some aspects of the tax treatment
of certain tax-deferred retirement plans under current Federal income tax law.
State income tax consequences may vary. An individual considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in a fund if that
fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives
compensation or earned income is eligible to contribute to an IRA, whether or
not he or she is an active participant in a retirement plan. An individual who
receives a distribution from another IRA, a qualified retirement plan, a
qualified annuity plan or a tax-sheltered annuity or custodial account ("403(b)
plan") that qualifies for "rollover" treatment is also eligible to establish an
IRA by rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal
income tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the Fund also may be used as a funding medium for
a Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an unemployed individual and qualified higher education expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to
purchase shares of the Fund through a qualified retirement plan, a Custodial
Agreement and a Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension plan. A profit
sharing plan permits an annual contribution to be made in an amount determined
each year by the self-employed individual within certain limits prescribed by
law. A money purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for qualified plans
and the annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law
employees, employees who have met certain minimum age and service requirements
must be covered by the Retirement Plan. A self-employed individual generally
must contribute the same percentage of income for common law employees as for
himself or herself.
A self-employed individual may contribute up to the lesser of $30,000
or 25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and
Retirement Plan for the benefit of their eligible employees. Similar
contribution and deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT: Section 403(b)(7) of the Code permits public school systems
and certain charitable organizations to use mutual fund shares held in a
custodial account to fund deferred compensation arrangements with their
employees. A custodial account agreement is available for those employers whose
employees wish to purchase shares of the Fund in conjunction with such an
arrangement. The special application for a 403(b)(7) Account is available from
IMSC.
Distributions from the 403(b)(7) Account may be made only following
death, disability, separation from service, attainment of age 59-1/2, or
incurring a financial hardship. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies or
becomes disabled; (3) uses the withdrawal to pay tax-deductible medical
expenses; (4) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (5) rolls over the distribution.
There is no set-up fee for 403(b)(7) Accounts and the annual maintenance fee is
$20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE
401(k) for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund may reinvest
all or a part of the proceeds of the redemption back into Class A shares of the
Fund at net asset value (without a sales charge) within 60 days from the date of
redemption. This privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC of the
reinvestment order accompanied by the funds to be reinvested. No compensation
will be paid to any sales personnel or dealer in connection with the
transaction.
Any redemption is a taxable event. A loss realized on a redemption
generally may be disallowed for tax purposes if the reinvestment privilege is
exercised within 30 days after the redemption. In certain circumstances,
shareholders will be ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment privilege is exercised.
See "Taxation."
REDUCED SALES CHARGES AND RIGHTS OF ACCUMULATION
A scale of reduced sales charges applies to any investment of $50,000
or more in Class A shares of the Fund. See "Initial Sales Charge Alternative --
Class A Shares" in the Prospectus. The reduced sales charge is applicable to
investments made at one time by an individual, his or her spouse and children
under the age of 21, or a trustee or other fiduciary of a single trust estate or
single fiduciary account (including a pension, profit sharing or other employee
benefit trust created pursuant to a plan qualified under Section 401 of the
Code).
"Rights of Accumulation" are also applicable to current purchases of
the Fund by any of the persons enumerated above where the aggregate quantity of
Class A shares of the Fund and of any other investment company distributed by
IMDI previously purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the Class A shares
being purchased, amounts to at least $50,000.
At the time an investment takes place, IMSC must be notified by the
investor or his or her dealer that the investment qualifies for the reduced
sales charge on the basis of previous investments. The reduced sales charge is
subject to confirmation of the investor's holdings through a check of the
particular Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (other than a Class I shareholder) may establish a
Systematic Withdrawal Plan (a "Withdrawal Plan") by telephone instructions or by
delivery to IMSC of a written election to have his or her shares withdrawn
periodically. The minimum distribution amount is $50, accompanied by a surrender
to IMSC of all share certificates then outstanding in such shareholder's name,
properly endorsed by the shareholder. To be eligible to elect a Withdrawal Plan,
a shareholder must have at least $5,000 in his or her account. A Withdrawal Plan
may not be established if the investor is currently participating in the
Automatic Investment Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $1,000 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal
Plan at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Fund or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment
programs established by employee or other groups using systematic payroll
deductions or other systematic payment arrangements. The Fund does not itself
organize, offer or administer any such programs. However, it may, depending upon
the size of the program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with programs organized
and offered by others. Unless shares of the Fund are purchased in conjunction
with IRAs (see "How to Buy Shares" in the Prospectus), such group systematic
investment programs are not entitled to special tax benefits under the Code. The
Fund reserves the right to refuse purchases at any time or suspend the offering
of shares in connection with group systematic investment programs, and to
restrict the offering of shareholder privileges, such as check writing,
simplified redemptions and other optional privileges, to shareholders using
group systematic investment programs.
With respect to each shareholder account established on or after
September 15, 1972 under a group systematic investment program, the Fund and IMI
each currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Fund reserves the right to change these fees from time to time without
advance notice.
Class A shares of the Fund are made available to Merrill Lynch Daily K
Plan (the "Plan") participants at NAV without an initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch
and, on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or more in
assets invested in broker/dealer funds not advised or managed by
Merrill Lynch Asset Management, L.P. ("MLAM") that are made available
pursuant to a Service Agreement between Merrill Lynch and the fund's
principal underwriter or distributor and in funds advised or managed
by MLAM (collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or
alliance arrangement with Merrill Lynch, and on the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement, the
Plan has $3 million or more in assets, excluding money market funds,
invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement.
Alternatively, Class B shares of the Fund are made available to Plan
participants at NAV without a CDSC if the Plan conforms with the requirements
for eligibility set forth in (i) through (iii) above but either does not meet
the $3 million asset threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert to Class A shares once the Plan has reached
$5 million invested in Applicable Investments, or 10 years after the date of the
initial purchase by a participant under the Plan--the Plan will receive a Plan
level share conversion.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next
determined after a proper redemption request has been received by IMSC, less any
applicable CDSC. Unless a shareholder requests that the proceeds of any
redemption be wired to his or her bank account, payment for shares tendered for
redemption is made by check within seven days after tender in proper form,
except that the Fund reserves the right to suspend the right of redemption or to
postpone the date of payment upon redemption beyond seven days (i) for any
period during which the Exchange is closed (other than customary weekend and
holiday closings) or during which trading on the Exchange is restricted, (ii)
for any period during which an emergency exists as determined by the SEC as a
result of which disposal of securities owned by the Fund is not reasonably
practicable or it is not reasonably practicable for the Fund to fairly determine
the value of its net assets, or (iii) for such other periods as the SEC may by
order permit for the protection of shareholders of the Fund.
The Trust may redeem those accounts of shareholders who have
maintained an investment, including sales charges paid, of less than $1,000 in
the Fund for a period of more than 12 months. All accounts below that minimum
will be redeemed simultaneously when MIMI deems it advisable. The $1,000 balance
will be determined by actual dollar amounts invested by the shareholder,
unaffected by market fluctuations. The Trust will notify any such shareholder by
certified mail of its intention to redeem such account, and the shareholder
shall have 60 days from the date of such letter to invest such additional sums
as shall raise the value of such account above that minimum. Should the
shareholder fail to forward such sum within 60 days of the date of the Trust's
letter of notification, the Trust will redeem the shares held in such account
and transmit the redemption in value thereof to the shareholder. However, those
shareholders who are investing pursuant to the Automatic Investment Method will
not be redeemed automatically unless they have ceased making payments pursuant
to the plan for a period of at least six consecutive months, and these
shareholders will be given six-months' notice by the Trust before such
redemption. Shareholders in a qualified retirement, pension or profit sharing
plan who wish to avoid tax consequences must "rollover" any sum so redeemed into
another qualified plan within 60 days. The Trustees of the Trust may change the
minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered appropriate under then-current market conditions. The Trust reserves
the right to change this minimum or to terminate the telephonic redemption
privilege without prior notice. The Trust cannot be responsible for the
efficiency of the Federal wire system of the shareholder's dealer of record or
bank. The shareholder is responsible for any charges by the shareholder's bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the Fund, based on the relative net
asset values per share of the two classes, no later than the month following the
eighth anniversary of the initial issuance of such Class B shares of the Fund
occurs. For the purpose of calculating the holding period required for
conversion of Class B shares, the date of initial issuance shall mean: (1) the
date on which such Class B shares were issued, or (2) for Class B shares
obtained through an exchange, or a series of exchanges, (subject to the exchange
privileges for Class B shares) the date on which the original Class B shares
were issued. For purposes of conversion of Class B shares, Class B shares
purchased through the reinvestment of dividends and capital gain distributions
paid in respect of Class B shares will be held in a separate sub-account. Each
time any Class B shares in the shareholder's regular account (other than those
shares in the sub-account) convert to Class A shares, a pro rata portion of the
Class B shares in the sub-account will also convert to Class A shares. The
portion will be determined by the ratio that the shareholder's Class B shares
converting to Class A shares bears to the shareholder's total Class B shares not
acquired through the reinvestment of dividends and capital gain distributions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The
Nasdaq Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price
on the exchange on which the security is principally traded. If no sale is
reported at that time, the average between the last bid and asked price (the
"Calculated Mean") is used. Unless otherwise noted herein, the value of a
foreign security is determined in its national currency as of the normal close
of trading on the foreign exchange on which it is traded or as of the close of
regular trading on the Exchange, if that is earlier, and that value is then
converted into its U.S. dollar equivalent at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security is
determined. All other securities for which OTC market quotations are readily
available are valued at the Calculated Mean.
A debt security normally is valued on the basis of quotes obtained
from at least two dealers (or one dealer who has made a market in the security)
or pricing services that take into account appropriate valuation factors.
Interest is accrued daily. Money market instruments are valued at amortized
cost, which the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the
exchange on which it is principally traded, if available, and otherwise is
valued at the last sale price on the other exchange(s). If there were no sales
on any exchange, the option shall be valued at the Calculated Mean, if possible,
and otherwise at the last offering price, in the case of a written option, and
the last bid price, in the case of a purchased option. An OTC option is valued
at the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and
the payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to
be applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things,
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be
subject to U.S. Federal income tax on its income and gains that it distributes
to shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax at the Fund level. To avoid the tax, the Fund must distribute during each
calendar year, (1) at least 98% of its ordinary income (not taking into account
any capital gains or losses) for the calendar year (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for previous years that were
not distributed during such years. To avoid application of the excise tax, the
Fund intends to make distributions in accordance with the calendar year
distribution requirements. A distribution will be treated as paid on December 31
of the current calendar year if it is declared by the Fund in October, November
or December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken
by the Fund may result in "straddles" for Federal income tax purposes. The
straddle rules may affect the character of gains or losses realized by the Fund.
In addition, losses realized by the Fund on positions that are part of a
straddle may be deferred under the straddle rules, rather than being taken into
account in calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing the straddle
rules have been promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the amount of short-term
capital gain realized by the Fund, which is taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the
Code which are applicable to straddles. If the Fund makes any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to the Fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but
not loss) from a constructive sale of certain "appreciated financial positions"
if the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. The Fund may elect to mark to market its PFIC shares,
resulting in the shares being treated as sold at fair market value on the last
business day of each taxable year. Any resulting gain would be reported as
ordinary income; any resulting loss and any loss from an actual disposition of
the shares would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is available in
some circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures.
Some of the debt securities (with a fixed maturity date of more than
one year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by the Fund may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Fund may make one or more of the elections applicable to
debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a
U.S. shareholder as ordinary income, whether paid in cash or shares. Dividends
paid by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost
as a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a
shareholder will realize a taxable gain or loss depending upon his or her basis
in the shares. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and, if so, will be
long-term or short-term, depending upon the shareholder's holding period for the
shares. Any loss realized on a redemption sale or exchange will be disallowed to
the extent the shares disposed of are replaced (including through reinvestment
of dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or portion of
their sales loads into account for purposes of determining the amount of gain or
loss realized on the disposition of their shares. This prohibition generally
applies where (1) the shareholder incurs a sales load in acquiring the shares of
the Fund, (2) the shares are disposed of before the 91st day after the date on
which they were acquired, and (3) the shareholder subsequently acquires shares
in the same Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may
be subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, the Fund
will be eligible and may elect to "pass-through" to its shareholders the amount
of foreign income and similar taxes paid by the Fund. Pursuant to this election,
a shareholder will be required to include in gross income (in addition to
taxable dividends actually received) his or her pro rata share of the foreign
income and similar taxes paid by the Fund, and will be entitled either to deduct
his or her pro rata share of foreign income and similar taxes in computing his
or her taxable income or to use it as a foreign tax credit against his or her
U.S. Federal income taxes, subject to limitations. No deduction for foreign
taxes may be claimed by a shareholder who does not itemize deductions. Foreign
taxes generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers
who have limited creditable foreign taxes and no foreign source income other
than passive investment-type income, a credit for foreign taxes is subject to
the limitation that it may not exceed the shareholder's U.S. tax attributable to
his or her total foreign source taxable income. For this purpose, if the Fund
makes the election described in the preceding paragraph, the source of the
Fund's income flows through to its shareholders. With respect to the Fund, gains
from the sale of securities generally will be treated as derived from U.S.
sources and section 988 gains will be treated as ordinary income derived from
U.S. sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and
foreign taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the
Fund will be expressed in terms of the average annual compounded rate of
return that would cause a hypothetical investment in that class of the Fund
made on the first day of a designated period to equal the ending redeemable
value ("ERV") of such hypothetical investment on the last day of the
designated period, according to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000
to purchase shares of a specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is assumed that
all dividends and capital gains distributions made by the Fund are reinvested at
net asset value in additional shares of the same class during the designated
period. In calculating the ending redeemable value for Class A shares and
assuming complete redemption at the end of the applicable period, the maximum
5.75% sales charge is deducted from the initial $1,000 payment and, for Class B
and Class C shares, the applicable CDSC imposed upon redemption of Class B or
Class C shares held for the period is deducted. Standardized Return quotations
for the Fund do not take into account any required payments for federal or state
income taxes. Standardized Return quotations for Class B shares for periods of
over eight years will reflect conversion of the Class B shares to Class shares
at the end of the eighth year. Standardized Return quotations are determined to
the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective investors total
return data that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund's
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's portfolio and
operating expenses of the Fund. These factors and possible differences in the
methods used in calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares with information
published for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes in the
value of the Fund's shares and the risks associated with the Fund's investment
objectives and policies. At any time in the future, performance quotations may
be higher or lower than past performance quotations and there can be no
assurance that any historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its
performance rankings and listings reported in such newspapers or business or
consumer publications as, among others: AAII Journal, Barron's, Boston Business
Journal, Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer
Guide Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service, New
York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October 1997
Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's
to be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. The ratings
described below may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate
capacity to pay interest and repay principal. Although such bonds normally
exhibit adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is
being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying higher designations.
Issues rated B are regarded as having only speculative capacity for
timely payment. The C rating is assigned to short-term debt obligations with a
doubtful capacity for payment. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
<PAGE>
UNIVERSAL GLOBAL VALUE FUND
series of
THE UNIVERSAL FUNDS
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
December__, 1999
The Universal Funds (the "Trust") is an open-end management investment
company that currently consists of two fully managed portfolios, each of which
is diversified. This Statement of Additional Information ("SAI") relates to the
Advisor Class shares of Universal Global Value Fund (the "Fund"). The other
portfolio of the Trust is described in a separate prospectus and SAI.
This SAI is not a prospectus and should be read in conjunction with the
prospectus for the Fund December __, 1999 (the "Prospectus"), which may be
obtained upon request and without charge from the Trust at the Distributor's
address and telephone number printed below. Advisor Class shares are only
offered to certain investors (see the Prospectus). The Fund also offers Class A,
B, C and I shares, which are described in a separate prospectus and SAI that may
also be obtained without charge from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc. ("IMDI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
<PAGE>
TABLE OF CONTENTS
Page #
<PAGE>
GENERAL INFORMATION
The Fund is organized as a separate, diversified portfolio of the Trust,
an open-end management investment company organized as a Massachusetts business
trust on October 6, 1999. The Fund commenced operations on December __, 1999.
Descriptions in this SAI of a particular investment practice or technique
in which the Fund may engage or a financial instrument which the Fund may
purchase are meant to describe the spectrum of investments that IMI, in its
discretion, might, but is not required to, use in managing the Fund's portfolio
assets. IMI may, in its discretion, at any time employ such practice, technique
or instrument for one or more funds but not for all funds advised by it.
Furthermore, it is possible that certain types of financial instruments or
investment techniques described herein may not be available, permissible,
economically feasible or effective for their intended purposes in some or all
markets, in which case the Fund would not use them. Certain practices,
techniques, or instruments may not be principal activities of the Fund but, to
the extent employed, could from time to time have a material impact on the
Fund's performance.
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
The Fund has its own investment objectives and policies, which are
described in the Prospectus under the captions "Summary" and "Additional
Information About Strategies and Risks." Descriptions of the Fund's policies,
strategies and investment restrictions, as well as additional information
regarding the characteristics and risks associated with the
Fund's investment techniques, are set forth below.
The Fund seeks long-term capital growth. Any income realized will be
incidental. The Fund seeks to achieve its principal objective of long-term
capital growth by investing primarily in the equity securities of companies
throughout the world. The Fund selects securities on a global basis, but may
invest a significant portion of its assets in the securities of companies in a
single country or a single industry, depending on prevailing market conditions.
Under normal conditions, the Fund invests at least 65% of its assets in equity
securities.
The investment approach of Peter Cundill & Associates (Bermuda) Ltd., the
Fund's sub-advisor, is based on a contrarian "value" philosophy. The sub-advisor
looks for securities which are trading below their estimated intrinsic value. To
determine the intrinsic value of a particular company, the sub-advisor focuses
on the balance sheet of the company rather than the income statement. In
addition to reviewing the assets, the sub-advisor considers the earnings,
dividends, prospects and management capabilities of the company. Essentially,
the sub-advisor revalues the assets and liabilities of the company to reflect
the sub-advisor's estimate of fair value. Securities are purchased where there
is a substantial discount of price to the estimate of the company's intrinsic
value. Because the approach is to look for undervalued securities, the
sub-advisor does not forecast economies or corporate earnings and does not rely
on market timing.
The Fund may invest in warrants, and securities issued on a "when-issued"
or firm commitment basis, and may engage in foreign currency exchange
transactions and enter into forward foreign currency contracts. The Fund may
also invest up to 10% of its total assets in other investment companies and up
to 15% of its net assets in illiquid securities. The Fund may not, invest more
than 5% of its total assets in restricted securities.
For temporary defensive purposes and during periods when IMI believes that
circumstances warrant, the Fund may invest without limit in U.S. Government
securities, obligations issued by domestic or foreign banks (including
certificates of deposit, time deposits and bankers' acceptances), and domestic
or foreign commercial paper (which, if issued by a corporation, must be rated
Prime-1 by Moody's or A-1 by S&P, or if unrated has been issued by a company
that at the time of investment has an outstanding debt issue rated Aaa or Aa by
Moody's or AAA or AA by S&P). The Fund may also enter into repurchase
agreements, and, for temporary or emergency purposes, may borrow up to 10% of
the value of its total assets from banks.
The Fund may purchase put and call options on stock indices, provided the
premium paid for such options does not exceed 5% of the Fund's net assets. The
Fund may also sell covered put options with respect to up to 10% of the value of
its net assets, and may write covered call options so long as not more than 25%
of the Fund's net assets is subject to being purchased upon the exercise of the
calls. For hedging purposes only, the Fund may engage in transactions in (and
options on) stock index and foreign currency futures contracts, provided that
the Fund's equivalent exposure in such contracts does not exceed 15% of its
total assets.
COMMON STOCKS
Common stock can be issued by companies to raise cash; all common stock
shares represent a proportionate ownership interest in a company. As a result,
the value of common stock rises and falls with a company's success or failure.
The market value of common stock can fluctuate significantly, with smaller
companies being particularly susceptible to price swings. Transaction costs in
smaller company stocks may also be higher than those of larger companies.
CONVERTIBLE SECURITIES
The convertible securities in which the Fund may invest include corporate
bonds, notes, debentures, preferred stock and other securities that may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. Investments in convertible securities can
provide income through interest and dividend payments as well as an opportunity
for capital appreciation by virtue of their conversion or exchange features.
Because convertible securities can be converted into equity securities, their
values will normally vary in some proportion with those of the underlying equity
securities. Convertible securities usually provide a higher yield than the
underlying equity, however, so that the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
The exchange ratio for any particular convertible security may be adjusted from
time to time due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio. Convertible debt
securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stock changes, and, therefore, also
tends to follow movements in the general market for equity securities. When the
market price of the underlying common stock increases, the price of a
convertible security tends to rise as a reflection of the value of the
underlying common stock, although typically not as much as the price of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer.
As debt securities, convertible securities are investments that provide
for a stream of income. Like all debt securities, there can be no assurance of
income or principal payments because the issuers of the convertible securities
may default on their obligations. Convertible securities generally offer lower
yields than non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, are senior in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible preferred stock
typically have lower coupon rates than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay
current income.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with investing in
larger, more established companies. For example, the securities of small or new
companies may be subject to more abrupt or erratic market movements because they
tend to be thinly traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to have limited
product lines, markets or financial resources. Transaction costs in smaller
company stocks also may be higher than those of larger companies.
DEBT SECURITIES
IN GENERAL. Investment in debt securities involves both interest rate and
credit risk. Generally, the value of debt instruments rises and falls inversely
with fluctuations in interest rates. As interest rates decline, the value of
debt securities generally increases. Conversely, rising interest rates tend to
cause the value of debt securities to decrease. Bonds with longer maturities
generally are more volatile than bonds with shorter maturities. The market value
of debt securities also varies according to the relative financial condition of
the issuer. In general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its obligations on
interest or principal payments at the time called for by the debt instrument.
INVESTMENT-GRADE DEBT SECURITIES. Bonds rated Aaa by Moody's Investors
Service, Inc. ("Moody's") and AAA by Standard & Poor's Ratings Group ("S&P") are
judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered by Moody's to be "medium grade" obligations) are
considered to have an adequate capacity to pay interest and repay principal, but
certain protective elements may be lacking (i.e., such bonds lack outstanding
investment characteristics and have some speculative characteristics). The Fund
may invest in debt securities that are given an investment-grade rating by
Moody's or S&P, and may also invest in unrated debt securities that are
considered by IMI to be of comparable quality.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations
of, or guaranteed by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct obligations of
the U.S. Treasury (such as Treasury bills, notes, and bonds) and (2) Federal
agency obligations guaranteed as to principal and interest by the U.S. Treasury
(such as GNMA certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. U.S. Government securities that are not held to
maturity are subject to variations in market value due to fluctuations in
interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. For example, GNMA certificates are such securities in
which the timely payment of principal and interest is guaranteed by the full
faith and credit of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life of the loans
typically will be substantially less because the mortgages will be subject to
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In periods
of falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the security. Conversely, rising interest
rates tend to decrease the rate of prepayments, thereby lengthening the actual
average life of the security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average life of a
particular pool. Reinvestment of prepayment may occur at higher or lower rates
than the original yield on the certificates. Due to the prepayment feature and
the need to reinvest prepayments of principal at current rates, mortgage-backed
securities can be less effective than typical bonds of similar maturities at
"locking in" yields during periods of declining interest rates, and may involve
significantly greater price and yield volatility than traditional debt
securities. Such securities may appreciate or decline in market value during
periods of declining or rising interest rates, respectively.
Securities issued by U.S. Government instrumentalities and certain Federal
agencies are neither direct obligations of nor guaranteed by the U.S. Treasury;
however, they involve Federal sponsorship in one way or another. Some are backed
by specific types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary authority of
the Treasury to purchase certain obligations of the issuer, others are supported
only by the credit of the issuing government agency or instrumentality. These
agencies and instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal
Intermediate Credit Banks, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Association, and Student Loan Marketing
Association.
ZERO COUPON BONDS. Zero coupon bonds are debt obligations issued without
any requirement for the periodic payment of interest. Zero coupon bonds are
issued at a significant discount from face value. The discount approximates the
total amount of interest the bonds would accrue and compound over the period
until maturity at a rate of interest reflecting the market rate at the time of
issuance. If the Fund holds zero coupon bonds in its portfolio, it would
recognize income currently for Federal income tax purposes in the amount of the
unpaid, accrued interest and generally would be required to distribute dividends
representing such income to shareholders currently, even though funds
representing such income would not have been received by the Fund. Cash to pay
dividends representing unpaid, accrued interest may be obtained from, for
example, sales proceeds of portfolio securities and Fund shares and from loan
proceeds. The potential sale of portfolio securities to pay cash distributions
from income earned on zero coupon bonds may result in the Fund being forced to
sell portfolio securities at a time when it might otherwise choose not to sell
these securities and when the Fund might incur a capital loss on such sales.
Because interest on zero coupon obligations is not distributed to the Fund on a
current basis, but is in effect compounded, the value of the securities of this
type is subject to greater fluctuations in response to changing interest rates
than the value of debt obligations which distribute income regularly.
FIRM COMMITMENT AGREEMENTS AND "WHEN-ISSUED" SECURITIES. New issues of
certain debt securities are often offered on a "when-issued" basis, meaning the
payment obligation and the interest rate are fixed at the time the buyer enters
into the commitment, but delivery and payment for the securities normally take
place after the date of the commitment to purchase. Firm commitment agreements
call for the purchase of securities at an agreed-upon price on a specified
future date. The Fund uses such investment techniques in order to secure what is
considered to be an advantageous price and yield to the Fund and not for
purposes of leveraging the Fund's assets. In either instance, the Fund will
maintain in a segregated account with its Custodian cash or liquid securities
equal (on a daily marked-to-market basis) to the amount of its commitment to
purchase the underlying securities.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open market. While such
purchases may often offer attractive opportunities for investment not otherwise
available on the open market, the securities so purchased are often "restricted
securities" or "not readily marketable" (i.e., they cannot be sold to the public
without registration under the Securities Act of 1933, as amended (the "1933
Act"), or the availability of an exemption from registration (such as Rule 144A)
or because they are subject to other legal or contractual delays in or
restrictions on resale). This investment practice, therefore, could have the
effect of increasing the level of illiquidity of the Fund. It is the Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of the Fund's net assets. The Trust's Board of Trustees
has approved guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between the
Fund's decision to sell a restricted or illiquid security and the point at which
the Fund is permitted or able to sell such security, the Fund might obtain a
price less favorable than the price that prevailed when it decided to sell.
Where a registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the registration
expenses. The Fund may be deemed to be an "underwriter" for purposes of the 1933
Act when selling restricted securities to the public and, in such event, the
Fund may be liable to purchasers of such securities if the registration
statement prepared by the issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, IMI
will monitor such restricted securities subject to the supervision of the Board
of Trustees. Among the factors IMI may consider in reaching liquidity decisions
relating to Rule 144A securities are: (1) the frequency of trades and quotes for
the security; (2) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
market for the security (i.e., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of the transfer).
FOREIGN SECURITIES
The securities of foreign issuers in which the Fund may invest include
non-U.S. dollar-denominated debt securities, Euro dollar securities, sponsored
and unsponsored American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs") and related depository instruments, American Depository Shares
("ADSs"), Global Depository Shares ("GDSs"), and debt securities issued, assumed
or guaranteed by foreign governments or political subdivisions or
instrumentalities thereof. Shareholders should consider carefully the
substantial risks involved in investing in securities issued by companies and
governments of foreign nations, which are in addition to the usual risks
inherent in the Fund's domestic investments.
Although IMI intends to invest the Fund's assets only in nations that are
generally considered to have relatively stable and friendly governments, there
is the possibility of expropriation, nationalization, repatriation or
confiscatory taxation, taxation on income earned in a foreign country and other
foreign taxes, foreign exchange controls (which may include suspension of the
ability to transfer currency from a given country), default on foreign
government securities, political or social instability or diplomatic
developments which could affect investments in securities of issuers in those
nations. In addition, in many countries there is less publicly available
information about issuers than is available for U.S. companies. Moreover,
foreign companies are not generally subject to uniform accounting, auditing and
financial reporting standards, and auditing practices and requirements may not
be comparable to those applicable to U.S. companies. In many foreign countries,
there is less governmental supervision and regulation of business and industry
practices, stock exchanges, brokers, and listed companies than in the United
States. Foreign securities transactions may also be subject to higher brokerage
costs than domestic securities transactions. The foreign securities markets of
many of the countries in which the Fund may invest may also be smaller, less
liquid and subject to greater price volatility than those in the United States.
In addition, the Fund may encounter difficulties or be unable to pursue legal
remedies and obtain judgment in foreign courts.
Foreign bond markets have different clearance and settlement procedures
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Further, the inability to dispose of portfolio securities due to settlement
problems could result either in losses to the Fund because of subsequent
declines in the value of the portfolio security or, if the Fund has entered into
a contract to sell the security, in possible liability to the purchaser. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters that may affect the
prices of portfolio securities. Communications between the United States and
foreign countries may be less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Moreover, individual foreign economies
may differ favorably or unfavorably from the United States economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. IMI
seeks to mitigate the risks to the Fund associated with the foregoing
considerations through investment variation and continuous professional
management.
DEPOSITORY RECEIPTS
ADRs, GDRs, ADSs, GDSs and related securities are depository instruments,
the issuance of which is typically administered by a U.S. or foreign bank or
trust company. These instruments evidence ownership of underlying securities
issued by a U.S. or foreign corporation. ADRs are publicly traded on exchanges
or over-the-counter ("OTC") in the United States. Unsponsored programs are
organized independently and without the cooperation of the issuer of the
underlying securities. As a result, information concerning the issuer may not be
as current or as readily available as in the case of sponsored depository
instruments, and their prices may be more volatile than if they were sponsored
by the issuers of the underlying securities.
EMERGING MARKETS
The Fund could have significant investments in securities traded in
emerging markets. Investors should recognize that investing in such countries
involves special considerations, in addition to those set forth above, that are
not typically associated with investing in United States securities and that may
affect the Fund's performance favorably or unfavorably.
In recent years, many emerging market countries around the world have
undergone political changes that have reduced government's role in economic and
personal affairs and have stimulated investment and growth. Historically, there
is a strong direct correlation between economic growth and stock market returns.
While this is no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental services, natural
resources, basic materials, power, telecommunications and transportation
industries) may result within the evolving economies of emerging market
countries from which the Fund and its shareholders will benefit.
Investments in companies domiciled in developing countries may be subject
to potentially higher risks than investments in developed countries. Such risks
include (i) less social, political and economic stability; (ii) a small market
for securities and/or a low or nonexistent volume of trading, which result in a
lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Fund's investment opportunities, including
restrictions on investment in issuers or industries deemed sensitive to national
interests; (iv) foreign taxation; (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for
injury to private property; (vi) the absence, until relatively recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; (vii) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries; and (viii) the possibility that
currency devaluations could adversely affect the value of the Fund's
investments. Further, many emerging markets have experienced and continue to
experience high rates of inflation.
Despite the dissolution of the Soviet Union, the Communist Party may
continue to exercise a significant role in certain Eastern European countries.
To the extent of the Communist Party's influence, investments in such countries
will involve risks of nationalization, expropriation and confiscatory taxation.
The communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of such expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, few (if any) accounting standards exist in Eastern European countries.
Finally, even though certain Eastern European currencies may be convertible into
U.S. dollars, the conversion rates may be artificial in relation to the actual
market values and may be adverse to the Fund's net asset value.
Certain Eastern European countries that do not have well-established
trading markets are characterized by an absence of developed legal structures
governing private and foreign investments and private property. In addition,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investment of foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals.
Authoritarian governments in certain Eastern European countries may
require that a governmental or quasi-governmental authority act as custodian of
the Fund's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the Investment
Company Act of 1940, as amended (the "1940 Act"), with respect to the custody of
the Fund's cash and securities, the Fund's investment in such countries may be
limited or may be required to be effected through intermediaries. The risk of
loss through governmental confiscation may be increased in such countries.
FOREIGN CURRENCIES
Investment in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
may purchase forward foreign currency contracts. Because of these factors, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. Although the Fund's custodian values the
Fund's assets daily in terms of U.S. dollars, the Fund does not intend to
convert its holdings of foreign currencies into U.S. dollars on a daily basis.
The Fund will do so from time to time, however, and investors should be aware of
the costs of currency conversion. Although foreign exchange dealers do not
charge a fee for conversion, they do realize a profit based on the difference
(the "spread") between the prices at which they are buying and selling various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer. The Fund will conduct its foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies.
Because the Fund normally will be invested in both U.S. and foreign
securities markets, changes in the Fund's share price may have a low correlation
with movements in U.S. markets. The Fund's share price will reflect the
movements of the different stock and bond markets in which it is invested (both
U.S. and foreign), and of the currencies in which the investments are
denominated. Thus, the strength or weakness of the U.S. dollar against foreign
currencies may account for part of the Fund's investment performance. U.S. and
foreign securities markets do not always move in step with each other, and the
total returns from different markets may vary significantly. In addition,
significant uncertainty surrounds the proposed introduction of the euro (a
common currency for the European Union) in January 1999 and its effect on the
value of securities denominated in local European currencies. These and other
currencies in which the Fund's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Fund.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into forward foreign currency contracts in order to
protect against uncertainty in the level of future foreign exchange rates in the
purchase and sale of securities. A forward contract is an obligation to purchase
or sell a specific currency for an agreed price at a future date (usually less
than a year), and typically is individually negotiated and privately traded by
currency traders and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.
Although foreign exchange dealers do not charge a fee for commissions, they do
realize a profit based on the difference between the price at which they are
buying and selling various currencies. Although these contracts are intended to
minimize the risk of loss due to a decline in the value of the hedged
currencies, at the same time, they tend to limit any potential gain which might
result should the value of such currencies increase.
While the Fund may enter into forward contracts to reduce currency
exchange risks, changes in currency exchange rates may result in poorer overall
performance for the Fund than if it had not engaged in such transactions.
Moreover, there may be an imperfect correlation between the Fund's portfolio
holdings of securities denominated in a particular currency and forward
contracts entered into by the Fund. An imperfect correlation of this type may
prevent the Fund from achieving the intended hedge or expose the Fund to the
risk of currency exchange loss.
The Fund may purchase currency forwards and combine such purchases with
sufficient cash or short-term securities to create unleveraged substitutes for
investments in foreign markets when deemed advantageous. The Fund may also
combine the foregoing with bond futures or interest rate futures contracts to
create the economic equivalent of an unhedged foreign bond position.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Fund if
it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transactions
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its total assets in the shares of other
investment companies. As a shareholder of an investment company, the Fund would
bear its ratable shares of the fund's expenses (which often include an
asset-based management fee). The Fund could also lose money by investing in
other investment companies, since the value of their respective investments and
the income they generate will vary daily based on prevailing market conditions.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund buys a money
market instrument and obtains a simultaneous commitment from the seller to
repurchase the instrument at a specified time and at an agreed-upon yield. Under
guidelines approved by the Board, the Fund is permitted to enter into repurchase
agreements only if the repurchase agreements are at least fully collateralized
with U.S. Government securities or other securities that IMI has approved for
use as collateral for repurchase agreements and the collateral must be
marked-to-market daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under the
above-referenced guidelines. In the unlikely event of failure of the executing
bank or broker-dealer, the Fund could experience some delay in obtaining direct
ownership of the underlying collateral and might incur a loss if the value of
the security should decline, as well as costs in disposing of the security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at maturity). In
addition to investing in certificates of deposit and bankers' acceptances, the
Fund may invest in time deposits in banks or savings and loan associations. Time
deposits are generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of deposit, time
deposits, and bankers' acceptance are limited to obligations of (i) banks having
total assets in excess of $1 billion, (ii) U.S. banks which do not meet the $1
billion asset requirement, if the principal amount of such obligation is fully
insured by the Federal Deposit Insurance Corporation (the "FDIC"), (iii) savings
and loan association which have total assets in excess of $1 billion and which
are members of the FDIC, and (iv) foreign banks if the obligation is, in IMI's
opinion, of an investment quality comparable to other debt securities which may
be purchased by the Fund. The Fund's investments in certificates of deposit of
savings associations are limited to obligations of Federal and state-chartered
institutions whose total assets exceed $1 billion and whose deposits are insured
by the FDIC.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by bank holding companies, corporations and finance companies.
The Fund may invest in commercial paper that is rated Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or A-1 by Standard & Poor's Corporation
("S&P") or, if not rated by Moody's or S&P, is issued by companies having an
outstanding debt issue rated Aaa or Aa by Moody's or AAA or AA by S&P.
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset value of any
increase or decrease in the value of the Fund's portfolio securities. Money
borrowed will be subject to interest costs (which may include commitment fees
and/or the cost of maintaining minimum average balances). Although the principal
of the Fund's borrowings will be fixed, the Fund's assets may change in value
during the time a borrowing is outstanding, thus increasing exposure to capital
risk.
WARRANTS
The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. However, prices of warrants do
not necessarily move in a tandem with the prices of the underlying securities,
and are, therefore, considered speculative investments. Warrants pay no
dividends and confer no rights other than a purchase option. Thus, if a warrant
held by the Fund was not exercised by the date of its expiration, the Fund would
lose the entire purchase price of the warrant.
OPTIONS TRANSACTIONS
IN GENERAL. A call option is a short-term contract (having a duration of
less than one year) pursuant to which the purchaser, in return for the premium
paid, has the right to buy the security underlying the option at the specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium, has the obligation, upon exercise of the
option, to deliver the underlying security against payment of the exercise
price. A put option is a similar contract pursuant to which the purchaser, in
return for the premium paid, has the right to sell the security underlying the
option at the specified exercise price at any time during the term of the
option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option, to buy the underlying security at the
exercise price. The premium paid by the purchaser of an option will reflect,
among other things, the relationship of the exercise price to the market price
and volatility of the underlying security, the time remaining to expiration of
the option, supply and demand, and interest rates.
If the writer of a U.S. exchange-traded option wishes to terminate the
obligation, the writer may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the writer's position will be
canceled by the Options Clearing Corporation. However, a writer may not effect a
closing purchase transaction after it has been notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate his
or her position by effecting a "closing sale transaction." This is accomplished
by selling an option of the same series as the option previously purchased.
There is no guarantee that either a closing purchase or a closing sale
transaction can be effected at any particular time or at any acceptable price.
If any call or put option is not exercised or sold, it will become worthless on
its expiration date. Closing purchase transactions are not available for OTC
transactions. In order to terminate an obligations in an OTC transaction, the
Fund would need to negotiate directly with the counterparty.
The Fund will realize a gain (or a loss) on a closing purchase transaction
with respect to a call or a put previously written by the Fund if the premium,
plus commission costs, paid by the Fund to purchase the call or the put is less
(or greater) than the premium, less commission costs, received by the Fund on
the sale of the call or the put. A gain also will be realized if a call or a put
that the Fund has written lapses unexercised, because the Fund would retain the
premium. Any such gains (or losses) are considered short-term capital gains (or
losses) for Federal income tax purposes. Net short-term capital gains, when
distributed by the Fund, are taxable as ordinary income. See "Taxation."
The Fund will realize a gain (or a loss) on a closing sale transaction
with respect to a call or a put previously purchased by the Fund if the premium,
less commission costs, received by the Fund on the sale of the call or the put
is greater (or less) than the premium, plus commission costs, paid by the Fund
to purchase the call or the put. If a put or a call expires unexercised, it will
become worthless on the expiration date, and the Fund will realize a loss in the
amount of the premium paid, plus commission costs. Any such gain or loss will be
long-term or short-term gain or loss, depending upon the Fund's holding period
for the option.
Exchange-traded options generally have standardized terms and are issued
by a regulated clearing organization (such as the Options Clearing Corporation),
which, in effect, guarantees the completion of every exchange-traded option
transaction. In contrast, the terms of OTC options are negotiated by the Fund
and its counterparty (usually a securities dealer or a financial institution)
with no clearing organization guarantee. When the Fund purchases an OTC option,
it relies on the party from whom it has purchased the option (the
"counterparty") to make delivery of the instrument underlying the option. If the
counterparty fails to do so, the Fund will lose any premium paid for the option,
as well as any expected benefit of the transaction. Accordingly, IMI will assess
the creditworthiness of each counterparty to determine the likelihood that the
terms of the OTC option will be satisfied.
WRITING OPTIONS ON INDIVIDUAL. The Fund may write (sell) covered call
options on the Fund's securities in an attempt to realize a greater current
return than would be realized on the securities alone. The Fund may also write
covered call options to hedge a possible stock or bond market decline (only to
the extent of the premium paid to the Fund for the options). In view of the
investment objectives of the Fund, it generally would write call options only in
circumstances where the investment adviser to the Fund does not anticipate
significant appreciation of the underlying security in the near future or has
otherwise determined to dispose of the security.
A "covered" call option means generally that so long as the Fund is
obligated as the writer of a call option, the Fund will (i) own the underlying
securities subject to the option, or (ii) have the right to acquire the
underlying securities through immediate conversion or exchange of convertible
preferred stocks or convertible debt securities owned by the Fund. Although the
Fund receives premium income from these activities, any appreciation realized on
an underlying security will be limited by the terms of the call option. The Fund
may purchase call options on individual securities only to effect a "closing
purchase transaction."
As the writer of a call option, the Fund receives a premium for
undertaking the obligation to sell the underlying security at a fixed price
during the option period, if the option is exercised. So long as the Fund
remains obligated as a writer of a call option, it forgoes the opportunity to
profit from increases in the market price of the underlying security above the
exercise price of the option, except insofar as the premium represents such a
profit (and retains the risk of loss should the value of the underlying security
decline).
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES. The Fund may purchase a put
option on an underlying security owned by the Fund as a defensive technique in
order to protect against an anticipated decline in the value of the security.
The Fund, as the holder of the put option, may sell the underlying security at
the exercise price regardless of any decline in its market price. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs that the Fund must pay. These costs will reduce any profit the
Fund might have realized had it sold the underlying security instead of buying
the put option. The premium paid for the put option would reduce any capital
gain otherwise available for distribution when the security is eventually sold.
The purchase of put options will not be used by the Fund for leverage purposes.
The Fund may also purchase a put option on an underlying security that it
owns and at the same time write a call option on the same security with the same
exercise price and expiration date. Depending on whether the underlying security
appreciates or depreciates in value, the Fund would sell the underlying security
for the exercise price either upon exercise of the call option written by it or
by exercising the put option held by it. The Fund would enter into such
transactions in order to profit from the difference between the premium received
by the Fund for the writing of the call option and the premium paid by the Fund
for the purchase of the put option, thereby increasing the Fund's current
return. The Fund may write (sell) put options on individual securities only to
effect a "closing sale transaction."
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, but, as
long as its obligation as a writer continues, has retained the risk of loss
should the price of the underlying security decline. The writer of a U.S. option
has no control over the time when it may be required to fulfill its obligation
as a writer of the option. Once an option writer has received an exercise
notice, it cannot effect a closing purchase transaction in order to terminate
its obligation under the option and must deliver the underlying securities (or
cash in the case of an index option) at the exercise price. If a put or call
option purchased by the Fund is not sold when it has remaining value, and if the
market price of the underlying security (or index), in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security (or index) is purchased to hedge against price movements in a related
security (or securities), the price of the put or call option may move more or
less than the price of the related security (or securities). In this regard,
there are differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objective.
There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, the Fund may be unable to close
out a position. Finally, trading could be interrupted, for example, because of
supply and demand imbalances arising from a lack of either buyers or sellers, or
the options exchange could suspend trading after the price has risen or fallen
more than the maximum amount specified by the exchange. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty or by
a transaction in the secondary market, if any such market exists. Transfer of an
OTC option is usually prohibited absent the consent of the original
counterparty. There is no assurance that the Fund will be able to close out an
OTC option position at a favorable price prior to its expiration. An OTC
counterparty may fail to deliver or to pay, as the case may be. In the event of
insolvency of the counterparty, the Fund might be unable to close out an OTC
option position at any time prior to its expiration. Although the Fund may be
able to offset to some extent any adverse effects of being unable to liquidate
an option position, the Fund may experience losses in some cases as a result of
such inability.
When conducted outside the U.S., options transactions may not be regulated
as rigorously as in the U.S., may not involve a clearing mechanism and related
guarantees, and are subject to the risk of governmental actions affecting
trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
The Fund's options activities also may have an impact upon the level of
its portfolio turnover and brokerage commissions. See "Portfolio Turnover."
The Fund's success in using options techniques depends, among other
things, on IMI's ability to predict accurately the direction and volatility of
price movements in the options and securities markets, and to select the proper
type, timing of use and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
IN GENERAL. The Fund may enter into futures contracts and options on
futures contracts for hedging purposes. A futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a commodity at a specified price and time. When a purchase or sale of a
futures contract is made by the Fund, it is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of cash or liquid
securities ("initial margin"). The margin required for a futures contract is set
by the exchange on which the contract is traded and may be modified during the
term of the contract. The initial margin is in the nature of a performance bond
or good faith deposit on the futures contract which is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied. A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, the Fund
will mark-to-market its open futures position.
The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery of offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
When purchasing a futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund, or, if lower, may cover the difference with cash or short-term
securities.
When selling a futures contract, the Fund will maintain with its Custodian
in a segregated account (and mark-to-market on a daily basis) cash or liquid
securities that, when added to the amounts deposited with an FCM as margin, are
equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Fund's custodian).
When selling a call option on a futures contract, the Fund will maintain
with its Custodian in a segregated account (and mark-to-market on a daily basis)
cash or liquid securities that, when added to the amounts deposited with an FCM
as margin, equal the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by entering into a
long position in the same futures contract at a price no higher than the strike
price of the call option, by owning the instruments underlying the futures
contract, or by holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike price of the
call option sold by the Fund, or covering the difference if the price is higher.
When selling a put option on a futures contract, the Fund will maintain
with its Custodian (and mark-to-market on a daily basis) cash or liquid
securities that equal the purchase price of the futures contract less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund, or, if lower, the Fund may hold securities to
cover the difference.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. The Fund may
engage in foreign currency futures contracts and related options transactions
for hedging purposes. A foreign currency futures contract provides for the
future sale by one party and purchase by another party of a specified quantity
of a foreign currency at a specified price and time.
An option on a foreign currency futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon the exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.
The Fund may purchase call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar (or another currency) in
relation to a foreign currency in which portfolio securities of the Fund may be
denominated. A call option on a foreign currency gives the buyer the right to
buy, and a put option the right to sell, a certain amount of foreign currency at
a specified price during a fixed period of time. The Fund may invest in options
on foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
In those situations where foreign currency options may not be readily
purchased (or where such options may be deemed illiquid) in the currency in
which the hedge is desired, the hedge may be obtained by purchasing an option on
a "surrogate" currency, i.e., a currency where there is tangible evidence of a
direct correlation in the trading value of the two currencies. A surrogate
currency's exchange rate movements parallel that of the primary currency.
Surrogate currencies are used to hedge an illiquid currency risk, when no liquid
hedge instruments exist in world currency markets for the primary currency.
The Fund will only enter into futures contracts and futures options which
are standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity or quoted on an automated quotation system. The Fund will not
enter into a futures contract or purchase an option thereon if, immediately
thereafter, the aggregate initial margin deposits for futures contracts held by
the Fund plus premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," would exceed 5% of the
liquidation value of the Fund's portfolio (or the Fund's net asset value), after
taking into account unrealized profits and unrealized losses on any such
contracts the Fund has entered into. A call option is "in-the-money" if the
value of the futures contract that is the subject of the option exceeds the
exercise price. A put option is "in-the-money" if the exercise price exceeds the
value of the futures contract that is the subject of the option. For additional
information about margin deposits required with respect to futures contracts and
options thereon, see "Futures Contracts and Options on Futures Contracts."
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund's portfolio securities being hedged. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when
the Fund seeks to close out a futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, there can be no assurance that an active secondary market will
continue to exist.
Currency futures contracts and options thereon may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar
transactions in the United States; may not involve a clearing mechanism and
related guarantees; and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such
position also could be adversely affected by (i) other complex foreign
political, legal and economic factors, (ii) lesser availability than in the
United States of data on which to make trading decisions, (iii) delays in the
Fund's ability to act upon economic events occurring in foreign markets during
non business hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, and (v) lesser trading volume.
SECURITIES INDEX FUTURES CONTRACTS
The Fund may enter into securities index futures contracts as an efficient
means of regulating the Fund's exposure to the equity markets. The Fund will not
engage in transactions in futures contracts for speculation, but only as a hedge
against changes resulting from market conditions in the values of securities
held in the Fund's portfolio or which it intends to purchase. An index futures
contract is a contract to buy or sell units of an index at a specified future
date at a price agreed upon when the contract is made. Entering into a contract
to buy units of an index is commonly referred to as purchasing a contract or
holding a long position in the index. Entering into a contract to sell units of
an index is commonly referred to as selling a contract or holding a short
position. The value of a unit is the current value of the stock index. For
example, the S&P 500 Index is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange (the "Exchange"). The S&P 500
Index assigns relative weightings to the 500 common stocks included in the
Index, and the Index fluctuates with changes in the market values of the shares
of those common stocks. In the case of the S&P 500 Index, contracts are to buy
or sell 500 units. Thus, if the value of the S&P 500 Index were $150, one
contract would be worth $75,000 (500 units x $150). The index futures contract
specifies that no delivery of the actual securities making up the index will
take place. Instead, settlement in cash must occur upon the termination of the
contract, with the settlement being the difference between the contract price
and the actual level of the stock index at the expiration of the contract. For
example, if the Fund enters into a futures contract to buy 500 units of the S&P
500 Index at a specified future date at a contract price of $150 and the S&P 500
Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will lose $2,000 (500 units x
loss of $4).
RISKS OF SECURITIES INDEX FUTURES. The Fund's success in using hedging
techniques depends, among other things, on IMI's ability to predict correctly
the direction and volatility of price movements in the futures and options
markets as well as in the securities markets and to select the proper type, time
and duration of hedges. The skills necessary for successful use of hedges are
different from those used in the selection of individual stocks.
The Fund's ability to hedge effectively all or a portion of its securities
through transactions in index futures (and therefore the extent of its gain or
loss on such transactions) depends on the degree to which price movements in the
underlying index correlate with price movements in the Fund's securities.
Inasmuch as such securities will not duplicate the components of an index, the
correlation probably will not be perfect. Consequently, the Fund will bear the
risk that the prices of the securities being hedged will not move in the same
amount as the hedging instrument. This risk will increase as the composition of
the Fund's portfolio diverges from the composition of the hedging instrument.
Although the Fund intends to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market will exist at a time when the Fund seeks to close a particular option or
futures position. Trading could be interrupted, for example, because of supply
and demand imbalances arising from a lack of either buyers or sellers. In
addition, the futures exchanges may suspend trading after the price has risen or
fallen more than the maximum amount specified by the exchange. In some cases,
the Fund may experience losses as a result of its inability to close out a
position, and it may have to liquidate other investments to meet its cash needs.
Although some index futures contracts call for making or taking delivery
of the underlying securities, generally these obligations are closed out prior
to delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund generally realizes
a capital gain, or if it is more, the Fund generally realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Fund generally realizes a capital gain, or if it is less, the Fund
generally realizes a capital loss. The transaction costs must also be included
in these calculations.
The Fund will only enter into index futures contracts or futures options
that are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. The Fund
will use futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the CFTC.
When purchasing an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with a futures commission merchant ("FCM")
as margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high as or higher than the price of the contract
held by the Fund.
When selling an index futures contract, the Fund will maintain with its
Custodian (and mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in cash or liquid
assets in a segregated account with the Fund's custodian).
COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple currency transactions (including forward currency contracts) and some
combination of futures, options, and currency transactions ("component"
transactions), instead of a single transaction, as part of a single or combined
strategy when, in the opinion of IMI, it is in the best interests of the Fund to
do so. A combined transaction will usually contain elements of risk that are
present in each of its component transactions. Although combined transactions
are normally entered into based on IMI's judgment that the combined strategies
will reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the management objective.
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in the "Summary" section of
the Prospectus, together with the investment restrictions set forth below, are
fundamental policies of the Fund and may not be changed without the approval of
a majority of the outstanding voting shares of the Fund. The Fund has adopted
the following fundamental investment restrictions:
(i) The Fund has elected to be classified as a diversified series of an
open-end investment company.
(ii) The Fund will not borrow money, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iii) The Fund will not issue senior securities, except as permitted under
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
(iv) The Fund will not engage in the business of underwriting securities
issued by others, except to the extent that the Fund may be deemed to
be an underwriter in connection with the disposition of portfolio
securities.
(v) The Fund will not purchase or sell real estate (which term does not
include securities of companies that deal in real estate or mortgages
or investments secured by real estate or interests therein), except
that the Fund may hold and sell real estate acquired as a result of
the Fund's ownership of securities.
(vi) The Fund will not purchase physical commodities or contracts relating
to physical commodities, although the Fund may invest in commodities
futures contracts and options thereon to the extent permitted by its
Prospectus.
(vii) The Fund will not make loans to other persons, except (a) loans of
portfolio securities, and (b) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
(viii) The Fund will not concentrate its investments in a particular
industry, as the term "concentrate" is interpreted in connection with
the Investment Company Act of 1940, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to
time.
ADDITIONAL RESTRICTIONS
The Fund has adopted the following additional restrictions, which are not
fundamental and which may be changed without shareholder approval, to the extent
permitted by applicable law, regulation or regulatory policy.
Under these restrictions, the Fund may not:
(i) purchase or sell real estate limited partnership interests;
(ii) purchase or sell interests in oil, gas or mineral leases (other than
securities of companies that invest in or sponsor such programs);
(iii) invest in oil, gas and/or mineral exploration or development programs;
(iv) purchase securities on margin, except such short-term credits as are
necessary for the clearance of transactions, but the Fund may make
margin deposits in connection with transactions in options, futures
and options on futures;
(v) make investments in securities for the purpose of exercising control
over or management of the issuer;
(vi) participate on a joint or a joint and several basis in any trading
account in securities. The "bunching" of orders of the Fund and of
other accounts under the investment management of the Manager for the
sale or purchase of portfolio securities shall not be considered
participation in a joint securities trading account;
(vii) borrow amounts in excess of 10% of its total assets, taken at the
lower of cost or market value, and then only from banks as a temporary
measure for extraordinary or emergency purposes. All borrowings will
be repaid before any additional investments are made;
(viii) purchase any security if, as a result, the Fund would then have more
than 5% of its total assets (taken at current value) invested in
securities restricted as to disposition under the Federal securities
laws; or
(ix) purchase securities of another investment company, except in
connection with a merger, consolidation, reorganization or acquisition
of assets, and except that the Fund may invest in securities of other
investment companies subject to the restrictions in Section 12(d)(1)
of the Investment Company Act of 1940 (the "1940 Act").
Whenever an investment objective, policy or restriction of the Fund
described in this Prospectus or in the SAI states a maximum percentage of assets
that may be invested in a security or other asset, or describes a policy
regarding quality standards, that percentage limitation or standard will, unless
otherwise indicated, apply to the Fund only at the time a transaction takes
place. Thus, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in the percentage that results from circumstances
not involving any affirmative action by the Fund will not be considered a
violation.
PORTFOLIO TURNOVER
The Fund purchases securities that are believed by IMI to have above
average potential for capital appreciation. Common stocks are disposed of in
situations where it is believed that potential for such appreciation has
lessened or that other common stocks have a greater potential. Therefore, the
Fund may purchase and sell securities without regard to the length of time the
security is to be, or has been, held. A change in securities held by the Fund is
known as "portfolio turnover" and may involve the payment by the Fund of dealer
markup or underwriting commission and other transaction costs on the sale of
securities, as well as on the reinvestment of the proceeds in other securities.
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently completed
fiscal year by the monthly average of the value of the portfolio securities
owned by the Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the time of
acquisition were one year or less are excluded.
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed under the direction of
the Trustees. Information about the Fund's investment manager and other service
providers appears in the "Investment Advisory and Other Services" section,
below.
TRUSTEES AND OFFICERS
The Board of Trustees of the Trust is responsible for the overall
management of the Fund, including general supervision and review of the Fund's
investment activities. The Board, in turn, elects the officers who are
responsible for administering the Fund's day-to-day operations.
The Trustees and Executive Officers of the Trust, their business addresses
and principal occupations during the past five years are:
NAME, ADDRESS, AGE POSITION WITH BUSINESS AFFILIATIONS AND PRINCIPAL
THE TRUST OCCUPATIONS
* Deemed to be an "interested person" of the Trust, as defined under the
1940 Act.
As of the date of this SAI, the Officers and Trustees of the Trust as a
group owned no Fund shares.
<PAGE>
COMPENSATION TABLE
NAME/ POSITION AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM TRUST* BENEFITS BENEFITS FROM TRUST AND
ACCRUED AS A UPON FUND COMPLEX
PART OF FUND RETIREMENT PAID TO
EXPENSES TRUSTEES**
* Estimated for the Fund's initial fiscal year ending December 31, 1999.
** Estimated for the Fund's initial fiscal year ending December 31, 1999. The
Fund complex consists of The Universal Funds, Mackenzie Solutions and Ivy Fund.
During the fiscal year ending December 31, 1998, none of the listed Trustees
received compensation from Ivy Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. Employees of IMI are permitted
to make personal securities transactions, subject to the requirements and
restrictions set forth in IMI's Code of Ethics and Business Conduct Policy (the
"Code of Ethics"). The Code of Ethics is designed to identify and address
certain conflicts of interest between personal investment activities and the
interests of investment advisory clients such as the Fund. Among other things,
the Code of Ethics, which generally complies with standards recommended by the
Investment Company Institute's Advisory Group on Personal Investing, prohibits
certain types of transactions absent prior approval, applies to portfolio
managers, traders, research analysts and others involved in the investment
advisory process, and imposes time periods during which personal transactions
may not be made in certain securities, and requires the submission of duplicate
broker confirmations and monthly reporting of securities transactions.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Boca Raton, Florida 33432, provides investment advisory and
business management services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Advisory Agreement"). The Advisory Agreement
was approved by the sole shareholder of the Fund on _________, 1999. Before
that, the Advisory Agreement was approved at a meeting held on __________, 1999
by the Fund's Board of Trustees, including a majority of the Trustees who are
neither "interested persons" (as defined in the 1940 Act) of the Fund nor have
any direct or indirect financial interest in the operation of the Fund's
distribution plan (see "Distribution Services") or in any related agreement
(referred to herein as the "Independent Trustees").
IMI is a wholly owned subsidiary of Mackenzie Investment Management Inc.
("MIMI"), Via Mizner Financial Plaza, 700 South Federal Highway, Boca Raton,
Florida 33432, a Delaware corporation with approximately 10% of its outstanding
common stock listed on the Toronto Stock Exchange ("TSE"). MIMI is a subsidiary
of Mackenzie Financial Corporation ("MFC"), 150 Bloor Street West, Toronto,
Ontario, Canada, a public corporation organized under the laws of Ontario whose
shares are listed for trading on the TSE. MFC is registered in Ontario as a
mutual fund dealer. IMI currently acts as manager and investment adviser to the
other series of The Universal Funds, the five series of Mackenzie Solutions and
the nineteen series of Ivy Fund.
The Advisory Agreement obligates IMI to make investments for the accounts
of the Fund in accordance with its best judgment and within the investment
objectives and restrictions set forth in the Prospectus, the 1940 Act and the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to regulated investment companies, and subject to policy decisions
adopted by the Trustees. Under the Advisory Agreement, IMI is also obligated to
(1) coordinate with the Fund's Custodian and monitor the services it provides to
the Fund; (2) coordinate with and monitor any other third parties furnishing
services to the Fund; (3) provide the Fund with necessary office space,
telephones and other communications facilities as needed; (4) provide the
services of individuals competent to perform administrative and clerical
functions that are not performed by employees or other agents engaged by the
Fund or by IMI acting in some other capacity pursuant to a separate agreement or
arrangements with the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Fund as may be required by applicable
Federal or state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of the Fund to
serve in such capacities; and (7) take such other action with respect to the
Fund, upon their approval, as may be required by applicable law, including
without limitation the rules and regulations of the Securities and Exchange
Commission (the "SEC") and of state securities commissions and other regulatory
agencies.
The Fund pays IMI a fee for its services under the Advisory Agreement at
an annual rate of 1.00% of the Fund's average net assets. The Fund is also
responsible for the following expenses: (1) the fees and expenses of the Fund's
Independent Trustees; (2) the salaries and expenses of any of the Fund's
officers or employees who are not affiliated with IMI; (3) interest expenses;
(4) taxes and governmental fees, including any original issue taxes or transfer
taxes applicable to the sale or delivery of shares or certificates therefor; (5)
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities; (6) the expenses of registering and qualifying shares for
sale with the SEC and with various state securities commissions; (7) accounting
and legal costs; (8) insurance premiums; (9) fees and expenses of the Fund's
Custodian and Transfer Agent and any related services; (10) expenses of
obtaining quotations of portfolio securities and of pricing shares; (11)
expenses of maintaining the Fund's legal existence and of shareholders'
meetings; (12) expenses of preparation and distribution to existing shareholders
of periodic reports, proxy materials and prospectuses; and (13) fees and
expenses of membership in industry organizations.
SUB-ADVISOR
Peter Cundill & Associates (Bermuda) Ltd. ("Cundill"), through its
subsidiary Cundill Investment Research Limited, located at Suite 1200, Sun Life
Plaza, 1100 Melville Street, Vancouver, B.C. V6E 4A6, serves as Sub-Advisor to
the Fund pursuant to a subadvisory agreement with IMI (the "Subadvisory
Agreement"). The Subadvisory Agreement was approved by the sole shareholder of
the Fund on __________, 1999. Before that, the Subadvisory Agreement was
approved at a meeting held on ________, 1999 by the Fund's Board of Trustees,
including a majority of the Independent Trustees. For its services, Cundill
receives a fee from the Advisor that is equal, on an annual basis, to .50% of
the Fund's average net assets.
The Trust and IMI intend to seek an exemptive order from the SEC that will
permit IMI, subject to approval by the Board of Trustees, to replace or add
subadvisers and enter into sub-advisory agreements with these subadvisers
without the approval of the Fund's shareholders, as normally would be required
under the 1940 Act. If granted, such relief would require shareholder
notification in the event of any change in subadvisers. The relief would also
prohibit IMI from entering into a sub-advisory agreement with any subadviser
that is an "affiliated person," as defined in the 1940 Act, of the Trust or IMI,
other than by reason of serving as a subadviser to the Fund, without shareholder
approval. In addition, whenever a subadviser is hired or fired, IMI would be
required to provide the Board of Trustees with information showing the expected
impact on IMI's profitability and to report such impact quarterly.
Each subadviser's fees will be paid by IMI out of the advisory fees that
it receives from each of the Funds. Fees paid to a subadviser if the Fund
employs multiple subadvisers will depend upon the fee rate negotiated with IMI
and upon the percentage of the Fund's assets allocated to that subadviser by
IMI, which may vary from time to time. Thus, the basis for fees paid to any such
subadviser will not be constant, and the relative amounts of fees paid to the
various subadvisers of the Fund will fluctuate. These internal fluctuations,
however, will not affect the total advisory fees paid by the Fund, which will
remain fixed on the terms described above. IMI may, however, determine in its
discretion to waive a portion of its fee if internal fluctuations in the fee to
be paid to the subadvisers results in excess profit to IMI. Because IMI will pay
each subadviser's fees out of its own fees from the Fund, there will not be any
"duplication" of advisory fees paid by the Fund.
Shareholders should recognize, however, that in engaging new subadvisers
and entering into sub-advisory agreements, IMI will negotiate fees with those
subadvisers and, because these fees are paid by IMI and not directly by the
Fund, any fee reduction negotiated by IMI may inure to IMI's benefit and any
increase will inure to its detriment. The fee paid to IMI by the Fund and the
fees paid to the subadvisers by IMI are considered by the Board in approving the
Fund's advisory and sub-advisory arrangements. Any change in fees paid by a Fund
to IMI would require shareholder approval.
TERM AND TERMINATION OF ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT
The initial term of the Advisory Agreement is two years from ________,
1999. The initial term of the Subadvisory Agreement is two years from _________,
1999. Each Agreement will continue in effect with respect to the Fund from year
to year, or for more than the initial period, as the case may be, only so long
as such continuance is specifically approved at least annually (i) by the vote
of a majority of the Independent Trustees and (ii) either (a) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund or (b) by the vote of a majority of the entire Board. If the question
of continuance of either Agreement (or adoption of any new agreement) is
presented to shareholders, continuance (or adoption) shall occur only if
approved by the affirmative vote of a majority of the outstanding voting
securities of the Fund. (See "Capitalization and Voting Rights.")
Each Agreement may be terminated with respect to the Fund at any time,
without payment of any penalty, by the vote of a majority of the Board, or by a
vote of a majority of the outstanding voting securities of the Fund, on 60 days'
written notice to IMI, or by IMI on 60 days' written notice to the Trust. The
Advisory Agreement shall terminate automatically in the event of its assignment.
DISTRIBUTION SERVICES
Ivy Mackenzie Distributors, Inc. ("IMDI"), a wholly owned subsidiary of
MIMI, serves as the exclusive distributor of the Fund's shares pursuant to a
Distribution Agreement with the Fund dated ________, 1999 (the "Distribution
Agreement"). The Board approved the Distribution Agreement on __________, 1999.
IMDI distributes shares of the Fund through broker-dealers who are members of
the National Association of Securities Dealers, Inc. and who have executed
dealer agreements with IMDI. IMDI distributes shares of the Fund continuously,
but reserves the right to suspend or discontinue distribution on that basis.
IMDI is not obligated to sell any specific amount of Fund shares.
The Fund has authorized IMDI to accept purchase and redemption orders on
its behalf. IMDI is also authorized to designate other intermediaries to accept
purchase and redemption orders on the Fund's behalf. The Fund will be deemed to
have received a purchase or redemption order when an authorized intermediary or,
if applicable, an intermediary's authorized designee, accepts the order. Client
orders will be priced at the Fund's Net Asset Value next computed after an
authorized intermediary or the intermediary's authorized designee accepts them.
Under the Distribution Agreement, the Fund bears, among other expenses,
the expenses of registering and qualifying its shares for sale under federal and
state securities laws and preparing and distributing to existing shareholders
periodic reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments under the
Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for the Fund for
successive one-year periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Independent
Trustees, cast in person at a meeting called for that purpose and by the vote of
either a majority of the entire Board or a majority of the outstanding voting
securities of the Fund. The Distribution Agreement may be terminated with
respect to the Fund at any time, without payment of any penalty, by IMDI on 60
days' written notice to the Fund or by the Fund by vote of either a majority of
the outstanding voting securities of the Fund or a majority of the Independent
Trustees on 60 days' written notice to IMDI. The Distribution Agreement shall
terminate automatically in the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule 18f-3 under
the 1940 Act, which permits a registered open-end investment company to issue
multiple classes of shares in accordance with a written plan approved by the
investment company's board of directors and filed with the SEC. At a meeting
held on _________, 1999, the Trustees adopted a Rule 18f-3 plan on behalf of the
Fund. The key features of the Rule 18f-3 plan are as follows: (i) shares of each
class of the Fund represent an equal pro rata interest in the Fund and generally
have identical voting, dividend, liquidation, and other rights, preferences,
powers, restrictions, limitations, qualifications, terms and conditions, except
that each class bears certain class-specific expenses and has separate voting
rights on certain matters that relate solely to that class or in which the
interests of shareholders of one class differ from the interests of shareholders
of another class and (ii) the Fund's Class B shares will convert automatically
into Class A shares of the Fund after a period of eight years, based on the
relative net asset value of such shares at the time of conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown Brothers Harriman
& Co. (the "Custodian"), a private bank and member of the principal securities
exchanges, located at 40 Water Street, Boston, Massachusetts 02109 (the
"Custodian"), maintains custody of the Fund's assets. Rules adopted under the
1940 Act permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities depositories. Pursuant
to those rules, the Custodian has entered into subcustodial agreements for he
holding of the Fund's foreign securities. With respect to he Fund, the Custodian
may receive, as partial payment for its services to the Fund, a portion of the
Trust's brokerage business, subject to its ability to provide best price and
execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides certain
accounting and pricing services for the Fund. As compensation for those
services, the Fund pays MIMI a monthly fee plus out-of-pocket expenses as
incurred. The monthly fee is based upon the net assets of the Fund at the
preceding month end at the following rates: $1,250 when net assets are $10
million and under; $2,500 when net assets are over $10 million to $40 million;
$5,000 when net assets are over $40 million to $75 million; and $6,500 when net
assets are over $75 million. As of the date of this SAI, no payments have been
made under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service Agreement, Ivy
Mackenzie Services Corp. ("IMSC"), a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. Under the Agreement, the Fund pays a monthly fee at
an annual rate of $20.00 for each open Class A, Class B, Class C, and Advisor
Class account. The Fund pays $10.25 per open Class I account. In addition, the
Fund pays a monthly fee at an annual rate of $4.58 per account that is closed
plus certain out-of-pocket expenses. As of the date of this SAI, the Fund had
made no payments for transfer agency services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such broker-dealers a
per account fee for each open account within the omnibus account, or a fixed
rate (e.g., .10%) fee, based on the average daily net asset value of the omnibus
account (or a combination thereof). As of the date of this SAI, no payments have
been made with respect to the provision of these services for the Fund.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides certain
administrative services to the Fund. As compensation for these services, the
Fund (except with respect to its Class I shares) pays MIMI a monthly fee at the
annual rate of 0.10% of the Fund's average daily net assets. The Fund pays MIMI
a monthly fee at the annual rate of 0.01% of its average daily net assets for
Class I shares.
AUDITORS
[ ], independent certified public accountants, have been selected as
auditors for the Fund. The audit services performed by [ ] include audits of the
annual financial statements of the Fund. Other services provided principally
relate to filings with the SEC and the preparation of the Fund's tax returns.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the Board, IMI
and/or Cundill places orders for the purchase and sale of the Fund's portfolio
securities. All portfolio transactions are effected at the best price and
execution obtainable. Purchases and sales of debt securities are usually
principal transactions and therefore, brokerage commissions are usually not
required to be paid by the Fund for such purchases and sales (although the price
paid generally includes undisclosed compensation to the dealer). The prices paid
to underwriters of newly-issued securities usually include a concession paid by
the issuer to the underwriter, and purchases of after-market securities from
dealers normally reflect the spread between the bid and asked prices. In
connection with OTC transactions, IMI and/or Cundill attempts to deal directly
with the principal market makers, except in those circumstances where IMI and/or
Cundill believes that a better price and execution are available elsewhere.
IMI and/or Cundill selects broker-dealers to execute transactions and
evaluates the reasonableness of commissions on the basis of quality, quantity,
and the nature of the firms' professional services. Commissions to be charged
and the rendering of investment services, including statistical, research, and
counseling services by brokerage firms, are factors to be considered in the
placing of brokerage business. The types of research services provided by
brokers may include general economic and industry data, and information on
securities of specific companies. Research services furnished by brokers through
whom the Trust effects securities transactions may be used by IMI and/or Cundill
in servicing all of its accounts. In addition, not all of these services may be
used by IMI and/or Cundill in connection with the services it provides to the
Fund or the Trust. IMI and/or Cundill may consider sales of shares of other IMI
or Cundill managed funds as a factor in the selection of broker-dealers and may
select broker-dealers who provide it with research services. IMI and/or Cundill
will not, however, execute brokerage transactions other than at the best price
and execution.
The Fund may, under some circumstances, accept securities in lieu of cash
as payment for Fund shares. The Fund will accept securities only to increase its
holdings in a portfolio security or to take a new portfolio position in a
security that IMI and/or Cundill deems to be a desirable investment for the
Fund. While no minimum has been established, it is expected that the Fund will
not accept securities having an aggregate value of less than $1 million. The
Trust may reject in whole or in part any or all offers to pay for the Fund
shares with securities and may discontinue accepting securities as payment for
the Fund shares at any time without notice. The Trust will value accepted
securities in the manner and at the same time provided for valuing portfolio
securities of the Fund, and the Fund shares will be sold for net asset value
determined at the same time the accepted securities are valued. The Trust will
only accept securities delivered in proper form and will not accept securities
subject to legal restrictions on transfer. The acceptance of securities by the
Trust must comply with the applicable laws of certain states.
CAPITALIZATION AND VOTING RIGHTS
The capitalization of the Fund consists of an unlimited number of shares
of beneficial interest (no par value per share). When issued, shares of each
class of the Fund are fully paid, non-assessable, redeemable and fully
transferable. No class of shares of the Fund has preemptive rights or
subscription rights.
Under its Declaration of Trust, the Trust may create separate series or
portfolios and divide any series or portfolio into one or more classes. The
Trustees have authorized two series, each of which represents a fund. The
Trustees have further authorized the issuance of Class A, Class B, Class C,
Class I and Advisor Class shares for the Fund.
Shareholders have the right to vote for the election of Trustees of the
Trust and on any and all matters on which they may be entitled to vote by law or
by the provisions of the Trust's By-Laws. The Trust is not required to hold a
regular annual meeting of shareholders, and it does not intend to do so. Shares
of each class of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the Fund are
entitled to vote alone on matters that only affect the Fund. All classes of
shares of the Fund will vote together, except with respect to the distribution
plan applicable to the Fund's Class A, Class B or Class C shares or when a class
vote is required by the 1940 Act. On matters relating to all funds of the Trust,
but affecting them differently, separate votes by the shareholders of each fund
are required. Approval of an investment advisory agreement and a change in
fundamental policies would be regarded as matters requiring separate voting by
the shareholders of each fund of the Trust. If the Trustees of the Trust
determine that a matter does not affect the interests of a particular fund, then
the shareholders of that fund will not be entitled to vote on that matter.
Matters that affect the Trust in general will be voted upon collectively by the
shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority vote of the
outstanding shares" of the Fund means the vote of the lesser of: (1) 67% of the
shares of the Fund (or of the Trust) present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter requiring
separate voting by each fund of the Trust, the matter shall have been
effectively acted upon with respect to that fund if a majority of the
outstanding voting securities of the fund votes for the approval of the matter,
notwithstanding that: (1) the matter has not been approved by a majority of the
outstanding voting securities of any other fund of the Trust; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Trust.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as Trustee if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust. Shareholders will be assisted in communicating with other shareholders in
connection with the removal of a Trustee.
The Trust's shares do not have cumulative voting rights and accordingly
the holders of more than 50% of the outstanding shares could elect the entire
Board, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of the date of this SAI, there were no Fund shares outstanding other
than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Trust or its Trustees. The Declaration of Trust also provides
for indemnification out of Fund property for all loss and expense of any
shareholder of the Fund held personally liable for the obligations of the Fund.
The risk of a shareholder of the Trust incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and, thus, should be considered remote.
No Fund is liable for the obligations of any other Fund.
SPECIAL RIGHTS AND PRIVILEGES
Information as to how to purchase Fund shares is contained in the
Prospectus. The Trust offers (and except as noted below) bears the cost of
providing, to investors the following additional rights and privileges. The
Trust reserves the right to amend or terminate any one or more of these rights
and privileges. Notice of amendments to or terminations of rights and privileges
will be provided to shareholders in accordance with applicable law.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund shareholder to have
specified amounts automatically drawn each month from his or her bank for
investment in Fund shares, is available for all classes of shares except Class
I. The minimum initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for which the
minimum initial and subsequent investment is $25 per month). A shareholder may
terminate the Automatic Investment Method at any time upon delivery to Ivy
Mackenzie Services Corp. ("IMSC") of telephone instructions or written notice.
To use this privilege, please complete Sections 6A and 7B of the Account
Application that is included with the Prospectus.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund have an exchange
privilege with other Universal funds. Before effecting an exchange, shareholders
of the Fund should obtain and read the currently effective prospectus for the
Universal fund into which the exchange is to be made.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection with several types of
tax-deferred retirement plans. Initial and subsequent purchase payments in
connection with tax-deferred retirement plans must be at least $25 per
participant.
The following fees will be charged to individual shareholder accounts as
described in the retirement prototype plan document:
Retirement Plan New Account Fee no fee
Retirement Plan Annual Maintenance Fee $10.00 per fund account
The following discussion describes some aspects of the tax treatment of
certain tax-deferred retirement plans under current Federal income tax law.
State income tax consequences may vary. An individual considering the
establishment of a retirement plan should consult with an attorney and/or an
accountant with respect to the terms and tax aspects of the plan.
INDIVIDUAL RETIREMENT ACCOUNTS: Shares of the Fund may be used as a
funding medium for an Individual Retirement Account ("IRA"). Eligible
individuals may establish an IRA by adopting a model custodial account available
from IMSC, who may impose a charge for establishing the account. Individuals
should consult their tax advisers before investing IRA assets in a fund if that
fund primarily distributes exempt-interest dividends.
An individual who has not reached age 70-1/2 and who receives compensation
or earned income is eligible to contribute to an IRA, whether or not he or she
is an active participant in a retirement plan. An individual who receives a
distribution from another IRA, a qualified retirement plan, a qualified annuity
plan or a tax-sheltered annuity or custodial account ("403(b) plan") that
qualifies for "rollover" treatment is also eligible to establish an IRA by
rolling over the distribution either directly or within 60 days after its
receipt. Tax advice should be obtained in connection with planning a rollover
contribution to an IRA.
In general, an eligible individual may contribute up to the lesser of
$2,000 or 100% of his or her compensation or earned income to an IRA each year.
If a husband and wife are both employed, and both are under age 70-1/2, each may
set up his or her own IRA within these limits. If both earn at least $2,000 per
year, the maximum potential contribution is $4,000 per year for both. For years
after 1996, the result is similar even if one spouse has no earned income; if
the joint earned income of the spouses is at least $4,000, a contribution of up
to $2,000 may be made to each spouse's IRA. Rollover contributions are not
subject to these limits.
An individual may deduct his or her annual contributions to an IRA in
computing his or her Federal income tax within the limits described above,
provided he or she (and his or her spouse, if they file a joint Federal income
tax return) is not an active participant in a qualified retirement plan (such as
a qualified corporate, sole proprietorship, or partnership pension, profit
sharing, 401(k) or stock bonus plan), qualified annuity plan, 403(b) plan,
simplified employee pension, or governmental plan. If he or she (or his or her
spouse) is an active participant, whether the individual's contribution to an
IRA is fully deductible, partially deductible or not deductible depends on (i)
adjusted gross income and (ii) whether it is the individual or the individual's
spouse who is an active participant, in the case of married individuals filing
jointly. Contributions may be made up to the maximum permissible amount even if
they are not deductible. Rollover contributions are not includible in income for
Federal income tax purposes and therefore are not deductible from it.
Generally, earnings on an IRA are not subject to current Federal income
tax until distributed. Distributions attributable to tax-deductible
contributions and to IRA earnings are taxed as ordinary income. Distributions of
non-deductible contributions are not subject to Federal income tax. There are
special rules for determining what portion of any distribution is allocable to
deductible and to non-deductible contributions. In general, distributions from
an IRA to an individual before he or she reaches age 59-1/2 are subject to a
nondeductible penalty tax equal to 10% of the taxable amount of the
distribution. The 10% penalty tax does not apply to amounts withdrawn from an
IRA after the individual reaches age 59-1/2, becomes disabled or dies, or if
withdrawn in the form of substantially equal payments over the life or life
expectancy of the individual and his or her designated beneficiary, if any, or
rolled over into another IRA, amounts withdrawn and used to pay for deductible
medical expenses, amounts withdrawn by certain unemployed individuals not in
excess of amounts paid for certain health insurance premiums, amounts used to
pay certain qualified higher education expenses, and amounts used within 120
days of the date the distribution is received to pay for certain first-time
homebuyer expenses. Distributions must begin to be withdrawn not later than
April 1 of the calendar year following the calendar year in which the individual
reaches age 70-1/2. Failure to take certain minimum required distributions will
result in the imposition of a 50% non-deductible penalty tax.
ROTH IRAs: Shares of the Fund also may be used as a funding medium for a
Roth Individual Retirement Account ("Roth IRA"). A Roth IRA is similar in
numerous ways to the regular (traditional) IRA, described above. Some of the
primary differences are as follows.
A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000. An individual whose adjusted gross income exceeds the maximum
phase-out amount cannot contribute to a Roth IRA.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
Contributions to a Roth IRA are not deductible. Contributions to a Roth IRA may
be made even after the individual for whom the account is maintained has
attained age 70 1/2.
No distributions are required to be taken prior to the death of the
original account holder. If a Roth IRA has been established for a minimum of
five years, distributions can be taken tax-free after reaching age 59 1/2, for a
first-time home purchase ($10,000 maximum, one time use), or upon death or
disability. All other distributions from a Roth IRA are taxable and subject to a
10% tax penalty unless an exception applies. Exceptions to the 10% penalty
include: disability, deductible medical expenses, certain purchases of health
insurance for an unemployed individual and qualified higher education expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. After 1998, all taxes on such a rollover will have to be paid in the tax
year in which the rollover is made.
QUALIFIED PLANS: For those self-employed individuals who wish to purchase
shares of the Fund through a qualified retirement plan, a Custodial Agreement
and a Retirement Plan are available from IMSC. The Retirement Plan may be
adopted as a profit sharing plan or a money purchase pension plan. A profit
sharing plan permits an annual contribution to be made in an amount determined
each year by the self-employed individual within certain limits prescribed by
law. A money purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for qualified plans
and the annual maintenance fee is $20.00 per account.
In general, if a self-employed individual has any common law employees,
employees who have met certain minimum age and service requirements must be
covered by the Retirement Plan. A self-employed individual generally must
contribute the same percentage of income for common law employees as for himself
or herself.
A self-employed individual may contribute up to the lesser of $30,000 or
25% of compensation or earned income to a money purchase pension plan or to a
combination profit sharing and money purchase pension plan arrangement each year
on behalf of each participant. To be deductible, total contributions to a profit
sharing plan generally may not exceed 15% of the total compensation or earned
income of all participants in the plan, and total contributions to a combination
money purchase-profit sharing arrangement generally may not exceed 25% of the
total compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be included in
computing the deduction is limited (generally to $150,000 for benefits accruing
in plan years beginning after 1993, with annual inflation adjustments). A
self-employed individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement and Retirement
Plan for the benefit of their eligible employees. Similar contribution and
deduction rules apply to corporate employers.
Distributions from the Retirement Plan generally are made after a
participant's separation from service. A 10% penalty tax generally applies to
distributions to an individual before he or she reaches age 59-1/2, unless the
individual (1) has reached age 55 and separated from service; (2) dies; (3)
becomes disabled; (4) uses the withdrawal to pay tax-deductible medical
expenses; (5) takes the withdrawal as part of a series of substantially equal
payments over his or her life expectancy or the joint life expectancy of himself
or herself and a designated beneficiary; or (6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust to furnish
custodial services to the employer and any participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE ORGANIZATIONS
("403(B)(7) ACCOUNT: Section 403(b)(7) of the Code permits public school systems
and certain charitable organizations to use mutual fund shares held in a
custodial account to fund deferred compensation arrangements with their
employees. A custodial account agreement is available for those employers whose
employees wish to purchase shares of the Fund in conjunction with such an
arrangement. The special application for a 403(b)(7) Account is available from
IMSC.
Distributions from the 403(b)(7) Account may be made only following death,
disability, separation from service, attainment of age 59-1/2, or incurring a
financial hardship. A 10% penalty tax generally applies to distributions to an
individual before he or she reaches age 59-1/2, unless the individual (1) has
reached age 55 and separated from service; (2) dies or becomes disabled; (3)
uses the withdrawal to pay tax-deductible medical expenses; (4) takes the
withdrawal as part of a series of substantially equal payments over his or her
life expectancy or the joint life expectancy of himself or herself and a
designated beneficiary; or (5) rolls over the distribution. There is no set-up
fee for 403(b)(7) Accounts and the annual maintenance fee is $20.00 per account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAs: An employer may deduct
contributions to a SEP up to the lesser of $30,000 or 15% of compensation. SEP
accounts generally are subject to all rules applicable to IRA accounts, except
the deduction limits, and are subject to certain employee participation
requirements. No new salary reduction SEPs ("SARSEPs") may be established after
1996, but existing SARSEPs may continue to be maintained, and non-salary
reduction SEPs may continue to be established as well as maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a SIMPLE 401(k)
for years after 1996. An employee can make pre-tax salary reduction
contributions to a SIMPLE Plan, up to $6,000 a year (as indexed). Subject to
certain limits, the employer will either match a portion of employee
contributions, or will make a contribution equal to 2% of each employee's
compensation without regard to the amount the employee contributes. An employer
cannot maintain a SIMPLE Plan for its employees if any contributions or benefits
are credited to those employees under any other qualified retirement plan
maintained by the employer.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a "Withdrawal
Plan") by telephone instructions or by delivery to IMSC of a written election to
have his or her shares withdrawn periodically. The minimum distribution amount
is $250, accompanied by a surrender to IMSC of all share certificates then
outstanding in such shareholder's name, properly endorsed by the shareholder. To
be eligible to elect a Withdrawal Plan, a shareholder must have at least $10,000
in his or her account. A Withdrawal Plan may not be established if the investor
is currently participating in the Automatic Investment Method. A Withdrawal Plan
may involve the depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event. Shareholders
contemplating participating in a Withdrawal Plan should consult their tax
advisers.
Additional investments made by investors participating in a Withdrawal
Plan must equal at least $250 each while the Withdrawal Plan is in effect.
Making additional purchases while a Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable initial sales charges or
CDSCs.
An investor may terminate his or her participation in the Withdrawal Plan
at any time by delivering written notice to IMSC. If all shares held by the
investor are liquidated at any time, participation in the Withdrawal Plan will
terminate automatically. The Fund or IMSC may terminate the Withdrawal Plan
option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares of the Fund may be purchased in connection with investment programs
established by employee or other groups using systematic payroll deductions or
other systematic payment arrangements. The Fund does not itself organize, offer
or administer any such programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment requirements for
purchases by individuals in conjunction with programs organized and offered by
others. Unless shares of the Fund are purchased in conjunction with IRAs (see
"How to Buy Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code. The Fund
reserves the right to refuse purchases at any time or suspend the offering of
shares in connection with group systematic investment programs, and to restrict
the offering of shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, to shareholders using group
systematic investment programs.
With respect to each shareholder account established on or after September
15, 1972 under a group systematic investment program, the Fund and IMI each
currently charge a maintenance fee of $3.00 (or portion thereof) for each
twelve-month period (or portion thereof) that the account is maintained. The
Fund may collect such fee (and any fees due to IMI) through a deduction from
distributions to the shareholders involved or by causing on the date the fee is
assessed a redemption in each such shareholder account sufficient to pay such
fee. The Fund reserves the right to change these fees from time to time without
advance notice.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value next determined
after a proper redemption request has been received by IMSC. Unless a
shareholder requests that the proceeds of any redemption be wired to his or her
bank account, payment for shares tendered for redemption is made by check within
seven days after tender in proper form, except that the Fund reserves the right
to suspend the right of redemption or to postpone the date of payment upon
redemption beyond seven days (i) for any period during which the Exchange is
closed (other than customary weekend and holiday closings) or during which
trading on the Exchange is restricted, (ii) for any period during which an
emergency exists as determined by the SEC as a result of which disposal of
securities owned by the Fund is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
The Trust may redeem those Advisor Class accounts of shareholders who have
maintained an investment, including sales charges paid, of less than $10,000 in
the Fund for a period of more than 12 months. All Advisor Class accounts below
that minimum will be redeemed simultaneously when MIMI deems it advisable. The
$10,000 balance will be determined by actual dollar amounts invested by the
shareholder, unaffected by market fluctuations. The Trust will notify any such
shareholder by certified mail of its intention to redeem such account, and the
shareholder shall have 60 days from the date of such letter to invest such
additional sums as shall raise the value of such account above that minimum.
Should the shareholder fail to forward such sum within 60 days of the date of
the Trust's letter of notification, the Trust will redeem the shares held in
such account and transmit the redemption in value thereof to the shareholder.
However, those shareholders who are investing pursuant to the Automatic
Investment Method will not be redeemed automatically unless they have ceased
making payments pursuant to the plan for a period of at least six consecutive
months, and these shareholders will be given six-months' notice by the Trust
before such redemption. Shareholders in a qualified retirement, pension or
profit sharing plan who wish to avoid tax consequences must "rollover" any sum
so redeemed into another qualified plan within 60 days. The Trustees of the
Trust may change the minimum account size.
If a shareholder has given authorization for telephonic redemption
privilege, shares can be redeemed and proceeds sent by Federal wire to a single
previously designated bank account. The Fund may delay for up to seven days
delivery of the proceeds of a wire redemption request of $250,000 or more if
considered appropriate under then-current market conditions. The Trust reserves
the right to change this minimum or to terminate the telephonic redemption
privilege without prior notice. The Trust cannot be responsible for the
efficiency of the Federal wire system of the shareholder's dealer of record or
bank. The shareholder is responsible for any charges by the shareholder's bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange instructions
communicated by telephone to confirm that such instructions are genuine. In the
absence of such instructions, the Fund may be liable for any losses due to
unauthorized or fraudulent telephone instructions.
NET ASSET VALUE
The net asset value per share of the Fund is computed by dividing the
value of the Fund's aggregate net assets (i.e., its total assets less its
liabilities) by the number of the Fund's shares outstanding. For purposes of
determining the Fund's aggregate net assets, receivables are valued at their
realizable amounts. The Fund's liabilities, if not identifiable as belonging to
a particular class of the Fund, are allocated among the Fund's several classes
based on their relative net asset size. Liabilities attributable to a particular
class are charged to that class directly. The total liabilities for a class are
then deducted from the class's proportionate interest in the Fund's assets, and
the resulting amount is divided by the number of shares of the class outstanding
to produce its net asset value per share.
A security listed or traded on a recognized stock exchange or The Nasdaq
Stock Market, Inc. ("Nasdaq") is valued at the security's last sale price on the
exchange on which the security is principally traded. If no sale is reported at
that time, the average between the last bid and asked price (the "Calculated
Mean") is used. Unless otherwise noted herein, the value of a foreign security
is determined in its national currency as of the normal close of trading on the
foreign exchange on which it is traded or as of the close of regular trading on
the Exchange, if that is earlier, and that value is then converted into its U.S.
dollar equivalent at the foreign exchange rate in effect at noon, eastern time,
on the day the value of the foreign security is determined. All other securities
for which OTC market quotations are readily available are valued at the
Calculated Mean.
A debt security normally is valued on the basis of quotes obtained from at
least two dealers (or one dealer who has made a market in the security) or
pricing services that take into account appropriate valuation factors. Interest
is accrued daily. Money market instruments are valued at amortized cost, which
the Board believes approximates market value.
An exchange-traded option is valued at the last sale price on the exchange
on which it is principally traded, if available, and otherwise is valued at the
last sale price on the other exchange(s). If there were no sales on any
exchange, the option shall be valued at the Calculated Mean, if possible, and
otherwise at the last offering price, in the case of a written option, and the
last bid price, in the case of a purchased option. An OTC option is valued at
the last offering price, in the case of a written option, and the last bid
price, in the case of a purchased option. Exchange listed and widely-traded OTC
futures (and options thereon) are valued at the most recent settlement price.
Securities and other assets for which market prices are not readily
available are priced at their "fair value" as determined by IMI in accordance
with procedures approved by the Board. Trading in securities on many foreign
securities exchanges is normally completed before the close of regular trading
on the Exchange. Trading on foreign exchanges may not take place on all days on
which there is regular trading on the Exchange, or may take place on days on
which there is no regular trading on the Exchange (e.g., any of the national
business holidays identified below). If events materially affecting the value of
the Fund's portfolio securities occur between the time when a foreign exchange
closes and the time when the Fund's net asset value is calculated (see following
paragraph), such securities may be valued at fair value as determined by IMI and
approved by the Board.
Portfolio securities are valued (and net asset value per share is
determined) as of the close of regular trading on the Exchange (normally 4:00
p.m., eastern time) on each day the Exchange is open for trading. The Exchange
and the Trust's offices are expected to be closed, and net asset value will not
be calculated, on the following national business holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. On those days
when either or both of the Fund's Custodian or the Exchange close early as a
result of a partial holiday or otherwise, the Trust reserves the right to
advance the time on that day by which purchase and redemption requests must be
received.
The number of shares you receive when you place a purchase order, and the
payment you receive after submitting a redemption request, is based on the
Fund's net asset value next determined after your instructions are received in
proper form by IMSC or by your registered securities dealer. Each purchase and
redemption order is subject to any applicable sales charge. Since the Fund
invests in securities that are listed on foreign exchanges that may trade on
weekends or other days when the Funds do not price their shares, the Fund's net
asset value may change on days when shareholders will not be able to purchase or
redeem the Fund's shares. The sale of the Fund's shares will be suspended during
any period when the determination of its net asset value is suspended pursuant
to rules or orders of the SEC and may be suspended by the Board whenever in its
judgment it is in the Fund's best interest to do so.
TAXATION
The following is a general discussion of certain tax rules thought to be
applicable with respect to the Fund. It is merely a summary and is not an
exhaustive discussion of all possible situations or of all potentially
applicable taxes. Accordingly, shareholders and prospective shareholders should
consult a competent tax adviser about the tax consequences to them of investing
in the Fund.
The Fund intends to be taxed as a regulated investment company under
Subchapter M of the Code. Accordingly, the Fund must, among other things, (a)
derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and gains from the
sale or other disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities or currencies; and (b) diversify its holdings so that, at the end of
each fiscal quarter, (i) at least 50% of the market value of the Fund's assets
is represented by cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities and the securities of other regulated investment companies).
As a regulated investment company, the Fund generally will not be subject
to U.S. Federal income tax on its income and gains that it distributes to
shareholders, if at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and the excess of any
short-term capital gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax at
the Fund level. To avoid the tax, the Fund must distribute during each calendar
year, (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
a one-year period generally ending on October 31 of the calendar year, and (3)
all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, the Fund
intends to make distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December 31 of the
current calendar year if it is declared by the Fund in October, November or
December of the year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt securities is
governed by Code section 1234. Pursuant to Code section 1234, the premium
received by the Fund for selling a put or call option is not included in income
at the time of receipt. If the option expires, the premium is short-term capital
gain to the Fund. If the Fund enters into a closing transaction, the difference
between the amount paid to close out its position and the premium received is
short-term capital gain or loss. If a call option written by the Fund is
exercised, thereby requiring the Fund to sell the underlying security, the
premium will increase the amount realized upon the sale of such security and any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With respect to a
put or call option that is purchased by the Fund, if the option is sold, any
resulting gain or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If the option
expires, the resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is exercised, the
cost of the option, in the case of a call option, is added to the basis of the
purchased security and, in the case of a put option, reduces the amount realized
on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward contracts in
which the Fund may invest may be "section 1256 contracts." Gains (or losses) on
these contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in character.
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and on certain other dates prescribed in the Code) are "marked-to-market" with
the result that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts undertaken by
the Fund may result in "straddles" for Federal income tax purposes. The straddle
rules may affect the character of gains or losses realized by the Fund. In
addition, losses realized by the Fund on positions that are part of a straddle
may be deferred under the straddle rules, rather than being taken into account
in calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the consequences of such transactions to the Fund are not
entirely clear. The straddle rules may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to the Fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment of appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day after the
close of the Fund's taxable year, if certain conditions are met.
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR LOSSES
Gains or losses attributable to fluctuations in exchange rates which
occur between the time the Fund accrues receivables or liabilities denominated
in a foreign currency and the time the Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of some investments, including debt securities
denominated in a foreign currency and certain options, futures and forward
contracts, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the security or contract and
the date of disposition also are treated as ordinary gain or loss. These gains
and losses, referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company taxable income
available to be distributed to its shareholders as ordinary income.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. the Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect
to PFIC shares. The Fund may elect to mark to market its PFIC shares, resulting
in the shares being treated as sold at fair market value on the last business
day of each taxable year. Any resulting gain would be reported as ordinary
income; any resulting loss and any loss from an actual disposition of the shares
would be reported as ordinary loss to the extent of any net gains reported in
prior years. Under another election that currently is available in some
circumstances, the Fund generally would be required to include in its gross
income its share of the earnings of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund may be treated
as debt securities that are issued originally at a discount. Generally, the
amount of the original issue discount ("OID") is treated as interest income and
is included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by the Fund in the
secondary market may be treated as having market discount. Generally, gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. In addition, the deduction of any interest expenses
attributable to debt securities having market discount may be deferred. Market
discount generally accrues in equal daily installments. The Fund may make one or
more of the elections applicable to debt securities having market discount,
which could affect the character and timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by the Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
The Fund generally will be required to distribute dividends to
shareholders representing discount on debt securities that is currently
includable in income, even though cash representing such income may not have
been received by the Fund. Cash to pay such dividends may be obtained from sales
proceeds of securities held by the Fund.
DISTRIBUTIONS
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received from U.S. corporations by the Fund, may
qualify for the dividends received deduction. However, the revised alternative
minimum tax applicable to corporations may reduce the value of the dividends
received deduction. Distributions of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, designated
by the Fund as capital gain dividends, are taxable to shareholders as long-term
capital gains whether paid in cash or in shares, and regardless of how long the
shareholder has held the Fund's shares; such distributions are not eligible for
the dividends received deduction. Shareholders receiving distributions in the
form of newly issued shares will have a cost basis in each share received equal
to the net asset value of a share of the Fund on the distribution date. A
distribution of an amount in excess of the Fund's current and accumulated
earnings and profits will be treated by a shareholder as a return of capital
which is applied against and reduces the shareholder's basis in his or her
shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her shares, the excess will be treated by the
shareholder as gain from a sale or exchange of the shares. Shareholders will be
notified annually as to the U.S. Federal tax status of distributions and
shareholders receiving distributions in the form of newly issued shares will
receive a report as to the net asset value of the shares received.
If the net asset value of shares is reduced below a shareholder's cost as
a result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Shareholders
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at this time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will receive a distribution which generally will be taxable to
them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a shareholder
will realize a taxable gain or loss depending upon his or her basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and, if so, will be long-term or
short-term, depending upon the shareholder's holding period for the shares. Any
loss realized on a redemption sale or exchange will be disallowed to the extent
the shares disposed of are replaced (including through reinvestment of
dividends) within a period of 61 days beginning 30 days before and ending 30
days after the shares are disposed of. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of Fund shares held by the shareholder for six-months or
less will be treated for tax purposes as a long-term capital loss to the extent
of any distributions of capital gain dividends received or treated as having
been received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take all or portion
of their sales loads into account for purposes of determining the amount of gain
or loss realized on the disposition of their shares. This prohibition generally
applies where (1) the shareholder incurs a sales load in acquiring the shares of
the Fund, (2) the shares are disposed of before the 91st day after the date on
which they were acquired, and (3) the shareholder subsequently acquires shares
in the same Fund or another regulated investment company and the otherwise
applicable sales charge is reduced under a "reinvestment right" received upon
the initial purchase of Fund shares. The term "reinvestment right" means any
right to acquire shares of one or more regulated investment companies without
the payment of a sales load or with the payment of a reduced sales charge. Sales
charges affected by this rule are treated as if they were incurred with respect
to the shares acquired under the reinvestment right. This provision may be
applied to successive acquisitions of fund shares.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within a foreign country may be
subject to withholding and other taxes imposed by that country.
If more than 50% of the value of the Fund's total assets at the close of
its taxable year consists of securities of foreign corporations, the Fund will
be eligible and may elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. Pursuant to this election, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign income and
similar taxes paid by the Fund, and will be entitled either to deduct his or her
pro rata share of foreign income and similar taxes in computing his or her
taxable income or to use it as a foreign tax credit against his or her U.S.
Federal income taxes, subject to limitations. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Foreign taxes
generally may not be deducted by a shareholder that is an individual in
computing the alternative minimum tax. Each shareholder will be notified within
60 days after the close of the Fund's taxable year whether the foreign taxes
paid by the Fund will "pass-through" for that year and, if so, such notification
will designate (1) the shareholder's portion of the foreign taxes paid to each
such country and (2) the portion of the dividend which represents income derived
from sources within each such country.
Generally, except in the case of certain electing individual taxpayers who
have limited creditable foreign taxes and no foreign source income other than
passive investment-type income, a credit for foreign taxes is subject to the
limitation that it may not exceed the shareholder's U.S. tax attributable to his
or her total foreign source taxable income. For this purpose, if the Fund makes
the election described in the preceding paragraph, the source of the Fund's
income flows through to its shareholders. With respect to the Fund, gains from
the sale of securities generally will be treated as derived from U.S. sources
and section 988 gains will be treated as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive income received
from the Fund. In addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and individuals.
Furthermore, the foreign tax credit is eliminated with respect to foreign taxes
withheld on dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day period (90-day
period for preferred shares) beginning 15 days (45 days for preferred shares)
before the shares become ex-dividend. In addition, if the Fund fails to satisfy
these holding period requirements, it cannot elect to pass through to
shareholders the ability to claim a deduction for related foreign taxes.
The foregoing is only a general description of the foreign tax credit
under current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue Service
("IRS") all taxable distributions as well as gross proceeds from the redemption
of the Fund's shares, except in the case of certain exempt shareholders. All
such distributions and proceeds will be subject to withholding of Federal income
tax at a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund with and to
certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. If the withholding provisions are applicable, any such
distributions or proceeds, whether reinvested in additional shares or taken in
cash, will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation. Non-U.S.
shareholders may be subject to U.S. tax rules that differ significantly from
those summarized above. This discussion does not purport to deal with all of the
tax consequences applicable to the Fund or shareholders. Shareholders are
advised to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P 500 Index, the
Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare the Fund's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or tracked by
other services, companies, publications or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions or administrative and
management costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized average annual
total return ("Standardized Return") for a specific class of shares of the Fund
will be expressed in terms of the average annual compounded rate of return that
would cause a hypothetical investment in that class of the Fund made on the
first day of a designated period to equal the ending redeemable value ("ERV") of
such hypothetical investment on the last day of the designated period, according
to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000
to purchase shares of a specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is assumed that all
dividends and capital gains distributions made by the Fund are reinvested at net
asset value in additional Advisor Class shares during the designated period.
Standardized Return quotations for the Fund do not take into account any
required payments for federal or state income taxes. Standardized Return
quotations are determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements, promotional
literature or reports to shareholders or prospective investors total return data
that are not calculated according to the formula set forth above
("Non-Standardized Return"). Neither initial nor CDSCs are taken into account in
calculating Non-Standardized Return; a sales charge, if deducted, would reduce
the return.
CUMULATIVE TOTAL RETURN. Cumulative total return is the cumulative rate of
return on a hypothetical initial investment of $1,000 in a specific class of
shares of the Fund for a specified period. Cumulative total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the period were reinvested in the Fund's
shares. Cumulative total return is calculated by computing the cumulative rates
of return of a hypothetical investment in a specific class of shares of the Fund
over such periods, according to the following formula (cumulative total return
is then expressed as a percentage):
C = (ERV/P) - 1
Where: C = cumulative total return
P = a hypothetical initial investment of $1,000 to
purchase shares of a specific class
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The foregoing
computation methods are prescribed for advertising and other communications
subject to SEC Rule 482. Communications not subject to this rule may contain a
number of different measures of performance, computation methods and
assumptions, including but not limited to: historical total returns; results of
actual or hypothetical investments; changes in dividends, distributions or share
values; or any graphic illustration of such data. These data may cover any
period of the Fund's existence and may or may not include the impact of sales
charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time depending
on market conditions, the composition of the Fund's portfolio and operating
expenses of the Fund. These factors and possible differences in the methods used
in calculating performance quotations should be considered when comparing
performance information regarding the Fund's shares with information published
for other investment companies and other investment vehicles. Performance
quotations should also be considered relative to changes in the value of the
Fund's shares and the risks associated with the Fund's investment objectives and
policies. At any time in the future, performance quotations may be higher or
lower than past performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison its performance
rankings and listings reported in such newspapers or business or consumer
publications as, among others: AAII Journal, Barron's, Boston Business Journal,
Boston Globe, Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor, International
Fund Monitor, Investor's Daily, Los Angeles Times, Medical Economics, Miami
Herald, Money Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's Directory of Investment
Managers, New York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age, Personal Investor,
Rugg and Steele, Time, U.S. News and World Report, USA Today, The Wall Street
Journal, and Washington Post.
FINANCIAL STATEMENTS
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S RATINGS GROUP ("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND COMMERCIAL PAPER RATINGS
[From "Moody's Bond Record," November 1994 Issue (Moody's Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to
be of the best quality, carrying the smallest degree of investment risk.
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future. Bonds rated Baa by Moody's are considered
medium-grade obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated B generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments of or maintenance of other terms of the contract over any
long period of time may be small. Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings. Bonds which are rated C are the
lowest rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers voted Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating. The rating CC typically is applied
to debt subordinated to senior debt which is assigned an actual or implied CCC
debt rating. The rating C typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating may
be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
<PAGE>
PART C. OTHER INFORMATION
ITEM 23: EXHIBITS
(a) DECLARATION OF TRUST: Filed herewith.
(b) BY-LAWS: To be filed by amendment.
(c) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS: To be filed by
amendment.
(d) INVESTMENT ADVISORY CONTRACTS: To be filed by amendment.
(e) UNDERWRITING CONTRACTS: To be filed by amendment.
(f) BONUS OR PROFIT SHARING CONTRACTS: Not applicable.
(g) CUSTODIAN AGREEMENTS: To be filed by amendment.
(h) OTHER MATERIAL CONTRACTS: To be filed by amendment.
(i) LEGAL OPINION: To be filed by amendment.
(j) OTHER OPINIONS: Not applicable.
(k) OMITTED FINANCIAL STATEMENTS: Not applicable.
(l) INITIAL CAPITAL AGREEMENTS: Not applicable.
(m) RULE 12B-1 PLAN: To be filed by amendment.
(n) FINANCIAL DATA SCHEDULE: To be filed by amendment.
(o) RULE 18F-3 PLAN: To be filed by amendment.
ITEM 24: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
Not applicable.
ITEM 25: INDEMNIFICATION
A policy of insurance covering the Registrant and Ivy Management, Inc.
(the Registrant's investment manager) will insure the Registrant's trustees,
officers and others against liability arising by reason of an actual or alleged
breach of duty, neglect, error, misstatement, misleading statement, omission or
other negligent act. Reference is also made to Article IV of the Registrant's
Declaration of Trust, dated October 6, 1999 (filed herewith).
ITEM 26: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the Form ADV of each of Ivy Management, Inc. ("IMI"),
the Registrant's investment manager. The list required by this Item 26 of
officers and directors of IMI, together with information as to any other
business profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of IMI's Form ADV.
ITEM 27: PRINCIPAL UNDERWRITERS
(a) Ivy Mackenzie Distribution, Inc. ("IMDI"), Via Mizner Financial Plaza,
700 South Federal Highway, Suite 300, Boca Raton, Florida 33432, Registrant's
distributor, is a subsidiary of Mackenzie Investment Management Inc. ("MIMI"),
Via Mizner Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton,
Florida 33432. IMDI is the successor to MIMI's distribution activities.
(b) The information required by this Item 27 regarding each director,
officer or partner of IMDI is incorporated by reference to Schedule A of Form BD
filed by IMDI pursuant to the Securities Exchange Act of 1934.
ITEM 28: LOCATION OF ACCOUNTS AND RECORDS
Ivy Mackenzie Services Corp., Via Mizner Financial Plaza, 700 South
Federal Highway, Suite 300, Boca Raton, Florida 33432, maintains on the
Registrant's behalf physical possession of each account, book, and other
document required to be maintained by section 31(a) of the Investment Company
Act of 1940 and the rules thereunder.
ITEM 29: MANAGEMENT SERVICES
Not applicable.
ITEM 30: UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Boston, and the Commonwealth of Massachusetts, on the 13th day of
October, 1999.
THE UNIVERSAL FUNDS
By: /s/ C. WILLIAM FERRIS*
President
By: /s/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE: TITLE: DATE:
/s/ C. WILLIAM FERRIS* President, Treasurer (Chief 10/13/99
Financial Officer) and Trustee
By: /s/ JOSEPH R. FLEMING
Joseph R. Fleming, Attorney-in-Fact
* Executed pursuant to powers of attorney filed herewith.
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints each of Joseph R. Fleming and Sheldon A. Jones its true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead, to sign any and all
Registration Statements on Form N-1A applicable to The Universal Funds and any
notices, amendments or supplements related thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed to these presents as of the
13th day of October, 1999.
THE UNIVERSAL FUNDS
By: /S/ C. WILLIAM FERRIS
C. William Ferris, President
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and
appoints each of Joseph R. Fleming and Sheldon A. Jones his true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him in his name, place and stead, to sign any and all
Registration Statements on Form N-1A applicable to The Universal Funds and any
notices, amendments or supplements related thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed to these presents this 13th
day of October, 1999.
By: Title:
/S/ C. WILLIAM FERRIS President, Treasurer (Chief Financial Officer)
C. William Ferris and Trustee
<PAGE>
EXHIBIT INDEX
23(a) Declaration of Trust
DECLARATION OF TRUST
OF
THE UNIVERSAL FUNDS
DATED: October 6, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I NAME AND DEFINITIONS...............................................1
Section 1.1. Name......................................................1
Section 1.2. Definitions...............................................1
ARTICLE II TRUSTEES..........................................................3
Section 2.1. General Powers............................................3
Section 2.2. Investments...............................................3
Section 2.3. Legal Title...............................................5
Section 2.4. Issuance and Repurchase of Shares.........................5
Section 2.5. Delegation; Committees....................................5
Section 2.6. Collection and Payment....................................6
Section 2.7. Expenses..................................................6
Section 2.8. Manner of Acting; By-laws.................................6
Section 2.9. Miscellaneous Powers......................................6
Section 2.10.Principal Transactions....................................7
Section 2.11.Number of Trustees........................................7
Section 2.12.Election and Term.........................................7
Section 2.13.Resignation and Removal...................................7
Section 2.14.Vacancies.................................................8
Section 2.15.Delegation of Power to Other Trustees.....................8
Section 2.16.Shareholder Vote, etc.....................................8
Section 2.17.Independent Trustees......................................8
ARTICLE III CONTRACTS........................................................9
Section 3.1. Distribution Contract.....................................9
Section 3.2. Advisory or Management Contract...........................9
Section 3.3. Affiliations of Trustees or Officers, Etc.................9
Section 3.4. Compliance with 1940 Act.................................10
ARTICLE IV LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS.............................................10
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.....10
Section 4.2. Non-Liability of Trustees, Etc...........................10
Section 4.3. Mandatory Indemnification................................11
Section 4.4. No Bond Required of Trustees.............................12
Section 4.5. No Duty of Investigation; Notice in
Trust Instruments, Etc...................................12
Section 4.6. Reliance on Experts, Etc.................................13
ARTICLE V SHARES OF BENEFICIAL INTEREST.....................................13
Section 5.1. Beneficial Interest......................................13
Section 5.2. Rights of Shareholders...................................13
Section 5.3. Trust Only...............................................13
Section 5.4. Issuance of Shares.......................................13
Section 5.5. Register of Shares.......................................14
Section 5.6. Transfer of Shares.......................................14
Section 5.7. Notices, Reports.........................................14
Section 5.8. Treasury Shares..........................................15
Section 5.9. Voting Powers............................................15
Section 5.10. Meetings of Shareholders................................15
Section 5.11. Quorum and Required Vote................................15
Section 5.12. Action by Written Consent...............................16
Section 5.13. Series Designation......................................16
Section 5.14. Assent to Declaration of Trust..........................18
Section 5.15. Class Designation.......................................18
ARTICLE VI REDEMPTION AND REPURCHASE OF SHARES..............................19
Section 6.1. Redemption of Shares.....................................19
Section 6.2. Price....................................................19
Section 6.3. Payment..................................................19
Section 6.4. Effect of Suspension of Determination of Net Asset Value.19
Section 6.5. Repurchase by Agreement..................................19
Section 6.6. Redemption at the Option of the Trust....................20
Section 6.7. Reductions in Number of Outstanding Shares
Pursuant to Net Asset Value Formula......................20
Section 6.8. Suspension of Right of Redemption....................... 20
ARTICLE VII DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS..20
Section 7.1. Net Asset Value..........................................20
Section 7.2. Distributions to Shareholders............................21
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares..........................22
Section 7.4. Allocation Between Principal and Income..................22
Section 7.5. Power to Modify Foregoing Procedures.....................22
ARTICLE VIII................................................................23
ARTICLE VIII DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC........................................23
Section 8.1. Duration.................................................23
Section 8.2. Termination of Trust or the Series of the Trust..........23
Section 8.3. Amendment Procedure......................................23
Section 8.4. Merger, Consolidation and Sale of Assets.................24
Section 8.5. Incorporation............................................24
ARTICLE IX MISCELLANEOUS....................................................25
Section 9.1. Filing...................................................25
Section 9.2. Governing Law............................................25
Section 9.3. Counterparts.............................................25
Section 9.4. Reliance by Third Parties................................25
Section 9.5. Provisions in Conflict with Law or Regulations...........25
<PAGE>
DECLARATION OF TRUST
OF
THE UNIVERSAL FUNDS
DATED: OCTOBER 6, 1999
DECLARATION OF TRUST made October 6, 1999 by the undersigned Trustee;
WHEREAS, the Trustees hereunder are desirous of forming a trust for the
purposes of carrying on the business of a management investment company;
WHEREAS, the Trust has a principal place of business at Via Mizner
Financial Plaza, 700 South Federal Highway, Suite 300, Boca Raton, Florida
33432; and
WHEREAS, in furtherance of such purposes, the Trustees are acquiring and
may hereafter acquire assets and properties, to hold and manage as trustees of a
Massachusetts voluntary association with transferable shares in accordance with
the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets and properties which they may from time to time
acquire in any manner as Trustees hereunder IN TRUST to manage and dispose of
the same upon the following terms and conditions for the pro rata benefit of the
holders from time to time of shares in this Trust as hereinafter set forth.
NOW, THEREFORE, the Trustees state the Declaration of Trust as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is "The
Universal Funds."
Section 1.2. Definitions. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as from time
to time amended.
(b) "Class" means the two or more Classes as may be established and designated
from time to time by the Trustees pursuant to Section 5.15 hereof.
(c) The term "Commission" has the meaning given it in the 1940 Act. The term
"Interested Person" has the meaning given it in the 1940 Act, as modified by any
applicable order or orders of the Commission. Except as otherwise defined by the
Trustees in conjunction with the establishment of any series of Shares, the term
"vote of a majority of the Shares outstanding and entitled to vote" shall have
the same meaning as the term "vote of a majority of the outstanding voting
securities" given it in the 1940 Act.
(d) "Custodian" means any Person other than the Trust who has custody of any
Trust Property as required by Section 17(f) of the Investment Company Act of
1940, but does not include a system for the central handling of securities
described in said Section 17(f).
(e) "Declaration" means this Declaration of Trust, as further amended from time
to time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(f) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(g) "His" shall include the feminine and neuter, as well as the masculine,
genders.
(h) "Investment Adviser" means the party, other than the Trust, to the contract
described in Section 3.2 hereof.
(i) "Municipal Bonds" means obligations issued by or on behalf of states,
territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities or other issuers, the
interest from which is exempt from regular Federal income tax.
(j) The "1940 Act" means the Investment Company Act of 1940, as amended from
time to time.
(k) "Person" means and includes individuals, corporations, partnerships, trusts,
associations, joint ventures and other entities, whether or not legal entities,
and governments and agencies and political subdivisions thereof.
(l) "Series" individually or collectively means the two or more Series as may be
established and designated from time to time by the Trustees pursuant to Section
5.13 hereof. Unless the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a Series, may be divided
from time to time.
(m) "Shareholder" means a record owner of Outstanding Shares.
(n) "Shares" means the equal proportionate units of interest into which the
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series and Classes which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares. "Outstanding
Shares" means those Shares shown as of a time and from time to time on the books
of the Trust or its Transfer Agent as then issued and outstanding, but shall not
include Shares which have been redeemed or repurchased by the Trust and which
are at the time held in the treasury of the Trust.
(o) "Transfer Agent" means any one or more Persons other than the Trust who
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(p) The "Trust" means Mackenzie Manager of Managers Funds.
(q) The "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the account of the Trust or the
Trustees.
(r) The "Trustees" means the person or persons who has or have signed this
Declaration, so long as he or they shall continue in office in accordance with
the terms hereof, and all other persons who may from time to time or be duly
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities, including,
but not limited to, shares of open-end investment companies; common and
preferred stocks; warrants; bonds, debentures, bills, time notes and all other
evidences of indebtedness; negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or other political
subdivision thereof, or any governmental or quasi-governmental agency or
instrumentality; and money market instruments including bank certificates of
deposit, finance paper, commercial paper, bankers acceptances and all kinds of
repurchase agreements, of any corporation, company, trust, association, firm or
other business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade in
and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend, and to pledge any such securities, and to enter
into repurchase agreements and forward foreign currency exchange contracts, to
purchase and sell futures contracts on securities, securities indices and
foreign currencies, to purchase or sell options on such contracts, foreign
currency contracts and foreign currencies, and to engage in all types of hedging
and risk management transactions.
(d) To exercise all rights, powers and privileges of ownership or interest in
all securities, repurchase agreements, futures contracts and options and other
assets included in the Trust Property, including the right to vote thereon and
otherwise act with respect thereto and to do all acts for the preservation,
protection, improvement and enhancement in value of all such assets.
(e) To acquire (by purchase, lease or otherwise) and to hold, use, maintain,
develop and dispose of (by sale or otherwise) any property, real or personal,
including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
(g) To aid by further investment any corporation, company, trust, association or
firm, any obligation of or interest in which is included in the Trust Property
or in the affairs of which the Trustees have any direct or indirect interest; to
do all acts and things designed to protect, to preserve, improve or enhance the
value of such obligation or interest, and to guarantee or become surety on any
or all of the contracts, stocks, bonds, notes, debentures and other obligations
of any such corporation, company, trust, association or firm.
(h) To enter into a plan of distribution and any related agreements whereby the
Trust may finance directly or indirectly any activity which is primarily
intended to result in the sale of Shares.
(i) To invest, through a transfer of cash, securities and other assets or
otherwise, all or a portion of the Trust Property, or to sell all or a portion
of the Trust Property and invest the proceeds of such sales, in another
investment company that is registered under the 1940 Act.
(j) In general to carry on any other business in connection with or incidental
to any of the foregoing powers, to do everything necessary, suitable or proper
for the accomplishment of any purpose or the attainment of any object or the
furtherance of any power herein before set forth, either alone or in association
with others, and to do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or purposes, objects or
powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property, including the
property of any Series of the Trust, shall be vested in the Trustees as joint
tenants except that the Trustees shall have power to cause legal title to any
Trust Property to be held by or in the name of one or more of the Trustees, or
in the name of the Trust, or in the name of any other Person as nominee, on such
terms as the Trustees may determine, provided that the interest of the Trust
therein is deemed appropriately protected. The right, title and interest of the
Trustees in the Trust Property and the property of each Series of the Trust
shall vest automatically in each Person who may hereafter become a Trustee. Upon
the termination of the term of office, resignation, removal or death of a
Trustee he shall automatically cease to have any right, title or interest in any
of the Trust Property or the property of any Series of the Trust, and the right,
title and interest of such Trustee in the Trust Property shall vest
automatically in the remaining Trustees. Such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered.
Section 2.4. Issuance and Repurchase of Shares. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the
provisions set forth in Articles VI and VII and Section 5.13 hereof, to apply to
any such repurchase, redemption, retirement, cancellation or acquisition of
Shares any funds or property of the particular Series of the Trust with respect
to which such Shares are issued, whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to delegate
from time to time to such of their number or to officers, employees or agents of
the Trust the doing of such things and the execution of such instruments either
in the name of the Trust or the names of the Trustees or otherwise as the
Trustees may deem expedient, to the same extent as such delegation is permitted
by the 1940 Act.
Without limiting the generality of the foregoing provisions of this
Section 2.5, the Trustees shall have power to appoint by resolution a committee
consisting of at least one of the Trustees then in office to determine whether
(a) refusing a demand by a shareholder to initiate an action, suit, or
proceeding on behalf of the Trust, or (b) dismissing, settling, reviewing, or
investigating any action, suit, or proceeding that is brought or threatened to
be brought before any court, administrative agency or other adjudicatory body,
as the case may be, is in the best interests of the Trust. That committee shall
consist entirely of Trustees each of whom is not an "Interested Person" as the
term is defined in Section 1.2 hereof.
Section 2.6. Collection and Payment. The Trustees shall have power to collect
all property due to the Trust; to pay all claims, including taxes, against the
Trust Property; to prosecute, defend, compromise or abandon any claims relating
to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided herein or
in the By-laws, any action to be taken by the Trustees may be taken by a
majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of two-thirds of the
Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. Subject to Section 5.13, hereof, the Trustees
shall have the power to: (a) employ or contract with such Persons as the
Trustees may deem desirable for the transaction of the business of the Trust;
(b) enter into joint ventures, partnerships and any other combinations or
associations; (c) remove Trustees or fill vacancies in or add to their number,
elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number, and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property, insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, distributors,
selected dealers or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (e) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (f) to the extent permitted by law,
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such seal shall not impair the validity of any instrument executed on
behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not permitted by
the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as principal, or
have any such dealings with the Investment Adviser, Distributor or Transfer
Agent or with any Interested Person of such Person; and the Trust may employ any
such Person, or firm or company in which such Person is an Interested Person, as
broker, dealer, legal counsel, registrar, Transfer Agent, dividend disbursing
agent or Custodian upon customary terms.
Section 2.11. Number of Trustees. The number of Trustees shall initially be one
(1), and thereafter shall be such number as shall be fixed from time to time by
a written instrument signed by a majority of the Trustees.
Section 2.12. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at a meeting of Shareholders. Such a meeting shall be held on a date fixed by
the Trustees. Except in the event of resignation or removals pursuant to Section
2.13 hereof, each Trustee shall hold office until such time as less than a
majority of the Trustees holding office have been elected by Shareholders, and
thereafter until the holding of a Shareholders' meeting as required by the next
following sentence. In such event the Trustees then in office will call a
Shareholders' meeting for the election of Trustees within the timeframe required
by applicable law. Except for the foregoing circumstances, the Trustees shall
continue to hold office and may appoint successor Trustees.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust (without
the need for any prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than one) with cause, by the
action of two-thirds of the remaining Trustees. Any Trustee may be removed at
any meeting of Shareholders by vote of two thirds of the Outstanding Shares. The
Trustees shall promptly call a meeting of the Shareholders for the purpose of
voting upon the question of removal of any such Trustee or Trustees when
requested in writing so to do by the holders of not less than ten percent (10%)
of the Outstanding Shares, and in that connection, the Trustees will assist
shareholder communications to the extent provided for in Section 16(c) under the
1940 Act. Upon the resignation or removal of a Trustee, or his otherwise ceasing
to be a Trustee, he shall execute and deliver such documents as the remaining
Trustees shall require for the purpose of conveying to the Trust or the
remaining Trustees any Trust Property or property of any Series of the Trust
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.14. Vacancies. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, removal, bankruptcy,
adjudicated incompetence or other incapacity to perform the duties of the office
of a Trustee. No such vacancy shall operate to annul the Declaration or to
revoke any existing agency created pursuant to the terms of the Declaration. In
the case of an existing vacancy, including a vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees shall fill such vacancy by the
appointment of such other person as they in their discretion shall see fit, made
by a written instrument signed by a majority of the Trustees then in office. Any
such appointment shall not become effective, however, until the person named in
the written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may, by power
of attorney, delegate his power for a period not exceeding six (6) months at any
one time to any other Trustee or Trustees; provided that in no case shall less
than two (2) Trustees personally exercise the powers granted to the Trustees
under this Declaration except as herein otherwise expressly provided.
Section 2.16. Shareholder Vote, etc.
Not Required. Except to the extent specifically provided to the contrary
in this Declaration, the Trustees may exercise each of the powers granted to
them in this Declaration without the vote, approval or agreement of the
shareholders unless such a vote, approval, or agreement is required by the 1940
Act or applicable laws of the Commonwealth of Massachusetts.
Section 2.17. Independent Trustees
A Trustee who with respect to the Trust is not an Interested Person shall
be deemed to be independent and disinterested when making any determination or
taking any action as Trustee.
ARTICLE III
CONTRACTS
Section 3.1. Distribution Contract. The Trustees may in their discretion from
time to time enter into an exclusive or non-exclusive underwriting contract or
contracts providing for the sale of Shares at a price based on the net asset
value of a Share, whereby the Trustees may either agree to sell the Shares to
the other party to the contract or appoint such other party their sales agent
for the Shares, and in either case on such terms and conditions, if any, as may
be prescribed in the By-laws; and such further terms and conditions as the
Trustees may in their discretion determine not inconsistent with the provisions
of this Article III or of the By-laws; and such contract may also provide for
the repurchase of the Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract or separate advisory contracts with respect to one or more Series
whereby the other party to such contract shall undertake to furnish to the Trust
such management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions as the Trustees may in their discretion determine, including the
grant of authority to such other party to determine what securities shall be
purchased or sold by the Trust and what portion of its assets shall be
uninvested, which authority shall include the power to make changes in the
investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent,
accounting agent or disbursing agent or for related services may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder of or has an interest in the Trust, or
that
(ii) any partnership, corporation, trust, association or other organization with
which a contract of the character described in Sections 3.1 or 3.2 above or
for services as Custodian, Transfer Agent, accounting agent or disbursing
agent or for related services may have been or may hereafter be made also
has any one or more of such contracts with one or more other partnerships,
corporations, trusts, associations or other organizations, or has other
business or interests, shall not affect the validity of any such contract
or disqualify any Shareholder, Trustee or officer of the Trust from voting
upon or executing the same or create any liability or accountability to the
Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into pursuant to
Sections 3.1 or 3.2 shall be consistent with and subject to the requirements of
Section 15 of the 1940 Act (including any amendment thereof or other applicable
act of Congress hereafter enacted), as modified by any applicable order or
orders of the Commission, with respect to its continuance in effect, its
termination and the method of authorization and approval of such contract or
renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee or
agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust shall
be indemnified by the Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having
been a Trustee or officer and against amounts paid or incurred by him in
the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal, administrative or
other, including appeals), actual or threatened; and the words "liability"
and "expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust, a Series thereof, or the Shareholders
by reason of a final adjudication by a court or other body before which a
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Trust; or
(iii) in the event of a settlement or other disposition not involving a final
adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a
payment by a Trustee or officer, unless there has been a determination
that such Trustee or officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to a full
trial-type inquiry) by (x) vote of a majority of the Disinterested
Trustees acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the matter), or (y)
written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to a final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security provided by the recipient, or the Trust shall be insured against
losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees act on the matter) or an
independent legal counsel in a written opinion shall determine, based upon
a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who (i) is
not an Interested Person of the Trust (including anyone who has been exempted
from being an Interested Person by any rule, regulation or order of the
Commission), or (ii) is not involved in the claim, action, suit or proceeding.
Section 4.4. No Bond Required of Trustees. No Trustee shall be
obligated to give any bond or other security for the performance of any of
his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc. No
purchaser, lender, Transfer Agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust shall be bound to make any inquiry
concerning the validity of any transaction purporting to be made by the Trustees
or by said officer, employee or agent or be liable for the application of money
or property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every other
act or thing whatsoever executed in connection with the Trust shall be
conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee and officer or employee of
the Trust shall, in the performance of his duties, be fully and completely
justified and protected with regard to any act or any failure to act resulting
from reliance in good faith upon the books of account or other records of the
Trust, upon an opinion of counsel, or upon reports made to the Trust by any of
its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries hereunder
shall be divided into transferable Shares of beneficial interest, all of one
class, except as provided in Section 5.13 and Section 5.15 hereof, without par
value, provided that the par value of the outstanding, and authorized but
unissued, shares of any Series may be changed by a written instrument referred
to in Section 5.13 hereof. The number of Shares of beneficial interest
authorized hereunder is unlimited. All Shares issued hereunder including,
without limitation, Shares issued in connection with a dividend in Shares or a
split of Shares, shall be fully paid and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property and the
property of each Series of the Trust of every description and the right to
conduct any business herein before described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights
specifically set forth in this Declaration. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights,
except as the Trustees may determine with respect to any Series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create only the
relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may, from time
to time without vote of the Shareholders, issue Shares, in addition to the then
issued and outstanding Shares and Shares held in the treasury, to such party or
parties and for such amount and type of consideration, including cash or
property, at such time or times and on such terms as the Trustees may deem best,
and may in such manner acquire other assets (including the acquisition of assets
subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number without
thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Except as otherwise provided by the Trustees,
Shares shall be transferable on the records of the Trust only by the record
holder thereof or by his agent thereunto duly authorized in writing, upon
delivery to the Trustees or the Transfer Agent of a duly executed instrument of
transfer, together with such evidence of the genuineness of each such execution
and authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust. Until such
record is made, the Shareholder of record shall be deemed to be the holder of
such Shares for all purposes hereunder and neither the Trustees nor any Transfer
Agent or registrar nor any officer, employee or agent of the Trust shall be
affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust. A notice of a meeting,
an annual report and any other communication to Shareholders need not be sent to
a Shareholder (i) if an annual report and a proxy statement for two consecutive
shareholder meetings have been mailed to such Shareholder's address and have
been returned as undeliverable, (ii) if all, and at least two, checks (if sent
by first class mail) in payment of dividends on Shares during a twelve-month
period have been mailed to such Shareholder's address and have been returned as
undeliverable or (iii) in any other case in which a proxy statement concerning a
meeting of security holders is not required to be given pursuant to the
Commission's proxy rules as from time to time in effect under the Securities
Exchange Act of 1934. However, delivery of such proxy statements, annual reports
and other communications shall resume if and when such Shareholder delivers or
causes to be delivered to the Trust written notice setting forth such
Shareholder's then current address.
Section 5.8. Treasury Shares. Shares held in the treasury shall, until reissued
pursuant to Section 5.4, not confer any voting rights on the Trustees, nor shall
such Shares be entitled to any dividends or other distributions declared with
respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Section 2.12; (ii) for the removal
of Trustees as provided in Section 2.13; (iii) with respect to termination of
the Trust as provided in Section 8.2; (iv) with respect to any amendment of this
Declaration to the extent and as provided in Section 8.3; (v) to the same extent
as the stockholders of Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or any Series or Class
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Series or Class shall not be entitled to bring a derivative or class
action on behalf of any other Series or Class (or Shareholder of any other
Series or Class) of the Trust); and (vi) with respect to such additional matters
relating to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provision of this
Declaration of Trust, on any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted by individual series or
Class, as appropriate, except (1) when required by the 1940 Act, Shares shall be
voted in the aggregate and not by individual series or Classes, and (2) when the
Trustees have determined that the matter affects only the interests of one or
more series or Classes, then only Shareholders of such series or Classes shall
be entitled to vote thereon. There shall be no cumulative voting in the election
of Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration or the
By-laws to be taken by Shareholders. The By-laws may include further provisions
for Shareholders' votes and meetings and related matters.
Section 5.10. Meetings of Shareholders. Meetings of Shareholders may be called
at any time by the President, and shall be called by the President and Secretary
at the request in writing or by resolution, of a majority of Trustees, or at the
written request of the holder or holders of ten percent (10%) or more of the
total number of Shares then issued and outstanding of the Trust entitled to vote
at such meeting. Any such request shall state the purpose of the proposed
meeting.
Section 5.11. Quorum and Required Vote. A majority of Shares entitled to vote
shall be a quorum for the transaction of business at a Shareholders' meeting,
except that where any provisions of law or of this Declaration of Trust permits
or requires that holders of any series shall vote as a series or any Class shall
vote as a Class, then a majority of the aggregate number of Shares of that
series or Class entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series or Class. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held,
within a reasonable time after the date set for the original meeting, without
the necessity of further notice. Except when a larger vote is required by any
provision of this Declaration of Trust or the Bylaws, a majority of the Shares
voted shall decide any questions and a plurality shall elect a Trustee, provided
that where any provision of law or of this Declaration of Trust permits or
requires that the holders of any series or Class shall vote as a series or
Class, then a majority of the Shares of that series or Class voted on the matter
(or a plurality with respect to the election of a Trustee) shall decide that
matter insofar as that series or Class is concerned. Notwithstanding anything to
the contrary contained herein, a plurality of each series shall be required to
elect a Trustee.
Section 5.12. Action by Written Consent. Any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders entitled to vote on the
matter (or such larger proportion thereof as shall be required by any express
provision of this Declaration of Trust or the Bylaws) consent to the action in
writing and such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5.13. Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more Series, and the different
Series shall be established and designated, and the variations in the relative
rights and preferences as between the different Series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different Series as
to investment objective, purchase price, par value, allocation of expenses,
right of redemption, special and relative rights as to dividends and on
liquidation, conversion rights, and conditions under which the several Series
shall have separate voting rights. All references to Shares in this Declaration
shall be deemed to be Shares of any or all Series as the context may require.
Without limiting the authority of the Trustees to establish and designate any
additional Series of Shares (or Classes of Shares under Section 5.15 herein),
there shall be established five initial series to be known, respectively, as:
(1) Income Portfolio; (2) Conservative Portfolio; (3) Balanced Portfolio; (4)
Growth and Income Portfolio; and (5) Growth Portfolio.
(a) All provisions herein relating to the Trust shall apply equally to each
Series of the Trust except, as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each Series that
may be issued shall be unlimited. The Trustees may classify or reclassify any
unissued Shares or any Shares previously issued and reacquired of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series reacquired by the Trust at their discretion
from time to time.
(c) All consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors of such Series and except
as may otherwise be required by applicable laws, and shall be so recorded upon
the books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series, the Trustees
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
(d) The assets belonging to each particular Series shall be charged with the
liabilities of the Trust in respect of that Series and with all expenses, costs,
charges and reserves attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series shall be allocated and
charged by the Trustees to and among any one or more of the Series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The assets of
a particular Series of the Trust shall, under no circumstances, be charged with
liabilities attributable to any other Series of the Trust. All persons extending
credit to, or contracting with or having any claim against a particular Series
of the Trust shall look only to the assets of that particular Series for payment
of such credit, contract or claim. No Shareholder or former Shareholder of any
Series shall have any claim on or right to any assets allocated or belonging to
any other Series.
(e) Each Share of a Series of the Trust shall represent a beneficial interest in
the net assets of such Series. Each holder of Shares of a Series shall be
entitled to receive his pro rata share of distributions of income and capital
gains made with respect to such Series, except as provided in Section 5.15
hereof. Upon redemption of his Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property of such Series of
the Trust. Upon liquidation or termination of a Series of the Trust,
Shareholders of such Series shall be entitled to receive a pro rata share of the
net assets of such Series, except as provided in Section 5.15 hereof. A
Shareholder of a particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each Class and
Series of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.14. Assent to Declaration of Trust. Every Shareholder, by virtue of
having become a shareholder, shall be held to have expressly assented and agreed
to the terms hereof and to have become a party hereto.
Section 5.15. Class Designation. The Trustees, in their discretion, may
authorize the division of the Shares of the Trust, or, if any Series be
established, the Shares of any Series, into two or more Classes, and the
different Classes shall be established and designated, and the variations in the
relative rights and preferences as between the different Classes shall be fixed
and determined, by the Trustees; provided, that all Shares of the Trust or of
any Series shall be identical to all other Shares of the Trust or the same
Series, as the case may be, except that there may be variations between
different Classes as to allocation of expenses, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several Classes shall have separate voting rights.
All references to Shares in this Declaration shall be deemed to be Shares of any
or all Classes as the context may require.
(a) All provisions herein relating to the Trust, or any Series of the Trust,
shall apply equally to each Class of Shares of the Trust or of any Series of the
Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be unlimited.
The Trustees may classify or reclassify any Shares or any Series of any Shares
into one or more Classes that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Class), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Class reacquired by the Trust at their discretion
from time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
(d) The establishment and designation of any Class of Shares shall be effective
upon the execution by a majority of the then Trustees of an instrument setting
forth such establishment and designation and the relative rights and preferences
of such Class, or as otherwise provided in such instrument. The Trustees may, by
an instrument executed by a majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares. All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to time
specify additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement under
the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value determined
as set forth in Section 7.1 hereof as of such time as the Trustees shall have
theretofore prescribed by resolution. In the absence of such resolution, the
redemption price of Shares deposited shall be the net asset value of such Shares
next determined as set forth in Section 7.1 hereof after receipt of such
application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant Series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement under the Securities Act of 1933,
subject to the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension
of the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 6.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on deposit.
The redemption price of Shares for which redemption applications have not been
revoked shall be the net asset value of such Shares next determined as set forth
in Section 7.1 after the termination of such suspension, and payment shall be
made within seven (7) days after the date upon which the application was made
plus the period after such application during which the determination of net
asset value was suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares directly,
or through the Distributor or another agent designated for the purpose, by
agreement with the owner thereof at a price not exceeding the net asset value
per Share determined as of the time when the purchase or contract of purchase is
made or the net asset value as of any time which may be later determined
pursuant to Section 7.1 hereof, provided payment is not made for the Shares
prior to the time as of which such net asset value is determined.
Section 6.6. Redemption at the Option of the Trust. The Trust shall have the
right at its option and at any time to redeem Shares of any Shareholder at the
net asset value thereof as determined in accordance with the Bylaws, and to
refuse to transfer or issue new Shares or other securities of the Trust to such
Shareholder: (i) if at such time such Shareholder owns fewer Shares than, or
Shares having an aggregate net asset value of less than, an amount determined
from time to time by the Trustees; or (ii) to the extent that such Shareholder
owns Share of a particular series of Shares or Class thereof equal to or in
excess of a percentage of the outstanding Shares of that series or Class thereof
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
Section 6.7. Reductions in Number of Outstanding Shares Pursuant to
Net Asset Value Formula. The Trust may also reduce the number of
Outstanding Shares pursuant to the provisions of Section 7.3.
Section 6.8. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings, (ii)
during which trading on the New York Stock Exchange is restricted, (iii) during
which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
Shareholders of the Trust by order permit suspension of the right of redemption
or postponement of the date of payment or redemption; provided that applicable
rules and regulations of the Commission shall govern as to whether the
conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall take
effect at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension, and
thereafter there shall be no right of redemption or payment on redemption until
the Trust shall declare the suspension at an end, except that the suspension
shall terminate in any event on the first day on which said stock exchange shall
have reopened or the period specified in (ii) or (iii) shall have expired as to
which in the absence of an official ruling by the Commission, the determination
of the Trust shall be conclusive). In the case of a suspension of the right of
redemption, a Shareholder may either withdraw his request for redemption or
receive payment based on the net asset value existing after the termination of
the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of the Trust or any Series
of the Trust shall be determined by appraisal of the securities of the Trust or
allocated to such Series, such appraisal to be on the basis of such method as
shall be deemed to reflect the fair value thereof, determined in good faith by
or under the direction of the Trustees. From the total value of said assets,
there shall be deducted all indebtedness, interest, taxes, payable or accrued,
including estimated taxes on unrealized book profits, expenses and management
charges accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate. The
net asset value of a Share shall be determined by dividing the net asset value
of the Class, or if no Class has been established, of the Series, or, if no
Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Shares
shall be determined at least once on each business day, as of the close of
trading on the New York Stock Exchange or as of such other time or times as the
Trustees shall determine.
The power and duty to make the daily calculations may be delegated by the
Trustees to the Investment Adviser, the Custodian, the Transfer Agent or such
other Person as the Trustees may determine by resolution or by approving a
contract which delegates such duty to another Person. The Trustees may suspend
the daily determination of net asset value to the extent permitted by the 1940
Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from time to time
distribute ratably among the Shareholders of the Trust or a Series such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets of the Trust or such Series held by the Trustees as they may deem proper.
Such distributions may be made in cash or property (including without limitation
any type of obligations of the Trust or such Series or any assets thereof), and
the Trustees may distribute ratably among the Shareholders additional Shares of
the Trust or such Series issuable hereunder in such manner, at such times, and
on such terms as the Trustees may deem proper. Such distributions may be among
the Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such other date or time or dates or times as the
Trustees shall determine. The Trustees may in their discretion determine that,
solely for the purposes of such distributions, Outstanding Shares shall exclude
Shares for which orders have been placed subsequent to a specified time on the
date the distribution is declared or on the next preceding day if the
distribution is declared as of a day on which Boston banks are not open for
business, all as described in the registration statement under the Securities
Act of 1933. The Trustees may always retain from the net profits such amount as
they may deem necessary to pay the debts or expenses of the Trust or the Series
or to meet obligations of the Trust or the Series, or as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business. The Trustees may adopt and offer to Shareholders
such dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees shall deem appropriate. The above provisions may be modified to the
extent required by a plan adopted by the Trustees to establish Classes of Shares
of the Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value; Reduction of
Outstanding Shares. Subject to Section 5.13 and Section 5.15 hereof, the net
income of the Trust or any Series shall be determined in such manner as the
Trustees shall provide by resolution. Expenses of the Trust or a Series,
including the advisory or management fee, shall be accrued each day. Such net
income may be determined by or under the direction of the Trustees as of the
close of trading on the New York Stock Exchange on each day on which such
Exchange is open or as of such other time or times as the Trustees shall
determine, and, except as provided herein, all the net income of the Trust or
any Series, as so determined, may be declared as a dividend on the Outstanding
Shares of the Trust or such Series. If, for any reason, the net income of the
Trust or any Series, determined at any time is a negative amount, the Trustees
shall have the power with respect to the Trust or such Series (i) to offset each
Shareholder's pro rata share of such negative amount from the accrued dividend
account of such Shareholder, or (ii) to reduce the number of Outstanding Shares
of the Trust or such Series by reducing the number of Shares in the account of
such Shareholder by that number of full and fractional Shares which represents
the amount of such excess negative net income, or (iii) to cause to be recorded
on the books of the Trust or such Series an asset account in the amount of such
negative net income, which account may be reduced by the amount, provided that
the same shall thereupon become the property of the Trust or such Series with
respect to the Trust or such Series and shall not be paid to any Shareholder, of
dividends declared thereafter upon the Outstanding Shares of the Trust or such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; or (iv) to combine the methods described in clauses
(i) and (ii) and (iii) of this sentence, in order to cause the net asset value
per Share of the Trust or such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees shall also have the power to fail to declare a dividend out of net
income for the purpose of causing the net asset value per Share to be increased
to a constant amount. The Trustees shall not be required to adopt, but may at
any time adopt, discontinue or amend the practice of maintaining the net asset
value per Share of the Trust or a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income. The Trustees shall have
full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much, if any, of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any of the
foregoing provisions of this Article VII, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per Share
net asset value or net income, or the declaration and payment of dividends and
distributions as they may deem necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC
Section 8.1. Duration. The Trust shall continue without limitation
of time but subject to the provisions of this Article VIII.
Section 8.2. Termination of Trust or the Series of the Trust. (a)
The Trust or any Series of the Trust may be terminated by an instrument in
writing signed by a majority of the Trustees, or by the affirmative vote of
the holders of two-thirds of the Shares of the Trust or Series outstanding
and entitled to vote, at any meeting of Shareholders. Upon the termination
of the Trust or any Series,
(i) the Trust or any Series shall carry on no business except for the purpose
of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of the Trust or Series
and all of the powers of the Trustees under this Declaration shall continue
until the affairs of the Trust or Series shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust or
Series, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property or
property of the Series to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; and
(iii)after paying or adequately providing for the payment of all liabilities,
and upon receipt of such releases, indemnities and refunding agreements as
they deem necessary for their protection, the Trustees may distribute the
remaining Trust Property or property of the Series, in cash or in kind or
partly each, among the Shareholders of the Trust or Series according to
their respective rights.
(b) After termination of the Trust or any Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders of the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
(a) This Declaration may be amended by a vote of the holders of a majority of
the Shares outstanding and entitled to vote, except that an amendment which
shall affect the holders of one or more series or Classes of Shares but not the
holders of all outstanding series or Classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series or
Class affected and no vote of Shareholders of a series or Class not affected
shall be required. Amendments shall be effective upon the taking of action as
provided in this section or at such later time as shall be specified in the
applicable vote or instrument. The Trustees may also amend this Declaration
without the vote or consent of Shareholders if they deem it necessary to conform
this Declaration to the requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code (including those provisions of such Code relating
to the retention of the exemption from federal income tax with respect to
dividends paid by the Trust out of interest income received on Municipal Bonds),
but the Trustees shall not be liable for failing so to do. The Trustees may also
amend this Declaration without the vote or consent of Shareholders if they deem
it necessary or desirable to change the name of the Trust, to supply any
omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or to make any other changes in the Declaration
which do not materially adversely affect the rights of Shareholders hereunder.
(b) Nothing contained in this Declaration shall permit the amendment of this
Declaration so as to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to permit
assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust or any Series
thereof may merge or consolidate with any other corporation, association, trust
or other organization or may sell, lease or exchange all or substantially all of
the Trust Property or the property of any Series, including its good will, upon
such terms and conditions and for such consideration when and as authorized by
an instrument in writing signed by a majority of the Trustees.
Section 8.5. Incorporation. When authorized by an instrument in writing signed
by a majority of the Trustees, the Trustees may cause to be organized or assist
in organizing a corporation or corporations under the laws of any jurisdiction
or any other trust, partnership, association or other organization to take over
all of the Trust Property or the property of any Series or to carry on any
business in which the Trust or the Series shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property or the property of
any Series to any such corporation, trust, association or organization in
exchange for the Shares or securities thereof or otherwise, and to lend money
to, subscribe for the Shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Filing. This Declaration and any amendment hereto shall be filed in
the office of the Secretary of the Commonwealth of Massachusetts and in such
other places as may be required under the laws of the Commonwealth of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Unless the amendment is embodied in an instrument
signed by a majority of the Trustees, each amendment filed shall be accompanied
by a certificate signed and acknowledged by a Trustee stating that such action
was duly taken in a manner provided herein. A restated Declaration, integrating
into a single instrument all of the provisions of the Declaration which are then
in effect and operative, may be executed from time to time by a majority of the
Trustees and shall, upon filing with the Secretary of the Commonwealth of
Massachusetts, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of the original Declaration and the various
amendments thereto. The restated Declaration may include any amendment which the
Trustees are empowered to adopt, whether or not such amendment has been adopted
prior to the execution of the restated Declaration.
Section 9.2. Governing Law. This Declaration is executed by the Trustees and
delivered in the Commonwealth of Massachusetts and with reference to the
internal laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the internal laws of said State without regard to the choice of law
rules thereof.
Section 9.3. Counterparts. This Declaration may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original, and such
counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
Section 9.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 9.5. Provisions in Conflict with Law or Regulations.
(a) The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall attach only to
such provision in such jurisdiction and shall not in any manner affect such
provisions in any other jurisdiction or any other provision of this Declaration
in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 6th
day of October, 1999.
/s/JOSEPH R. FLEMING
Joseph R. Fleming, Trustee
Dechert Price & Rhoads
Ten Post Office Square South
Boston, MA 02109
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
County of Suffolk October 6, 1999
Then personally appeared the above-named Joseph R. Fleming, who
acknowledged the foregoing instrument to be of his own free act and deed.
Before me,
/S/ DEBRA A. MARTIN
Notary Public
My commission expires: June 8, 2001
