IVY BOND FUND
A SERIES OF
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 18, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of the portfolios, Ivy Bond Fund
(the
"Fund"). The other twelve portfolios of Ivy Fund are
described
in separate Statements of Additional Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 18, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT SECURITIES
MUNICIPAL SECURITIES
CONVERTIBLE SECURITIES
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
COMMERCIAL PAPER
AMERICAN DEPOSITORY RECEIPTS (ADRS)
FOREIGN SECURITIES
INVESTING IN EMERGING MARKETS
REPURCHASE AGREEMENTS
LENDING OF SECURITIES
BORROWING
RESTRICTED AND ILLIQUID SECURITIES
WARRANTS
FORWARD FOREIGN CURRENCY CONTRACTS
ADJUSTABLE RATE PREFERRED STOCKS
HIGH YIELD BONDS
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT
AGREEMENTS
ZERO COUPON BONDS
OPTIONS TRANSACTIONS, FUTURES CONTRACTS AND
OPTIONS ON
FUTURES CONTRACTS
OPTIONS TRANSACTIONS
GENERAL
WRITING CALL OPTIONS ON INDIVIDUAL
SECURITIES
RISKS OF OPTIONS TRANSACTIONS
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
GENERAL
INTEREST RATE FUTURES CONTRACTS
OPTIONS ON INTEREST RATE FUTURES
CONTRACTS
FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
RISKS ASSOCIATED WITH FUTURES AND
RELATED
OPTIONS
COMBINED TRANSACTIONS
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
AUTOMATIC INVESTMENT METHOD
EXCHANGE OF SHARES
INITIAL SALES CHARGE SHARES
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A
CLASS B
LETTER OF INTENT
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS")
QUALIFIED PLANS
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS
REINVESTMENT PRIVILEGE
RIGHTS OF ACCUMULATION
SYSTEMATIC WITHDRAWAL PLAN
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES
DISTRIBUTION SERVICES
CUSTODIAN
FUND ACCOUNTING SERVICES
TRANSFER AGENT AND DIVIDEND PAYING AGENT
ADMINISTRATOR
AUDITORS
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
GENERAL
DISTRIBUTIONS
DISPOSITION OF SHARES
HEDGING TRANSACTIONS
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR
LOSSES
FOREIGN WITHHOLDING TAXES
INVESTMENT IN PASSIVE FOREIGN INVESTMENTS
COMPANIES
DISCOUNT
BACKUP WITHHOLDING
OTHER TAXATION
PERFORMANCE INFORMATION
YIELD
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
CUMULATIVE TOTAL RETURN
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION
FINANCIAL STATEMENTS
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") CORPORATE
BOND AND
COMMERCIAL PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). In these securities,
the
payment of principal and interest is unconditionally
guaranteed
by the U.S. Government, and thus they are of the
highest possible
credit quality. Such securities are subject to
variations in
market value due to fluctuations in interest rates,
but, if held
to maturity, will be paid in full.
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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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, Bank for
Cooperatives
(including Central Bank for Cooperatives), Federal
Intermediate
Credit Banks, Federal Home Loan Banks, Federal National
Mortgage
Association, Student Loan Marketing Association,
Tennessee Valley
Authority, Export-Import Bank of the United States,
Commodity
Credit Corporation, Federal Financing Bank, Federal
Home Loan
Mortgage Corporation, Small Business Administration and
National
Credit Union Administration.
MUNICIPAL SECURITIES
Municipal securities are debt obligations that
generally
have a maturity at the time of issue in excess of one
year and
are issued to obtain funds for various public purposes.
The two
principal classifications of municipal bonds are
"general
obligation" and "revenue" bonds. General obligation
bonds are
secured by the issuer's pledge of its full faith,
credit and
taxing power for the payment of principal and interest.
Revenue
bonds are payable only from the revenues derived from a
particular facility or class of facilities, or, in some
cases,
from the proceeds of a special excise of specific
revenue source.
Industrial development bonds or private activity bonds
are issued
by or on behalf of public authorities to obtain funds
for
privately-operated facilities and are in most cases
revenue bonds
that generally do not carry the pledge of the full
faith and
credit of the issuer of such bonds, but depend for
payment on the
ability of the industrial user to meet its obligations
(or on any
property pledged as security).
The market prices of municipal securities, like
those of
taxable debt securities, go up and down when interest
rates
change. Thus, the net asset value per share can be
expected to
fluctuate and shareholders may receive more or less
than their
purchase price for shares they redeem.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities,
including
corporate bonds, notes, debentures and other securities
convertible into common stock. 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
stocks changes, and, therefore, also tends to follow
movements in
the general market for equity securities. As the
market price of
the underlying common stock declines, convertible
securities tend
to trade increasingly on a yield basis, and so may not
experience
market value declines to the same extent as the
underlying common
stock. When the market price of the underlying common
stock
increases, the prices of the convertible securities
tends to rise
as a reflection of the value of the underlying common
stock,
although typically not as much as 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
which provide
for a stream of income (or in the case of zero coupon
securities,
accretion of income) with generally higher yields than
common
stocks. Like all debt securities, however, 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.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
The Fund may invest in bank obligations, which may
include
certificates of deposit, bankers' acceptances, and
other short-
term debt 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 on maturity. Investments in certificates of
deposit
and bankers' acceptances are limited to obligations of
(i) banks
having total assets in excess of $1 billion, and (ii)
other banks
if the principal amount of such obligation (currently
$100,000)
is fully insured by the Federal Deposit Insurance
Corporation
("FDIC"). Investments in certificates of deposit of
savings
associations are limited to obligations of federally or
state
chartered institutions that have total assets in excess
of $1
billion and whose deposits are insured by the FDIC.
COMMERCIAL PAPER
The Fund may invest in commercial paper.
Commercial paper
represents short-term unsecured promissory notes issued
in bearer
form by bank holding companies, corporations and
finance
companies. Investments in commercial paper are limited
to
obligations rated Prime-1 by Moody's Investors Service,
Inc.
("Moody's") or A-1 by Standard and Poor's Corporation
("S&P") or,
if not rated by Moody's or S&P, issued by companies
having an
outstanding debt issue currently rated Aaa or Aa by
Moody's or
AAA or AA by S&P.
AMERICAN DEPOSITORY RECEIPTS (ADRs)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
would be entitled as the owner of sponsored ADRs.
FOREIGN SECURITIES
The Fund may invest in debt securities of foreign
issuers,
including non-U.S. dollar-denominated debt securities,
Eurodollar
securities and debt securities issued, assumed or
guaranteed by
foreign governments or political subdivisions or the
instrumentalities thereof. Investors 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 domestic
investments.
Although the Fund intends to invest only in nations
that IMI
considers to have relatively stable and friendly
governments,
there is the possibility of expropriation,
nationalization or
confiscatory taxation, taxation of 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 in 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
in reports
about companies in the United States. For example,
ownership of
unsponsored ADRs may not entitle the owner to financial
or other
reports from the issuer to which it might otherwise be
entitled
as the owner of a sponsored ADR. 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
government
supervision and regulation of business and industry
practices,
stock exchanges, brokers and listed companies than in
the United
Sates. Foreign securities transactions may 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.
Further, the Fund may encounter difficulties or be
unable to
pursue legal remedies and obtain judgment in foreign
courts.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements.
Repurchase
agreements are agreements 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. The Fund will not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities including such repurchase
agreements. The
Fund may enter into repurchase agreements with banks or
broker-
dealers deemed to be creditworthy by IMI under
guidelines
approved by the Board of Trustees. In the 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.
LENDING OF SECURITIES
As a fundamental policy, the Fund may lend to
broker-dealers
portfolio securities that are not (i) subject to
options that it
has written, or (ii) held in a segregated account with
its
Custodian, pursuant to an agreement requiring that the
loans be
continuously secured by cash, U.S. Government
securities, or any
combination of cash and such securities, as collateral
equal at
all times to at least the market value of the
securities loaned.
As a non-fundamental policy, such loans will not be
made if, as a
result, the aggregate value of all outstanding
securities loaned
exceeds 30% of the value of the Fund's total assets
taken at
current value. The Fund will continue to receive
interest on the
securities loaned and simultaneously will earn interest
on the
investment of the cash collateral in U.S. Government
securities.
However, the Fund normally will pay lending fees to
such broker-
dealers from the interest earned on invested
collateral.
There may be risks of delay in receiving
additional
collateral, or risks of delay in recovery of the
securities or
even loss of rights in the collateral, should the
borrower of the
securities fail financially. However, loans are made
only to
borrowers deemed by IMI to be of good standing, and
when, in the
judgment of IMI, the fee which can be earned from such
loans
justifies the attendant risk.
BORROWING
As a fundamental policy, the Fund may borrow from
banks as a
temporary measure for extraordinary or emergency
purposes. The
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. The
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. 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).
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, as amended (the "1933 Act"), and any other
illiquid
securities (including repurchase agreements of more
than seven
days duration and other securities which are not
readily
marketable) may not constitute, at the time of
purchase, more
than 10% of the value of the Fund's net assets.
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. Restricted
securities
may be sold only in privately negotiated transactions
or in a
public offering with respect to which a registration
statement is
in effect under the 1933 Act. Where a registration
statement is
required, the Fund may be required to bear all or part
of the
registration expenses. There may be a lapse of time
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. If, during such a period, adverse market
conditions
were to develop, the Fund might obtain a price less
favorable
than the price that prevailed when it decided to sell.
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, the Fund will carefully monitor each of its
investments in these securities, focussing on such
important
factors, among others, as valuation, liquidity and
availability
of information. This investment practice could have
the effect
of increasing the level of illiquidity in the Fund to
the extent
that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
exchange
contracts in order to protect against uncertainty in
the level of
future foreign exchange rates in the purchase and sale
of
securities, but not for speculative purposes. A
forward foreign
currency exchange contract involves an obligation to
purchase or
sell a specific currency at a future date, which may be
any fixed
number of days from the date of the contract agreed
upon by the
parties, at a price set at the time of the contract.
These
contracts may be bought or sold to protect the Fund
against a
possible loss resulting from an adverse change in the
relation-
ship between foreign currencies and the U.S. dollar.
Although
such 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 that might result
should
the value of such currencies increase.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contract would obligate the Fund to deliver an amount
of currency
in excess of the value of the Fund's portfolio
securities or
other assets denominated in that currency. Further,
the Fund
generally will not enter into a forward contract with a
term of
greater than one year.
The Fund will hold cash, U.S. Government
securities, or
other high-grade debt securities in a segregated
account with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
ADJUSTABLE RATE PREFERRED STOCKS
The Fund may invest in adjustable rate preferred
stocks.
Adjustable rate preferred stocks have a variable
dividend,
generally determined on a quarterly basis according to
a formula
based upon a specified premium or discount to the yield
on a
particular U.S. Treasury security rather than a
dividend which is
set for the life of the issue. Although the dividend
rates on
these stocks are adjusted quarterly and their market
value should
therefore be less sensitive to interest rate
fluctuations than
are other fixed income securities and preferred stocks,
the
market values of adjustable rate preferred stocks have
fluctuated
and can be expected to continue to do so in the future.
HIGH YIELD BONDS
The Fund may invest in corporate debt securities
rated Baa
or lower by Moody's or BBB or lower by S&P. The Fund
will not,
however, invest in securities that, at the time of
investment,
are rated lower than C by either Moody's or S&P.
Securities
rated Baa or BBB (and comparable unrated securities)
are
considered by major credit-rating organizations to have
speculative elements as well as investment-grade
characteristics.
Securities rated lower than Baa or BBB (and comparable
unrated
securities) are commonly referred to as "high yield" or
"junk"
bonds and 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. See Appendix A for a more complete
description of
the ratings assigned by Moody's and S&P and their
respective
characteristics.
While IMI may refer to ratings issued by
established credit
rating agencies, it is not IMI's policy to rely
exclusively on
such ratings, but rather to supplement such ratings
with its own
independent and ongoing review of credit quality. The
Fund's
achievement of its investment objective may, to the
extent of its
investment in high yield bonds, be more dependent upon
IMI's
credit analysis than would be the case if the Fund were
investing
in higher quality bonds. Should the rating of a
portfolio
security be downgraded, IMI will determine whether it
is in the
Fund's best interest to retain or dispose of the
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.
The secondary market on which high yield bonds are
traded
may be less liquid than the market for higher grade
bonds. Less
liquidity in the secondary trading market could
adversely affect
the price at which the Fund could sell a high yield
bond, and
could adversely affect 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 values and liquidity of high
yield
bonds, especially in a thinly traded market. When
secondary
markets for high yield securities are less liquid than
the
markets for higher grade securities, it may be more
difficult to
value the securities because such valuation may require
more
research, and elements of judgment may play a greater
role in the
valuation because there is less reliable, objective
data
available.
Furthermore, prices for high yield bonds may be
affected by
legislative and regulatory developments. For example,
federal
rules require savings and loan institutions to reduce
gradually
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 on
these securities and regulate corporate restructurings.
Such
legislation may significantly depress the prices of
outstanding
securities of this type.
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT AGREEMENTS
When the Fund purchases new issues of securities
on a when-
issued basis, the Fund's Custodian will establish a
segregated
account for the Fund consisting of cash, U.S.
Government
securities, or other high-grade debt securities equal
to the
amount of the commitment. If the value of securities
in the
account should decline, additional cash or securities
will be
placed in the account so that the market value of the
account
will equal the amount of such commitments by the Fund
on a daily
basis.
Securities purchased on a when-issued basis and
the
securities held in the Fund's portfolio are subject to
changes in
market value based upon various factors including
changes in the
level of market interest rates. Generally, the value
of such
securities will fluctuate inversely to changes in
interest rates,
i.e., they will appreciate in value when market
interest rates
decline and decrease in value when market interest
rates rise.
For this reason, placing securities rather than cash in
the
segregated account may have a leveraging effect on the
Fund's net
assets. That is, to the extent that the Fund remains
substantially fully invested in securities at the same
time that
it has committed to purchase securities on a
when-issued basis,
there will be greater fluctuations in its net assets
than if it
had set aside cash to satisfy its purchase commitment.
Upon the settlement date of the when-issued
securities, the
Fund ordinarily will meet its obligation to purchase
the
securities from available cash flow, use of the cash
(or
liquidation of securities) held in the segregated
account or sale
of other securities. Although it would not normally
expect to do
so, the Fund also may meet its obligation from the sale
of the
when-issued securities themselves (which may have a
current
market value greater or less than the Fund's payment
obligation).
The sale of securities to meet such obligations carries
with it a
greater potential for the realization of capital gains.
The Fund may also enter into firm commitment
agreements for
the purchase of securities at an agreed-upon price on a
specified
future date. During the time that the Fund is
obligated to
purchase such securities, it will maintain in a
segregated
account with its Custodian cash, U.S. Government
securities or
other high-grade debt securities of an aggregate value
sufficient
to make payment for the securities.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in
accordance with
the Fund's credit quality standards. 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, however, 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 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 the Fund 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.
OPTIONS TRANSACTIONS, FUTURES CONTRACTS AND OPTIONS ON
FUTURES
CONTRACTS
The Fund can use various techniques to increase or
decrease
its exposure to changing security prices, interest
rates,
currency exchange rates, commodity prices, or other
factors that
affect security values. These techniques may involve
derivative
transactions such as purchasing put and call options,
selling
call options, and engaging in transactions in interest
rate
futures, currency rate futures, and options on interest
rate
futures and currency futures contracts. IMI can use
these
practices to adjust the risk and return characteristics
of the
Fund's portfolio of investments. If IMI judges market
conditions
incorrectly or employs a strategy that does not
correlate well
with the Fund's investments, these techniques could
result in a
loss. These techniques may increase the volatility of
the Fund
and may involve a small investment of cash relative to
the
magnitude of the risk assumed. In addition, these
techniques
could result in a loss if the counterparty to the
transaction
does not perform as promised.
OPTIONS TRANSACTIONS.
GENERAL. The Fund may sell (write)
exchange-listed call
options and purchase put and call options in accordance
with its
investment objectives and policies. 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 an option wishes to terminate the
obligation, he or she 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
cancelled 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. If any call or put
is not
exercised or sold, it will become worthless on its
expiration
date.
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 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 put which 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."
A gain (or a loss) will be realized by the Fund 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 capital gain or loss,
depending upon
the Fund's holding period for the option.
The Fund will not purchase put or call options if
the
aggregate premium paid for such options would exceed
10% of its
net assets at the time of purchase.
WRITING CALL OPTIONS ON INDIVIDUAL SECURITIES.
The Fund may
write (sell) covered call options as described in the
Prospectus.
Covered call options provide the Fund with additional
income on
its portfolio securities or partially protect against
declines in
the value of those securities. A "covered" call option
means
generally that so long as the Fund is obligated as the
writer of
a call option, the Fund will either own the underlying
securities
subject to the option, or hold a call at the same
exercise price,
for the same exercise period, and on the same
securities as the
call written. 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.
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 an 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 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, 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 is
purchased to hedge against price movements in a related
security,
the price of the put or call option may move more or
less than
the price of the related security. In this regard,
trading in
options on certain securities (such as U.S. Government
securities) is relatively new, so that it is impossible
to
predict to what extent liquid markets will develop or
continue.
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. 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.
The Fund may employ hedging strategies with
options on
currencies before the Fund purchases a foreign security
denominated in the hedged currency that the Fund
anticipates
acquiring, during the period the Fund holds the foreign
security,
or between the date the foreign security is purchased
or sold and
the date on which payment therefor is made or received.
Hedging
against a change in the value of a foreign currency in
the
foregoing manner does not eliminate fluctuations in the
prices of
portfolio securities or prevent losses if the prices of
such
securities decline. Furthermore, such hedging
transactions
reduce or preclude the opportunity for gain if the
value of the
hedged currency should change relative to the U.S.
dollar. With
respect to transactions in surrogate currencies, there
is a risk
of loss if there is not a correlation between the
currency in
which the hedge is desired and the surrogate currency.
A position on an option on foreign currencies may
be closed
out only on an exchange which provides a secondary
market for an
option of the same series. Although the Fund will
purchase only
exchange-traded options, there is no assurance that a
liquid
secondary market on an exchange will exist for any
particular
option, or at any particular time. In the event no
liquid
secondary market exists, it might not be possible to
effect
closing transactions in particular options. If the
Fund cannot
close out an exchange-traded option which it holds, it
would have
to exercise its option in order to realize any profit
and would
incur transactional costs on the sale of the underlying
assets.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The Fund may enter into futures
contracts and
options on futures contracts. 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 U.S. Government 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,
U.S. Government securities, or other high grade debt
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 a futures contact, the Fund will
maintain with
its custodian (and mark-to-market on a daily basis)
liquid assets
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 (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other high
grade debt
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.
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, U.S. Government securities, or other
highly liquid
debt 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures and futures options.
INTEREST RATE FUTURES CONTRACTS. The Fund may
engage in
interest rate futures contracts transactions for
hedging purposes
only. An interest rate futures contract is an
agreement between
parties to buy or sell a specified debt security at a
set price
on a future date. The financial instruments that
underlie
interest rate futures contracts include long-term U.S.
Treasury
bonds, U.S. Treasury notes, GNMA certificates, and
three-month
U.S. Treasury bills. In the case of futures contracts
traded on
U.S. exchanges, the exchange itself or an affiliated
clearing
corporation assumes the opposite side of each
transaction (i.e.,
as buyer or seller). A futures contract may be
satisfied or
closed out by delivery or purchase, as the case may be
in the
cash financial instrument or by payment of the change
in the cash
value of the index. Frequently, using futures to
effect a
particular strategy instead of using the underlying or
related
security will result in lower transaction costs being
incurred.
The Fund may sell interest rate futures contracts
in order
to hedge its portfolio securities whose value may be
sensitive to
changes in interest rates. In addition, the Fund could
purchase
and sell these futures contracts in order to hedge its
holdings
in certain common stocks (such as utilities, banks and
savings
and loans) whose value may be sensitive to changes in
interest
rates. The Fund could sell interest rate futures
contracts in
anticipation of or during a market decline to attempt
to offset
the decrease in market value of its securities that
might
otherwise result. When the Fund is not fully invested
in
securities, it could purchase interest rate futures in
order to
gain rapid market exposure that may in part or entirely
offset
increases in the cost of securities that it intends to
purchase.
As such purchases are made, an equivalent amount of
interest rate
futures contracts will be terminated by offsetting
sales. In a
substantial majority of these transactions, the Fund
would
purchase such securities upon termination of the
futures position
whether the futures position results from the purchase
of an
interest rate futures contract or the purchase of a
call option
on an interest rate futures contract, but under unusual
market
conditions, a futures position may be terminated
without the
corresponding purchase of securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. For
hedging
purposes, the Fund may also purchase and write put and
call
options on interest rate futures contracts which are
traded on a
U.S. exchange or board of trade and sell or purchase
such options
to terminate an existing position. Options on interest
rate
futures give the purchaser the right (but not the
obligation), in
return for the premium paid, to assume a position in an
interest
rate futures contract at a specified exercise price at
a time
during the period of the option.
Transactions in options on interest rate futures
would
enable the Fund to hedge against the possibility that
fluctuations in interest rates and other factors may
result in a
general decline in prices of debt securities owned by
the Fund.
Assuming that any decline in the securities being
hedged is
accomplished by a rise in interest rates, the purchase
of put
options and sale of call options on the futures
contracts may
generate gains which can partially offset any decline
in the
value of the Fund's portfolio securities which have
been hedged.
However, if after the Fund purchases or sells an option
on a
futures contract, the value of the securities being
hedged moves
in the opposite direction from that contemplated, the
Fund may
experience losses in the form of premiums on such
options which
would partially offset gains the Fund would have.
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
are several risks associated with the use of futures
contracts
and futures options as hedging techniques. A purchase
or sale of
a futures contract may result in losses in excess of
the amount
invested in the futures contract. 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 a 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.
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
together
with the investment restrictions set forth below, are
fundamental
policies of the Fund and may not be changed with
respect to the
Fund without the approval of a majority of the
outstanding voting
shares of the Fund. Under these restrictions, the Fund
may not:
(i) Purchase securities of any one issuer
(except U.S.
government securities) if as a result
more than 5%
of the Fund's total assets would be
invested in
such issuer or the Fund would own or
hold more
than 10% of the outstanding voting
securities of
that issuer; provided, however, that up
to 25% of
the value of the Fund's total assets may
be
invested without regard to these
limitations;
(ii) Invest in real estate, real estate
mortgage loans,
commodities, commodity futures contracts
or
interests in oil, gas and/or mineral
exploration
or development programs, although a Fund
may
purchase and sell (a) securities which
are secured
by real estate, (b) securities of
issuers which
invest or deal in real estate, and (c)
futures
contracts as described in a Fund's
Prospectus;
(iii) Make investments in securities for the
purpose of
exercising control over or management of
the
issuer;
(iv) Participate on a joint or a joint and
several
basis in any trading account in
securities. The
"bunching" of orders of the Fund--or of
the Fund
and of other accounts under the
investment
management of the persons rendering
investment
advice to the Fund--for the sale or
purchase of
portfolio securities shall not be
considered
participation in a joint securities
trading
account;
(v) Purchase securities on margin, except
such short-
term credits as are necessary for the
clearance of
transactions. The deposit or payment by
a Fund of
initial or variation margin in
connection with
futures contracts or related options
transactions
is not considered the purchase of a
security on
margin;
(vi) Make loans, except that this restriction
shall not
prohibit (a) the purchase and holding of
a portion
of an issue of publicly distributed debt
securities, (b) the lending of portfolio
securities (provided that the loan is
secured
continuously by collateral consisting of
U.S.
Government securities or cash or cash
equivalents
maintained on daily marked-to-market
basis in an
amount at least equal to the current
market value
of the securities loaned), or (c) entry
into
repurchase agreements with banks or
broker-
dealers;
(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;
(viii) Mortgage, pledge, hypothecate or in any
manner
transfer, as security for indebtedness,
any
securities owned or held by the Fund
(except as
may be necessary in connection with
permitted
borrowings and then not in excess of 20%
of the
Fund's total assets); provided, however,
this does
not prohibit escrow, collateral or
margin
arrangements in connection with its use
of
options, short sales, futures contracts
and
options on future contracts;
(ix) Purchase the securities of issuers
conducting
their principal business activities in
the same
industry if immediately after such
purchase the
value of the Fund's investments in such
industry
would exceed 25% of the value of the
total assets
of the Fund;
(x) Act as an underwriter of securities;
(xi) Make short sales of securities or
maintain a short
position; or
(xii) Issue senior securities, except insofar
as the
Fund may be deemed to have issued a
senior
security in connection with any
repurchase
agreement or any permitted borrowing.
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
and mineral
leases (other than securities of
companies that
invest in or sponsor such programs);
(iii) purchase or retain securities of any
company if
officers and Trustees of the Trust and
officers
and directors of the Manager or
Mackenzie
Financial Corporation ("MFC") who
individually own
more than 1/2 of 1% of the securities of
that
company together own beneficially more
than 5% of
such securities;
(iv) 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 of
companies (including predecessors) less
than three
years old;
(v) invest more than 10% of its net assets
taken at
market value at the time of the
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
Adviser'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, to the Fund's compliance with
certain
conditions intended to provide
liquidity, or to
other factors, is liquid; or
(vi) purchase securities of any open-end
investment
company, or securities of closed-end
companies,
except by purchase in the open market
where no
commission or profit to a sponsor or
dealer
results from such purchases, or except
when such
purchase is part of a merger,
consolidation,
reorganization or sale of assets, and
except that
the Fund 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 or by any state in
which shares
of the Fund are registered.
In addition, so long as it remains a restriction
of the Ohio
Division of Securities, the Fund will treat securities
eligible
for resale under Rule 144A of the Securities Act of
1933 as
subject to the Fund's restriction on investing in
restricted
securities (see "Restricted and Illiquid Securities"
under
"Investment Objectives and Policies," above).
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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this Statement of Additional Information.
These
funds are: Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy
International
Bond Fund, Ivy China Region Fund, Ivy Latin America
Strategy
Fund, Ivy New Century Fund, Ivy Money Market Fund, Ivy
Canada
Fund, Ivy Global Fund and Ivy Short-Term Bond Fund, the
other
twelve series of Ivy Fund; Mackenzie California
Municipal Fund,
Mackenzie Florida Limited Term Municipal Fund,
Mackenzie Limited
Term Municipal Fund, Mackenzie National Municipal Fund
and
Mackenzie New York Municipal Fund, the five series of
Mackenzie
Series Trust (collectively, with the Fund, the "Ivy
Mackenzie
Funds"). Investors should obtain a current prospectus
before
exercising any right or privilege that may relate to
these
funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt by The Mackenzie Ivy Investor Services
Corp.
("MIISC") of telephone instructions or written notice
to MIISC
from the investor. See "Automatic Investment Method"
in the
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus ("outstanding Class A shares"), for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy
New Century
Fund, Ivy Latin America Strategy Fund and Ivy China
Region Fund
("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2.5%
Third 2%
Fourth 1.5%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4.0% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2.5% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000 ($5,000,000 in the case of Class I of the Fund).
No
exchange out of the Fund (other than by a complete
exchange of
all shares of the Fund) may be made if it would reduce
the
shareholder's interest in the Fund to less than $1,000.
Exchanges are available only in states where the
exchange can be
legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund will result in a taxable
gain or loss.
Generally, any such taxable gain or loss 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 new account application in the Fund's
Prospectus. Any investor may submit a Letter of Intent
stating
that he or she will invest, over a period of 13 months,
at least
$100,000 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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Short-Term Bond Fund,
Ivy Canada
Fund, Ivy Global Fund, Mackenzie National Municipal
Fund,
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund,
Mackenzie New York Municipal Fund, Ivy Growth Fund, Ivy
Growth
with Income Fund, Ivy Emerging Growth Fund, Ivy
International
Fund, Ivy International Bond Fund, Ivy New Century
Fund, Ivy
Latin America Strategy Fund and Ivy China Region Fund
(and shares
that have been exchanged into Ivy Money Market Fund
from any of
the other funds in the Ivy Mackenzie Funds), held of
record by
him or her as of the date of his or her Letter of
Intent as an
accumulation credit toward the completion of such
Letter. 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
MIFDI an amount equal to the difference between the
dollar amount
of sales charge which 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 thereof 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 MIFDI may be purchased in a single
application
establishing a single plan account, and shares held in
such an
account may be exchanged among the funds in the Ivy
Mackenzie
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
account
For shareholders whose retirement accounts are
diversified across
several funds of the Ivy Mackenzie Funds, the annual
maintenance
fee will be limited to not more than $20.
The following discussion describes in general
terms 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 ("IRAS"): Shares
of the
Trust may be used as a funding medium for an IRA.
Eligible
individuals may establish an IRA by adopting a model
custodial
account available from MIISC, who may impose a charge
for
establishing the account. Individuals may wish to
consult their
tax advisers before investing IRA assets in a fund
which
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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of one spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is less than a specified level ($40,000 for
married
couples filing a joint return, $25,000 for single
individuals,
and $0 for a married individual filing a separate
return). The
deduction is phased out ratably for active participants
with
adjusted gross income between certain levels ($40,000
and $50,000
for married individuals filing a joint return, $25,000
and
$35,000 for single individuals, and $0 and $10,000 for
married
individuals filing separate returns). Individuals with
income
above the specified phase-out level may not deduct
their IRA
contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS: For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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. Sales charges for such
purchases are
the same as those set forth under "Initial Sales Charge
Alternative -- Class A Shares" in the Prospectus. The
special
application for a 403(b)(7) Account is available from
MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
Transfer Agent 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 charge applies to any
investment of
$100,000 or more in Class A shares of the Fund. See
"Initial
Sales Charge Alternative -- Class A Shares" in the
Prospectus for
the Fund. 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). It
also
applies to current purchases of all of the funds in the
Ivy
Mackenzie Funds (except Ivy Money Market Fund) by any
of the
persons enumerated above, where the aggregate quantity
of Class A
shares of the Fund, Ivy Short-Term Bond Fund, Ivy
Canada Fund,
Ivy Global Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie New York Municipal
Fund,
Mackenzie Florida Limited Term Municipal Fund,
Mackenzie Limited
Term Municipal Fund, Ivy Growth Fund, Ivy Growth with
Income
Fund, Ivy Emerging Growth Fund, Ivy International Fund,
Ivy
International Bond Fund, Ivy New Century Fund, Ivy
Latin America
Strategy Fund and Ivy China Region Fund (and shares
that have
been exchanged into Ivy Money Market Fund from any of
the other
funds in the Ivy Mackenzie Funds) and of any other
investment
company distributed by MIFDI, 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 or more for Ivy Canada
Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy
International
Bond Fund, Ivy New Century Fund, Ivy Latin America
Strategy Fund
and Ivy China Region Fund; $100,000 or more for the
Fund,
Mackenzie National Municipal Fund, Mackenzie California
Municipal
Fund and Mackenzie New York Municipal Fund; $25,000 or
more for
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund; or $1,000,000 or more for
Ivy Short-
Term Bond Fund.
At the time an investment takes place, IMI, in the
case of a
wire order, or the Transfer Agent, in the case of a
direct mail
remittance, must be notified by the investor or his or
her dealer
that the investment qualifies for the reduced charge on
the basis
of previous investments. The reduced charge is subject
to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts
in Class I)
may establish a Systematic Withdrawal Plan (the
"Withdrawal
Plan") by telephone instructions to MIISC or by
delivery to the
Transfer Agent of a written election to so redeem,
accompanied by
a surrender to the Transfer Agent of all share
certificates then
outstanding in the name of such shareholder, properly
endorsed by
him or her. A Withdrawal Plan may not be established
if the
investor is currently participating in the Automatic
Investment
Method. The Withdrawal Plan may involve the use of
principal
and, to the extent that it does, depending on the
amount
withdrawn, the investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments made by investors
participating in
the Withdrawal Plan must equal at least $1,000 each
while the
Withdrawal Plan is in effect. Making additional
purchases while
the Withdrawal Plan is in effect may be disadvantageous
to the
investor because of applicable initial or contingent
deferred
sales charges.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIISC may terminate the Withdrawal Plan at any
time
after reasonable notice to shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 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 in servicing all of its accounts. In
addition, not
all of these services may be used by IMI in connection
with the
services it provides to the Fund or the Trust. IMI may
consider
sales of shares of the Fund as a factor in the
selection of
broker-dealers and may select broker-dealers who
provide it with
research services. IMI 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
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
During the fiscal years ended June 30, 1992, 1993
and 1994,
the Fund (operating as Mackenzie Fixed Income Trust)
paid
brokerage commissions of $47,649, $39,498 and $175,688,
respectively. For the six-month period ended December
31, 1994,
the Fund paid $42,425 in brokerage commissions.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age: 74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A, Class B
and Class I shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
The Trustees of Ivy Fund include the individuals
listed in
the above table (except for Stanley Channick in
addition to
Michael R. Peers (Trustee and Chairman of the Board)
and Richard
N. Silverman (Trustee).
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") currently provides
business
management and investment advisory services to the Fund
pursuant
to a Business Management and Investment Advisory
Agreement (the
"Agreement"). The Agreement was approved on September
29, 1994
by the Trust's Board of Trustees including a majority
of the
Trustees who neither are "interested persons" (as
defined in the
1940 Act) of the Trust nor have a direct or indirect
financial
interest in the operation of the distribution plan (see
"Distribution Services") or in any related agreement
(the
"Independent Trustees"). The Agreement was approved by
the sole
shareholder of the Fund on December 31, 1994. Until
December 31,
1994 Mackenzie Investment Management Inc. ("MIMI")
served as
investment adviser to the Fund, which until December
31, 1994 was
a series of Mackenzie Series Trust. IMI is a wholly
owned
subsidiary of MIMI. MIMI is a subsidiary of 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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund. On
December 31, 1994, the Fund was reorganized as a series
of the
Trust. In connection with that reorganization, IMI
succeeded to
MIMI as investment adviser to the Fund. IMI also
currently acts
as manager and investment adviser to the following
investment
companies registered under the 1940 Act: Ivy Emerging
Growth
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy Money Market Fund, Ivy China
Region Fund,
Ivy Latin America Strategy Fund, Ivy New Century Fund,
Ivy
International Bond Fund, Ivy Global Fund, Ivy Canada
Fund and Ivy
Short-Term Bond Fund.
The Fund pays IMI a monthly fee for providing
business
management and investment advisory services at an
annual rate of
0.75% of the first $500 million of the Fund's average
daily net
assets, reduced to 0.60% of the next $500 million and
0.40% of
average daily net assets over $1 billion. During the
six-month
period ended December 31, 1994 and for the fiscal years
ended
June 30, 1994, 1993, and 1992, IMI received fees of
$445,111,
$984,110, $887,211, and $740,019, respectively, from
the Fund.
Prior to November 1, 1990, MFC served as
investment adviser
to the Fund; for its services, MFC was paid by MIMI a
monthly fee
at an annual rate of 0.25% of the average daily net
assets of the
Fund. For the period from July 1, 1990 until October
31, 1990,
MFC received fees from MIMI of $61,231. For the fiscal
year
ended June 30, 1990, MFC received fees from MIMI of
$101,095 for
its services to the Fund.
Under the 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 MIMI; (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 provides advisory services pursuant to the
Agreement.
IMI is obligated 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 Fund's
Prospectus,
the 1940 Act and the provisions of the Code relating to
regulated
investment companies, subject to policy decisions
adopted by the
Trust's Board of Trustees. IMI also determines the
securities to
be purchased or sold by the Fund and places orders with
brokers
or dealers who deal in such securities.
Under the Agreement, IMI also provides certain
business
management services. IMI is obligated to: (1)
coordinate with
the Fund's Custodian and Transfer Agent and monitor the
services
they provide to the Fund; (2) coordinate with and
monitor any
other third parties furnishing services to the Fund;
(3) provide
the Fund with the 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 which 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
arrangement 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 Agreement provides that if the Fund's total
expenses in
any fiscal year (other than interest, taxes,
distribution
expenses, brokerage commissions and other portfolio
transaction
expenses, other expenditures which are capitalized in
accordance
with generally accepted accounting principles and any
extraor-
dinary expenses including, without limitation,
litigation and
indemnification expenses) exceed the permissible limits
applicable to the Fund in any state in which its shares
are then
qualified for sale, IMI will bear the excess expenses.
At the
present time, the most restrictive state expense
limitation
provision limits the Fund's annual expenses (excluding
interest,
taxes, distribution expenses, brokerage commissions and
extraordinary expenses, and other expenses subject to
approval by
state securities administrators) to 2.5% of the first
$30 million
of its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
On September 29, 1994, the Trustees of the Trust,
including
a majority of the Independent Trustees, voted to
approve the
Agreement for the Fund. The 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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of (as
defined in the 1940 Act) the Fund. See "Capitalization
and
Voting Rights."
The 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 of Trustees, 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 Agreement shall terminate automatically
in the
event of its assignment.
Pursuant to a Fund Accounting Services Agreement
dated
July 1, 1991, effective July 16, 1991, 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: $1,000 when the net assets are less
than $20
million; $1,500 when the net assets are $20 to $75
million;
$4,000 when the net assets are $75 to $100 million; and
$6,000
when the net assets are over $100 million. For the
period from
July 16, 1991 to June 30, 1992, the Fund paid $53,188
to MIMI
under the agreement. For the years ended June 30, 1993
and 1994,
and the six months ended December 31, 1994, the Fund
paid
$84,116, $85,737, and $45,015, respectively, to MIMI
under the
Agreement.
DISTRIBUTION SERVICES
MIFDI, a wholly owned subsidiary of MIMI, serves
as the
exclusive distributor of the Fund's shares pursuant to
a
Distribution Agreement with the Trust. Effective
October 1,
1993, MIFDI succeeded to and is continuing MIMI's
broker-dealer
activities. The provisions of the Fund's previous
Distribution
Agreement with MIMI remained unchanged by the
succession.
MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
MIFDI may, from time to time, in certain
circumstances, re-
allow to individual selling dealers all or a portion of
the sales
charge with respect to Class A shares which it normally
retains.
For example, additional re-allowance may be made when
the selling
dealer commits to substantial marketing support such as
internal
wholesaling through dedicated personnel, internal
communications
and mass mailings. MIFDI may, from time to time, pay a
fee out
of its own resources to individual selling dealers for
sales of
Class I shares.
During the three months ended September 30, 1993,
MIMI,
which was the Fund's Distributor at the time, received
from sales
of Class A shares of the fund $236,973 in sales
commissions, of
which $46,312 was retained after dealers'
re-allowances. During
the fiscal year ended June 30, 1993, MIMI received from
sales of
Class A1 [Shares of the Fund outstanding as of March
31, 1994
were redesignated Class A shares of the Fund.] shares
of the Fund
$900,303 in sales commissions, of which $201,431 was
retained
after dealers' re-allowances; during the fiscal year
ended June
30, 1992, MIMI received from sales of Class A shares of
the Fund
$619,527 in sales commissions, of which $160,686 was
retained
after dealers' re-allowances. During the nine months
ended June
30, 1994 and during the six-month period ended December
31, 1994,
MIFDI received commissions of $343,167 and $123,560,
respectively, from sales of Class A shares of the Fund,
of which
$65,470 and $23,740, respectively, was retained after
dealers'
re-allowances. During the period from April 1, 1994
(commencement of sales of Class B shares) to June 30,
1994 and
during the six-month period ended December 31, 1994,
MIFDI
received $1,296 in contingent deferred sales charges on
redemptions of Class B shares of the Fund.
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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan;" collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Funds and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares and Class B shares.
The
services for which service fees may be paid include,
among other
services, 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 the
Fund's Plans, service fee payments made out of or
charged against
the assets attributable to the Fund's Class A shares or
Class B
shares must be in reimbursement for services rendered
for or on
behalf of that class of the Fund. The expenses not
reimbursed in
any one given 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.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid to IMI by the Fund.
MIFDI 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 Class A 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
MIFDI.
Under the Fund's Class B Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
During the six-month period ended December 31, 1994 and
during
the fiscal year ended June 30, 1994, the Fund paid
MIFDI $146,362
and $327,497, respectively, pursuant to the Class A
plan, and
$7,469 and $693, respectively, pursuant to the Class B
plan.
During the period from July 1, 1993 to September
30, 1993,
MIMI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $910; printing and mailing
of
prospectuses to persons other than current
shareholders; $7,441;
compensation to dealers, $31,415; compensation to sales
personnel, $60,500; seminars and meetings $7,853;
travel and
entertainment, $16,601; general and administrative,
$18,953;
telephone, $1,638; and occupancy and equipment rental,
$6,171.
During the period from October 1, 1993 to June 30,
1994,
MIFDI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $7,187; printing and mailing
of
prospectuses to persons other than current
shareholders, $38,817;
compensation to dealers, $68,060; compensation to sales
personnel, $164,313; seminars and meetings, $17,016;
travel and
entertainment, $47,553; general and administrative,
$71,447;
telephone, $6,687; and occupancy and equipment rental,
$14,052.
During the period from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $5,123; printing and mailing
of
prospectuses to persons other than current
shareholders, $24,058;
compensation to dealers, $52,915; compensation to sales
personnel, $90,114; seminars and meetings, $13,229;
travel and
entertainment, $25,981; general and administrative,
$36,252;
telephone, $3,313; and occupancy and equipment rental,
$7,798.
During the period from April 1, 1994 (the date on
which
Class B shares of the Fund were first offered for sale
to the
public) to June 30, 1994, MIFDI expended the following
amounts in
marketing Class B shares of the Fund: advertising,
$15; printing
and mailing of prospectuses to persons other than
current
shareholders, $82; compensation to dealers, $144;
compensation to
sales personnel, $348; seminars and meetings, $36;
travel and
entertainment, $101; general and administrative, $152;
telephone,
$14; and occupancy and equipment rental, $30.
During the period from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
B shares
of the Fund: advertising, $70; printing and mailing of
prospectuses to persons other than current
shareholders, $327;
compensation to dealers, $720; compensation to sales
personnel,
$1,227; seminars and meetings, $80; travel and
entertainment,
$354; general and administrative, $493; telephone, $45;
and
occupancy and equipment rental, $106.
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 with
respect to the
class of shares of the Fund to which the Plan relates
at any
time, 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.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109, (the "Custodian") has
been retained
to act as Custodian of the Trust's investments. Its
primary
responsibility is to maintain custody of the cash and
securities
in the Fund's portfolio. 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, Brown Brothers
Harriman &
Co. has entered into subcustodial agreements for the
holding of
the Fund's foreign securities. Brown Brothers may
receive, as
partial payment for its services, a portion of the
Trust's
brokerage business, subject to its ability to provide
best price
and execution. The First National Bank of Boston, One
Financial
Center, Boston, Massachusetts 02111, served as
custodian for the
Trust until May 31, 1993.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement,
effective
November 1, 1994, 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:
$1,000
when net assets are $20 million and under; $1,500 when
net assets
are over $20 million to $75 million; $4,000 when net
assets are
over $75 million to $100 million; and $6,000 when net
assets are
over $100 million. For the period from July 16, 1991
to June 30,
1992 and for the fiscal years ended June 30, 1993 and
1994, the
Fund paid MIMI $55,572, $84,116 and $85,737,
respectively. For
the period from July 1, 1994 through December 31, 1994,
the Fund
paid MIMI $45,015.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC", or
the
"Transfer Agent") acts as the Trust's transfer agent
and dividend
paying agent pursuant to a Transfer Agency and
Shareholder
Services Agreement. For transfer agency and
shareholder
services, the Fund pays MIISC an annual fee of $20.75
per open
account (Class A and B) and $10.25 per open account
(Class I),
payable in equal monthly installments. In addition,
the Fund
pays MIISC a fee of $4.36 for each account that is
closed and
reimburses MIISC monthly for out-of-pocket expenses.
ADMINISTRATOR
MIMI provides various administrative services to
the Trust
pursuant to an Administrative Services Agreement.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation and/or review
of the
Trust's tax returns.
CAPITALIZATION AND VOTING RIGHTS
The Fund results from a reorganization of
Mackenzie Fixed
Income Trust, a series of Mackenzie Series Trust, which
reorganization was approved by shareholders on December
15, 1994.
The capitalization of the Trust consists of an
unlimited number
of shares of beneficial interest with a par value of
$0.001 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
thirteen series, each of which represents a fund. The
Trustees
have further authorized the issuance of Classes A, B
and I for
the Fund, Ivy Short-Term Bond Fund and Ivy
International Fund;
and Class A and B for Ivy International Bond Fund, Ivy
Growth
Fund, Ivy Emerging Growth Fund, Ivy Growth with Income
Fund, Ivy
Money Market Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund and Ivy
International Fund.
In addition, the Trustees have authorized an additional
class,
Class C, for Ivy Growth with Income Fund issued only to
shareholders of Mackenzie Growth & Income Fund, a
former series
of The Mackenzie Funds Inc., in connection with the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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. Shares of each Class of the Fund
entitle their
holders to one vote per share (with proportionate
voting for
fractional shares). On matters affecting only the
Fund, only the
shareholders of the Fund are entitled to vote. All
Classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a Class vote is required by the 1940 Act. On
matters
relating to all funds of the Trust, but affecting the
funds
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 determine that a matter does
not affect
the interests of the Fund, then the shareholders of the
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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned beneficially or of record 5% or more
of the
Fund's outstanding shares, except that of the
outstanding Class B
shares of the Fund, E. Miller, 20 Colonial Heights,
Meriden,
Connecticut 06450, owned of record 20,081.612 shares
(6.62%), and
the B.C. Labun Trust, 209 Delafield Avenue, Pittsburgh,
Pennsylvania 15215, owned of record 16,131.165 shares
(5.32%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
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), every
Monday through
Friday (exclusive of national business holidays). The
Trust's
offices will be closed, and net asset value will not be
calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
call or a
put option will be deducted from its assets and an
equal amount
will be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Valuations of below investment-grade debt
securities may be
supplied by a pricing agent; if valuations are not
available
through a pricing agent, such valuations may be
supplied through
a broker or otherwise as determined in good faith by
the Board of
Trustees.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the
six-month period
ended December 31, 1994 (annualized) and for the fiscal
years
ended June 30, 1994 and 1993 was 44%, 78% and 134%,
respectively.
A portfolio turnover rate that exceeds 100% usually
involves
correspondingly higher brokerage commissions and other
transaction costs, which are borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 New York Stock Exchange is closed
(other than
customary weekend and holiday closing) 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
fairly to 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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, 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 sum 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL
The Fund intends to continue to qualify and elect
to be
treated as a regulated investment company under
Subchapter M of
the Code. In order to qualify, 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
securities loans, gains from the sale or other
disposition of
stock, securities, or foreign currencies, or other
income
(including but not limited to gains from options,
futures, and
forward contracts) derived with respect to its business
of
investing in such stock, securities or currencies; (b)
derive in
each taxable year less than 30% of its gross income
from the sale
or other disposition of certain assets (namely, (i)
stock or
securities, (ii) options, futures, and forward
contracts (other
than those on foreign currencies), and (iii) foreign
currencies
(including options, futures, and forward contracts on
such
currencies) not directly related to the Fund's
principal business
of investing in stocks or securities (or options and
futures with
respect to stocks and securities)) held less than three
months
(the "30% Limitation"); and (c) 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 of any one issuer limited for purposes of
this
calculation to an amount not greater than 5% of the
Fund's 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 securities of any other 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
investment
company taxable income (which includes, among other
items,
dividends, interest and net short-term capital gains in
excess of
net long-term capital losses) and net capital gains
(net long-
term capital gains in excess of net short-term capital
losses)
that it distributes to shareholders, if at least 90% of
its
investment company taxable income for the taxable year
is
distributed. The Fund intends to distribute 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. To avoid that tax, the
Fund must
distribute during each calendar year an amount equal to
(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 the twelve-month
period 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. 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 that year to
shareholders of record at some date in such a month and
paid by
the Fund during January of the following calendar year.
Such
distributions will be taken into account by
shareholders in the
calendar year the distributions are declared, rather
than the
calendar year in which the distributions are received.
DISTRIBUTIONS
Distributions of investment company taxable income
are
taxable to a U.S. shareholder as ordinary income,
whether paid in
cash or shares. To the extent that dividends from
domestic
corporations constitute a portion of the gross income
of the
Fund, a portion of the dividends paid by the Fund to
its
corporate shareholders may qualify for the dividends
received
deduction. Distributions of net capital gains, if any,
which are
designated as capital gain dividends are taxable as
long-term
capital gains, whether paid in cash or in shares,
regardless of
how long the shareholder has held the Fund's shares,
and are not
eligible for the dividends received deduction. The tax
treatment
of distributions from the Fund is the same whether the
dividends
are received in cash or in additional shares.
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 reinvestment 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 will be taxable even though it
represents a
return of invested capital. Investors 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 will nevertheless 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 will be long-term or
short-term,
generally, 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 as a long-term capital loss to the extent of
any
distributions of net capital gains 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
sales charges into account for purposes of determining
the amount
of gain or loss realized on the disposition of their
stock. This
prohibition generally applies where (1) the shareholder
incurs a
sales charge in acquiring the stock of the Fund, (2)
the stock is
disposed of before the 91st day after the date on which
it was
acquired, and (3) the shareholder subsequently acquires
the stock
of the same or another fund and the otherwise
applicable sales
charge is reduced under a "reinvestment right" received
upon the
initial purchase of regulated investment company
shares. The
term "reinvestment right" means any right to acquire
stock of one
or more funds without the payment of a sales charge 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 stock acquired under the reinvestment right. This
provision
may be applied to successive acquisitions of Fund
shares.
HEDGING TRANSACTIONS
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.
Certain options, futures and forward contracts in
which the
Fund may invest may be "section 1256 contracts." Gains
or losses
on section 1256 contracts are generally considered 60%
long-term
and 40% short-term capital gains or losses; however,
foreign
currency gains or losses arising from certain section
1256
contracts may be treated as ordinary income or loss.
Also,
section 1256 contracts held by the Fund at the end of
each
taxable year (and generally for purposes of the 4%
excise tax, on
October 31 of each year) are "marked-to-market" with
the result
that unrealized gains or losses are treated as though
they were
realized.
Generally, hedging transactions, if any,
undertaken by the
Fund may result in "straddles" for U.S. 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 tax
consequences of hedging transactions to the Fund are
not entirely
clear. The hedging transactions 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,
and which will be taxed to shareholders as ordinary
income or
long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage
in such
hedging transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
or forward contracts.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES
Under the Code, 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
and loss.
Similarly, on disposition of debt securities
denominated in a
foreign currency and on disposition of certain futures,
forward
contracts and options, 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 or losses, referred to under the Code as "Section
988"
gains or losses, may increase or decrease the amount of
the
Fund's investment company taxable income to be
distributed to its
shareholders as ordinary income.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within
foreign
countries may be subject to withholding and other taxes
imposed
by such countries.
INVESTMENT IN PASSIVE FOREIGN INVESTMENTS COMPANIES
If the Fund invests in stock of certain foreign
investment
companies either directly or through ADRs, the Fund may
be
subject to U.S. federal income taxation on a portion of
any
"excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be
determined by
allocating such distribution or gain ratably to each
day of the
Fund's holding period for the stock. The distribution
or gain so
allocated to any taxable year of the Fund, other than
the taxable
year of the excess distribution or disposition, would
be taxed to
the Fund at the highest ordinary income rate in effect
for such
year, and the tax would be further increased by an
interest
charge to reflect the value of the tax deferral deemed
to have
resulted from the ownership of the foreign company's
stock. Any
amount of distribution or gain allocated to the taxable
year of
the distribution or disposition would be included in
the Fund's
investment company taxable income and, accordingly,
would not be
taxable to the Fund to the extent distributed by the
Fund as a
dividend to its shareholders.
The Fund may be able to make an election, in lieu
of being
taxable in the manner described above, to include
annually in
income its pro rata share of the ordinary earnings and
net
capital gain of the foreign investment company,
regardless of
whether it actually received any distributions from the
foreign
company, These amounts would be included in the Fund's
investment company taxable income and net capital gain
which, to
the extent distributed by the Fund as ordinary or
capital gain
dividends, as the case may be, would not be taxable to
the Fund.
In order to make this election, the Fund would be
required to
obtain certain annual information from the foreign
investment
companies in which it invests, which in many cases may
be
difficult to obtain. Alternatively, the Fund may be
eligible for
another election that would involve marking to market
its PFIC
stock at the end of each taxable year, with any
resulting mark to
market gain being reported as ordinary income. No mark
to market
losses would be recognized. The effect of this
election would be
to treat excess distributions and gain on dispositions
as
ordinary income which is not subject to a fund-level
tax when
distributed to shareholders as a dividend.
DISCOUNT
Certain of the bonds purchased by the Fund may be
treated as
bonds that were originally issued at a discount.
Original issue
discount represents interest for Federal income tax
purposes and
can generally be defined as the difference between the
price at
which a security was issued and its stated redemption
price at
maturity. Original issue discount is treated for
Federal income
tax purposes as income earned by the Fund even though
the Fund
doesn't actually receive any cash, and therefore is
subject to
the distribution requirements of the Code. The amount
of income
earned by the Fund generally is determined on the basis
of a
constant yield to maturity which takes into account the
semi-
annual compounding of accrued interest.
If the Fund invests in certain high yield original
issue
discount obligations issued by corporations, a portion
of the
original issue discount accruing on the obligation may
be
eligible for the deduction for dividends received by
corporations. In such event, dividends of investment
company
taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such
portion of
accrued original issue discount, may be eligible for
this
deduction for dividends received by corporations if so
designated
by the Fund in a written notice to shareholders.
In addition, some of the bonds may be purchased by
the Fund
at a discount which exceeds the original issue discount
on such
bonds, if any. This additional discount represents
market
discount for Federal income tax purposes. The gain
realized on
the disposition of any bond having market discount,
will be
treated as ordinary income to the extent it does not
exceed the
accrued market discount on such bond (unless the Fund
elects for
all its debt securities acquired after the first day of
the first
taxable year to which the election applies having a
fixed
maturity date of more than one year from the date of
issue to
include market discount in income in tax years to which
it is
attributable). Generally, market discount accrues on a
daily
basis for each day the bond is held by the Fund at a
constant
rate over the time remaining to the bond's maturity.
BACKUP WITHHOLDING
The Fund will be required to report to the
Internal Revenue
Service ("IRS") all 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.
OTHER TAXATION
The foregoing discussion relates only to U.S.
Federal income
tax law as applicable to U.S. persons (i.e., U.S.
citizens and
residents and domestic corporations, partnerships,
trusts and
estates). Distributions by the Fund also may be
subject to state
and local taxes, and their treatment under state and
local income
tax laws may differ from the U.S. Federal income tax
treatment.
Shareholders should consult their tax advisers with
respect to
particular questions of U.S. Federal, state and local
taxation.
Shareholders who are not U.S. persons should consult
their tax
advisers regarding U.S. and foreign tax consequences of
ownership
of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding
of U.S.
Federal income tax at a rate of 30% (or at a lower rate
under a
tax treaty).
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.
In addition, the Trust may, from time to time,
include the
yield, the average annual total return and the
cumulative total
return of shares of the Fund in advertisements,
promotional
literature or reports to shareholders or prospective
investors.
YIELD. Quotations of yield for a specific Class
of shares
of the Fund will be based on all investment income
attributable
to that Class earned during a particular 30-day (or one
month)
period (including dividends and interest), less
expenses
attributable to that Class accrued during the period
("net
investment income"), and will be computed by dividing
the net
investment income per share of that Class earned during
the
period by the maximum offering price per share (in the
case of
Class A shares) or the net asset value per share (in
the case of
Class B and Class I shares) on the last day of the
period,
according to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript 6}-1]
Where: a = dividends and interest earned
during the
period attributable to a specific
Class of
shares,
b = expenses accrued for the period
attributable
to that Class (net of
reimbursements),
c = the average daily number of shares
of that
Class outstanding during the period
that were
entitled to receive dividends, and
d = the maximum offering price per
share (in the
case of Class A shares) or the net
asset
value per share (in the case of
Class B and
Class I shares) on the last day of
the
period.
The yield for Class A2 [Shares of the Fund
outstanding as of
March 31, 1994 were designated Class A shares of
the Fund.
Yield quotations are not presented for Class I
shares
because no Class I shares were outstanding during
the time
period indicated.] shares of the Fund for the
30-day period
ended December 30, 1994 was
7.47%.
The yield for Class B shares of the Fund for the
30-day
period ended December 30, 1994 was
7.47%.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
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)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 4.75% sales charge is deducted from the
initial
$1,000 payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A, Class
B[*] and Class I[*] shares of the Fund for the periods
indicated.[#]
STANDARDIZED RETURN[1]
CLASS A[3] CLASS B
CLASS I[4]
One year ended
December 31, 1994: ( 8.66)%[5] N/A[*]
N/A[*]
Five years ended
December 31, 1994: 6.36%[6] N/A[*]
N/A[*]
Inception[**] to
December 31,
1994:[13] 7.91%[7] (6.82)%[8]
N/A[*]
NON-STANDARDIZED RETURN[2]
CLASS A[3] CLASS B
CLASS I[4]
One year ended
December 31, 1994: (4.10)%[9] N/A[*]
N/A[*]
Five years ended
December 31, 1994: 7.40%[10] N/A[*]
N/A[*]
Inception[**] to
December 31,
1994:[13] 8.47%[11] (2.17)%[12]
N/A[*]
_________________________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 4.75%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[3] Shares of the Fund outstanding as of March 31,
1994 were
designated Class A shares of the Fund.
[4] Class I shares are not subject to an initial or a
contingent
deferred sales charge; therefore, the
Non-Standardized
Return figures would be identical to the
Standardized Return
figures for that class.
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (8.66)%.
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 6.28%.
[7] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (.85)%.
[8] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (6.82)%.
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-Standardized Return would have been (4.10)%.
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-Standardized Return would have been 7.32%.
[11] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-Standardized Return would have been (.31)%.
[12] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-Standardized Return would have been (2.17)%.
[13] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[#] Until December 31, 1994, MIMI served as investment
adviser
to the Fund, which until that date was a series of
Mackenzie
Series Trust.
[*] Standardized and Non-Standardized Total Return
Figures are
not presented for Class B or Class I shares
because no Class
B or Class I shares were outstanding during the
time periods
indicated.
[**] The inception date for the Fund (and the Class A
shares of
the Fund) was September 6, 1985; the inception
date for the
Class B and Class I shares of the Fund was April
1, 1994.
The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
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.
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
Fund 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 the Class A, Class B and Class I
shares of the
Fund for the periods indicated#, assuming the maximum
4.75% sales
charge HAS been assessed.
CUMULATIVE TOTAL RETURN FOR PERIOD ENDED DECEMBER
31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A (8.66)% 36.09%
103.44%
Class B N/A[*] N/A[*]
(6.82)%
Class I N/A[*] N/A[*]
N/A[*]
The following table summarizes the calculation of
Cumulative
Total Return for the Class A, Class B and Class I
shares of the
Fund for the periods indicated, assuming the maximum
4.75% sales
charge HAS NOT been assessed.
CUMULATIVE TOTAL RETURN FOR PERIOD ENDED DECEMBER
31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A (4.10)% 42.88%
113.58%
Class B N/A[*] N/A[*]
(2.17)%
Class I N/A[*] N/A[*]
N/A[*]
___________________________
[#] Until December 31, 1994, MIMI served as investment
adviser
to the Fund, which until that date was a series of
Mackenzie
Series Trust.
[*] Cumulative total return quotations are not
presented for
Class B and Class I shares because no Class B or
Class I
shares were outstanding during the time periods
indicated.
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
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
Director
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 (operating as Mackenzie Fixed Income
Trust)
Portfolio of Investments as of December 31, 1994,
Statement of
Assets and Liabilities as of December 31, 1994,
Statement of
Operations for the fiscal year ended June 30, 1994 and
for the
six-month period ended December 31, 1994, Statement of
Changes in
Net Assets for the six-month period ended December 31,
1994 and
for the fiscal years ended June 30, 1994 and 1993,
Financial
Highlights, Notes to Financial Statements, and Report
of
Independent Accountants, are included in the Fund's
December 31,
1994 Semi-Annual Report to shareholders and June 30,
1994 Annual
Report to shareholders, which are incorporated by
reference into
this SAI. Copies of the Fund's June 30, 1994 Annual
Report to
shareholders, December 31, 1994 Semi-Annual Report to
shareholders and this SAI may be obtained upon request
and
without charge from the Fund or MIFDI at the addresses
and
telephone numbers provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY CANADA FUND
a series of
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of the portfolios, Ivy Canada
Fund (the
"Fund"). The other twelve portfolios of the Trust are
described
in separate Statements of Additional Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
INVESTMENT ADVISER
Mackenzie Financial Corporation
150 Bloor Street West
Suite 400
Toronto, Ontario
CANADA M5S 3B5
Telephone: (416) 922-5322
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
Canadian Securities
U.S. Government Securities
Borrowing
Commercial Paper
Banking Industry and Savings and Loan Obligations
Warrants
American Depository Receipts (ADRs)
Forward Foreign Currency Contracts
Repurchase Agreements
Firm Commitment Agreements and When-Issued
Securities
Zero Coupon Bonds
Restricted and Illiquid Securities
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Letter of Intent
Retirement Plans
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of MFC
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
Foreign Currency Forward Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
PERFORMANCE INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
CANADIAN SECURITIES
The Fund may invest in Canadian securities. The
Canadian
securities market is among the largest in the world.
Equity
securities are traded primarily on the country's five
independent
regional stock exchanges: The Toronto Stock Exchange
("TSE"),
the Montreal Exchange ("ME"), the Vancouver Stock
Exchange
("VSE"), the Alberta Stock Exchange and the Winnipeg
Stock
Exchange. The TSE, which is the largest regional
exchange, had a
total market capitalization of $756.3 billion as of
November 3,
1994 and its 1,250 listed companies had a November
trading volume
of 1,120,300,000 shares. A small percentage of
Canadian stocks
are traded on the unlisted or over-the-counter ("OTC")
market.
In contrast, almost all debt securities are traded on
the OTC.
Interlisting is common among the Canadian and U.S.
stock
exchanges and the OTC markets. In addition, the TSE,
the
American Stock Exchange and the Midwest Stock Exchange
are
electronically linked to permit the order routing of
interlisted
securities on those stock exchanges. The ME and the
Boston Stock
Exchange are similarly linked. The Fund invests less
than 1% of
its assets in securities listed solely on the VSE.
The economy of Canada is strongly influenced by
the
activities of companies and industries involved in the
production
and processing of natural resources. The companies may
include
those involved in the energy industry, industrial
materials
(chemicals, base metals, timber and paper) and
agricultural
materials (grain cereals). The securities of companies
in the
energy industry are subject to changes in value and
dividend
yield, which depend, to a large extent, on the price
and supply
of energy fuels. Rapid price and supply fluctuations
may be
caused by events relating to international politics,
energy
conservation and the success of exploration projects.
Economic
prospects are changing due to recent government
attempts to
reduce restrictions against foreign investment. These
considerations are especially important for the Fund,
which
concentrates on Canadian securities.
Many factors, including social, environmental and
economic
conditions, that are not within the control of Canada
affect and
could have an adverse impact on the financial condition
of
Canada. IMI is unable to predict what effect, if any,
such
factors would have on instruments held in the Fund's
portfolio.
Beginning in January of 1989 the U.S. - Canada
Free Trade
Agreement will be phased in over a period of 10 years.
This
agreement will remove tariffs on U.S. technology and
Canadian
agricultural products in addition to removing trade
barriers
affecting other important sectors of each country's
economy.
Additionally, the recent implementation of the North
American
Free Trade Agreement in January, 1994 is expected to
lead to
increased trade and reduced barriers between Canada and
the
United States.
Canada is one of the world's leading industrial
countries,
as well as a major exporter of agricultural products.
Canada is
rich in natural resources such as zinc, uranium,
nickel, gold,
silver, aluminum, iron and copper. Forest covers over
44% of
land area, making Canada a leading world producer of
newsprint.
Canada is also a major producer of
hydroelectricity, oil and
gas. The business activities of companies in the
energy field
may include the production, generation, transmission,
marketing,
control or measurement of energy or energy fuels.
Canadian securities exchanges are self-regulatory
agencies
that are recognized by the securities administrators of
the
province in which the exchange is located. The
largest, most
active Canadian exchange is the TSE, which is a
self-regulated
agency recognized by the Ontario Securities Commission.
Canadian
securities regulation differs in certain respects from
United
States securities regulation. For example, the amount
of
information available concerning companies that have
securities
traded on Canadian exchanges and do not have securities
traded on
an exchange in the United States is generally less than
that
available concerning companies which have securities
traded on
United States exchanges. See "Risk Factors and Special
Considerations" in the Prospectus for a discussion of
the risks
associated with investing in the securities of foreign
companies.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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).
In these
securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and
thus they
are of the highest possible credit quality. Such
securities are
subject to variations in market value due to
fluctuations in
interest rates, but, if held to maturity, will be paid
in full.
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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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 directly
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, and
Student
Loan Marketing Association.
BORROWING
As a fundamental policy, the Fund may borrow from
banks as a
temporary measure for extraordinary or emergency
purposes. The
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. The
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. 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).
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, at the date of investment, is
rated A-1 by
Standard & Poor's Corporation ("S&P") or Prime-1 by
Moody's
Investors Service, Inc. ("Moody's") or, if not rated by
Moody's
or S&P, issued by companies having an outstanding debt
issue
rated AAA or AA by S&P or Aaa or Aa by Moody's.
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,
that are "accepted" by a bank, meaning, in effect, that
the bank
unconditionally agrees to pay the face value of the
instrument on
maturity. The Fund may invest in certificates of
deposit and
bankers' acceptances of (i) banks having total assets
in excess
of $1 billion and (ii) other banks, if the principal
amount of
such obligation (currently $100,000) is fully insured
by the
Federal Deposit Insurance Corporation (the "FDIC").
The Fund
also may invest in certificates of deposit of savings
and loan
associations (federally or state chartered and members
of the
FDIC having total assets in excess of $1 billion.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or OTC in the United
States.
Ownership of unsponsored ADRs may not entitle the Fund
to
financial or other reports from the issuer to which it
would be
entitled as the owner of sponsored ADRs.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
(a "forward contract"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss. The
Fund will
not enter into forward contracts or maintain a net
exposure to
such contracts where the consummation of the contracts
would
obligate the Fund to deliver an amount of currency in
excess of
the value of the Fund's portfolio securities or other
assets
denominated in that currency. Further, the Fund
generally will
not enter into a forward contract with a term of
greater than one
year.
The Fund will hold cash, U.S. Government
securities, or
other high grade debt securities in a segregated
account with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
REPURCHASE AGREEMENTS
The Fund may enter into 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. The Fund may not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities, including such repurchase
agreements. Under
guidelines approved by the Trust's Board of Trustees,
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 the
Fund's
investment adviser 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
the Fund's
investment adviser under guidelines approved by the
Board of
Trustees. 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.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a firm
commitment or
when-issued basis. New issues of certain debt
securities are
often offered on a when-issued basis; that is, 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 transactions are entered into 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. The
Fund will
maintain in a segregated account with its custodian
cash, U.S.
Government securities, or other high grade debt
securities equal
(on a daily marked-to-market basis) to the amount of
its
commitment to purchase the securities on a when-issued
or firm
commitment basis.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in
accordance with
the Fund's credit quality standards. Zero coupons
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, however, 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 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 the Fund 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focussing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
INVESTMENT RESTRICTIONS
The Fund's investment objective as set forth in
the
Prospectus under "Investment Objectives and Policies,"
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. Under
these
restrictions, the Fund may not:
(i) With respect to 75% of its total assets,
purchase
the securities of any one issuer, other
than
securities issued by the U.S. Government
or its
agencies or instrumentalities, if
immediately
after such purchase more than 5% of the
value of
the total assets of the Fund would be
invested in
securities of such issuer;
(ii) Write or buy puts, calls, straddles or
spreads;
invest in real estate, real estate
mortgage loans,
commodities, commodity futures contracts
or
interests in oil, gas and/or mineral
exploration
or development programs, although (a)
the Fund may
purchase and sell marketable securities
of issuers
which are secured by real estate, (b)
the Fund may
purchase and sell securities of issuers
which
invest or deal in real estate, and (c)
the Fund
may enter into forward foreign currency
contracts
as described in the Fund's prospectus;
(iii) Make investments in securities for the
purpose of
exercising control over or management of
the
issuer;
(iv) 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 investment adviser, Mackenzie
Financial
Corporation (the "Investment Adviser")
for the
sale or purchase of portfolio securities
shall not
be considered participation in a joint
securities
trading account;
(v) Purchase the securities of any one
issuer if,
immediately after such purchase, the
Fund would
own more than 10% of the outstanding
voting
securities of such issuer;
(vi) Purchase securities on margin, except
such short-
term credits as are necessary for the
clearance of
transactions;
(vii) Make loans, except this restriction
shall not
prohibit (a) the purchase and holding of
a portion
of an issue of publicly distributed debt
securi-
ties, or (b) the entry into repurchase
agreements
with banks or broker-dealers;
(viii) 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;
(ix) Purchase the securities of issuers
conducting
their principal business activities in
the same
industry if immediately after such
purchase the
value of the Fund's investments in such
industry
would exceed 25% of the value of the
total assets
of the Fund;
(x) Act as an underwriter of securities,
except to the
extent that, in connection with the sale
of
securities, it may be deemed to be an
underwriter
under applicable securities laws;
(xi) 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
(xii) Issue senior securities, except insofar
as the
Fund may be deemed to have issued a
senior
security in connection with any
repurchase
agreement or any permitted borrowing.
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) purchase or retain securities of any
company if
officers and Trustees of the Trust and
officers
and directors of the Manager and the
Investment
Adviser who individually own more than
1/2 of 1%
of the securities of that company,
together own
beneficially more than 5% of such
securities; or
(iv) 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 of
companies (including predecessors) less
than three
years old.
In addition, as a matter of nonfundamental policy,
the Fund
may not purchase securities of any open-end investment
company,
or securities of closed-end companies, except by
purchase in the
open market where no commission or profit to a sponsor
or dealer
results from such purchases, or except when such
purchase is part
of a merger, consolidation, reorganization or sale of
assets, and
except that the Fund may purchase shares of other
investment
companies subject to such restrictions as may be
imposed by the
Investment Company Act of 1940, as amended ("1940
Act"), and
rules thereunder or by any state in which shares of the
Fund are
registered. Moreover, the Fund may not make short
sales of
securities or maintain a short position. Finally, so
long as it
remains a restriction of the Ohio Division of
Securities, the
Fund will treat securities eligible for resale under
Rule 144A of
the Securities Act of 1933 as subject to the Fund's
restriction
on investing in restricted securities.
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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Global Fund, Ivy Bond Fund, Ivy Short-Term Bond
Fund and Ivy
Money Market Fund, the other twelve series of Ivy Fund;
and
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund,
Mackenzie National Municipal Fund and Mackenzie New
York
Municipal Fund, the five series of Mackenzie Series
Trust
(collectively, with the Fund, the "Ivy Mackenzie
Funds").
Investors should obtain a current prospectus before
exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt by Mackenzie Ivy Investor Services Corp.
("MIISC")
of telephone instructions or written notice to MIISC
from the
investor. See "Automatic Investment Method" in the
Account
Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus ("outstanding Class A shares"), for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Bond Fund, Ivy Global Fund, Mackenzie California
Municipal
Fund, Mackenzie National Municipal Fund, Mackenzie New
York
Municipal Fund, ("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2 1/2% contingent
deferred
sales charge that generally would apply to a redemption
of
outstanding Class B shares held for two years would not
be
deducted at the time of the exchange. If, three years
later, the
investor redeems the new Class B shares, a 2%
contingent deferred
sales charge will be assessed upon the redemption
because by
"tacking" the two year holding period of the
outstanding Class B
shares onto the three year holding period of the new
Class B
shares, the investor will be deemed to have held the
new Class B
shares for five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can be legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such noticed is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund will result in a taxable
gain or loss.
Generally, any such taxable gain or loss 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 Fund's
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
the value (at the applicable offering price) of all
Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Bond Fund, Ivy Short-Term Bond
Fund, Ivy
Global Fund, Ivy Bond Fund, Mackenzie National
Municipal Fund,
Mackenzie Florida Limited Term Municipal Fund,
Mackenzie Limited
Term Municipal Fund, Mackenzie California Municipal
Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof 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 MIFDI may be purchased in a single
application
establishing a single plan account, and shares held in
such an
account may be exchanged among the funds in the Ivy
Mackenzie
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
account
For shareholders whose retirement accounts are
diversified across
several funds of the Ivy Mackenzie 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 (IRAS): 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 IMI,
who may
impose a charge for establishing the account.
Individuals may
wish to consult their tax advisers before investing IRA
assets in
a fund that 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of one spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is less than a specified level ($40,000 for
married
couples filing a joint return, $25,000 for single
individuals,
and $0 for a married individual filing a separate
return). The
deduction is phased out ratably for active participants
with
adjusted gross income between certain levels ($40,000
and $50,000
for married individuals filing a joint return, $25,000
and
$35,000 for single individuals, and $0 and $10,000 for
married
individuals filing separate returns). Individuals with
income
above the specified phase-out level may not deduct
their IRA
contributions. 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. 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
benefi-
ciary, if any, or rolled over into another IRA.
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
distribu-
tions will result in the imposition of a 50%
non-deductible
penalty tax. Extremely large distributions in any one
year from
an IRA (or from an IRA and other retirement plans) may
also
result in a penalty tax.
QUALIFIED PLANS: For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 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 sales charge for
purchases of less
than $10,000 of Class A shares is set forth under
"403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge
Alternative--Class A
Shares" in the Prospectus. The special application for
a
403(b)(7) Account is available from Mackenzie
Investment
Management Inc. ("MIMI").
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.
REINVESTMENT PRIVILEGE
Investors 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
MIISC 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 for
the Fund. 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). It
is also
applicable to current purchases of all of the funds in
the Ivy
Mackenzie Funds (except Ivy Money Market Fund) by any
of the
persons enumerated above, where the aggregate quantity
of Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy China Region Fund, Ivy
Latin
America Strategy Fund, Ivy New Century Fund, Ivy
International
Bond Fund, Ivy International Fund, Ivy Bond Fund, Ivy
Short-Term
Bond Fund, Ivy Global Fund, Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) and of any other investment
company
distributed by MIFDI, 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 or more for the Fund, Ivy
Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund and Ivy Canada
Fund; $100,000
or more for International Bond Fund, Ivy Bond Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund and
Mackenzie New York Municipal Fund; or $25,000 or more
for
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund; or $1,000,000 or more for
Ivy Short-
Term Bond Fund.
At the time an investment takes place, MIISC 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
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him or her. To be eligible, a shareholder must have at
least
$5,000 in the shareholder's 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
use of principal and, to the extent that it does,
depending on
the amount withdrawn, the investor's principal may be
depleted.
A redemption under a Withdrawal Plan is a taxable
event.
Investors contemplating participation 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 or contingent
deferred
sales charges.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, participation in the Withdrawal Plan will
terminate
automatically. The Trust or MIISC may terminate the
Withdrawal
Plan option at any time after reasonable notice to
shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, the Fund's Investment
Adviser
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. In connection with OTC
transactions, the Fund's Investment Adviser attempts to
deal
directly with the principal market makers, except in
those
circumstances where the Investment Adviser believes
that better
price and execution are available elsewhere.
The Fund's Investment Adviser 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by the Investment Adviser in
connection with the services it provides to the Fund or
the
Trust. The Fund's Investment Adviser may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers who provide it with
research
services. The Investment Adviser will not, however,
execute
brokerage transactions other than at the best price and
execution.
During the fiscal years ended June 30, 1992, 1993
and 1994
and during the six-month period ended December 31,
1994, the Fund
paid brokerage commissions of $7,719, $24,925,
$202,849, and
$98,390, respectively.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
Age: 49 President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66 Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned none of the outstanding shares of the
Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF MFC
Employees of MFC are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in MFC's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") currently provides
business
management services to the Fund pursuant to a Business
Management
Agreement (the "Management Agreement"). Until January
31, 1995
MIMI served as the investment manager to the Fund,
which until
January 31, 1995 was a series of The Mackenzie Funds
Inc. (the
"Company"). On January 31, 1995, MIMI's interest in
the
Management Agreement was assigned by MIMI to Ivy
Management,
Inc., which is a wholly owned subsidiary of MIMI. The
provisions
of the Management Agreement remain unchanged by Ivy
Management,
Inc.'s succession to MIMI thereunder. The Management
Agreement
was initially approved on September 29, 1994 by the
Trust's Board
of Trustees including a majority of the Trustees who
neither are
"interested persons" (as defined in the 1940 Act) of
the Trust
nor have a direct or indirect financial interest in the
operation
of the distribution plan (see "Distribution Services")
or in any
related agreement (the "Independent Trustees"). The
Agreement
was approved by the sole shareholder of the Fund on
January 27,
1995. IMI is a wholly owned subsidiary of MIMI. 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 Toronto Stock Exchange. IMI currently
acts as
manager and investment adviser to the following other
investment
companies registered under the 1940 Act: Ivy Growth
Fund, Ivy
Emerging Growth Fund, Ivy Growth with Income Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Fund, Ivy Bond Fund, Ivy
International
Bond Fund, Ivy Global Fund, Ivy Short-Term Bond Fund
and Ivy
Money Market Fund. The Fund pays IMI a monthly fee for
providing
business management services at an annual rate of 0.50%
of its
average daily net assets. During the fiscal years
ended June 30,
1992, 1993 and 1994 and for the six-month period ended
December
31, 1994, MIMI, as the investment manager to the Fund
when the
Fund was a series of the Company, received fees of
$63,647,
$68,102, $172,136 and $78,234, respectively, from the
Fund.
The Trust has contracted with MFC to act as
investment
adviser to the Fund pursuant to an Investment Advisory
Agreement
(the "Advisory Agreement"). The Advisory Agreement
between the
Fund and MFC was approved on September 29, 1994 by the
Board of
Trustees, including a majority of the Independent
Trustees, and
was approved on January 27, 1995 by the sole
shareholder of the
Fund. For advisory services, the Fund pays MFC a
monthly fee at
an annual rate of 0.35% of the average daily net assets
of the
Fund. For the fiscal years ended June 30, 1992, 1993
and 1994
and for the six-month period ended December 31, 1994,
MFC
received fees of $44,553, $47,671, $120,495 and
$54,763,
respectively, from the Fund.
Under the Management Agreement and the Advisory
Agreement,
the Trust pays the following expenses: (1) the fees
and expenses
of any of the Trust's Independent Trustees; (2) the
salaries and
expenses of any of the Trust's Trustees, 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.
Under the Management Agreement, IMI provides
certain
business management services. IMI is obligated to (1)
coordinate
with the Fund's Custodian and Transfer Agent and
monitor the
services they provide to the Fund; (2) coordinate with
and
monitor any other third parties furnishing services to
the Fund;
(3) provide the Fund with the 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 which
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 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 directors 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. Pursuant to
the
Management Agreement, IMI is also responsible for
reviewing the
activities of MFC to insure that the Fund is operated
in
compliance with the Fund's investment objectives and
policies and
with the 1940 Act.
The Management Agreement also provides that if the
Fund's
total expenses in any fiscal year (other than interest,
taxes,
distribution expenses, brokerage commissions and other
portfolio
transaction expenses, other expenditures which are
capitalized in
accordance with generally accepted accounting
principles and any
extraordinary expenses including, without limitation,
litigation
and indemnification expenses) exceed the permissible
limits
applicable to the Fund in any state in which its shares
are then
qualified for sale, IMI will bear the excess expenses.
At the
present time, the most restrictive state expense
limitation
provision limits the Fund's annual expenses to 2 1/2%
of the
first $30 million of its average daily net assets, 2.0%
of the
next $70 million and 1 1/2% of its average daily net
assets over
$100 million.
On September 29, 1994, the Trustees of the Trust,
including
a majority of the Independent Trustees, voted to
approve the
Management Agreement for the Fund. The Management
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 of (b) by the vote of a majority of the entire
Board of
Trustees.
The Advisory Agreement obligates MFC 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 Fund's Prospectus, the 1940 Act and the provisions
of the
Code, relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. MFC
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
The Advisory Agreement will continue in effect
with respect
to the Fund from year to year only as 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 of Trustees.
If the question of continuance of the Management
Agreement
or the Advisory Agreement (or adoption of any new
agreement) is
presented to shareholders, continuance (or adoption)
shall be
effected only if approved by the affirmative vote of a
majority
of the outstanding voting securities of the Fund. See
"Capitalization and Voting Rights."
The Management Agreement and 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
of
Trustees, or by a vote of a majority of the outstanding
voting
securities of the Fund, on 60 days' written notice to
IMI or MFC,
as the case may be, or by IMI or MFC, as the case may
be, on 60
days' written notice to the Trust. The Management
Agreement and
the Advisory Agreement shall terminate automatically in
the event
of their assignment.
DISTRIBUTION SERVICES
MIFDI, a wholly owned subsidiary of MIMI, serves
as the
exclusive distributor of the Fund's shares pursuant to
a
Distribution Agreement with the Trust. MIFDI is not
obligated to
sell any specific amount of Fund shares. During the
fiscal years
ended June 30, 1992 and 1993, and the three months
ended
September 30, 1993, MIMI, which at that time was the
Fund's
distributor, received from sales of Class A1 [Shares of
the Fund
outstanding as of March 31, 1994 were designated Class
A shares
of the Fund.] shares of the Fund $50,744, $395,698 and
$332,241,
respectively, in sales commissions, of which $9,506,
$59,871 and
$52,414, respectively, was retained after dealers'
reallowances.
During the nine months ended June 30, 1994 and the
six-month
period ended December 31, 1994, MIFDI received
commissions of
$386,239 and $44,748, respectively, from sales of Class
A shares
of the Fund, of which $62,036 and $7,074, respectively,
was
retained after dealers' reallowances.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. Furthermore, MIFDI is entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may reallow all or a portion of the
contingent
deferred sales charge to dealers as MIFDI may determine
from time
to time. During the period April 1, 1994 (commencement
of sales
of Class B shares) to June 30, 1994 and the six-month
period
ended December 31, 1994, MIFDI received $574 in
contingent
deferred sales charges on redemptions of Class B shares
of the
Fund.
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 of Trustees 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 MIFDI 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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). In
adopting each Plan, a majority of the Independent
Trustees have
concluded in conformity with the requirements of the
1940 Act
that there is a reasonable likelihood that the 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 Fund shares, although it is impossible
to know for
certain the level of sales and redemptions of Fund
shares in the
absence of a Plan or under an alternative distribution
arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, service fee payments made out of or
charged
against the assets attributable to the Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that Class of the Fund. The expenses not
reimbursed in
any one given month may be reimbursed in a subsequent
month.
Under the Fund's Class A Plan and Class B Plan,
the Fund
also pays MIFDI a distribution fee, accrued daily and
paid
monthly, at the annual rate of 0.15%, in the case of
the Class A
Plan, and 0.75%, in the case of the Class B Plan, of
the average
daily net assets attributable to its Class A shares or
Class B
shares, as the case may be. MIFDI may reallow all or a
portion
of the service and distribution fees to dealers as
MIFDI may
determine from time to time. The distribution fee
compensates
MIFDI for expenses incurred in connection with
activities
primarily intended to result in the sale of shares of
the Fund,
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 Fund's Plans, MIFDI 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. The
SEC order
permitting the imposition of a contingent deferred
sales charge
on Class B shares does not currently permit MIFDI to
recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust 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) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid to MIMI by the Fund.
MIFDI 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
MIFDI.
During the period from October 1, 1993 to June 30,
1994 and
the six-month period ended December 31, 1994, the Fund
paid MIFDI
$92,079 and $61,133, respectively, pursuant to the
Class A plan.
During the period from April 1, 1994 (the date on which
Class B
shares of the Fund were first offered to the public) to
June 30,
1994 and the six-month period ended December 31, 1994,
the Fund
paid MIFDI $312 and $2,953, respectively, pursuant to
the Class B
plan.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review. During
the period
from October 1, 1993 to June 30, 1994, MIFDI expended
the
following amounts in marketing Class A shares of the
Fund:
advertising, $1,851; printing and mailing of
prospectuses to
persons other than current shareholders, $45,582;
compensation to
dealers, $19,116; compensation to sales personnel,
$44,696;
seminars and meetings, $4,780; travel and
entertainment, $12,759;
general and administrative, $18,752; telephone, $1,794;
and
occupancy and equipment rental, $3,886.
During the six-month period ended December 31,
1994, MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $1,341; printing and mailing of
prospectuses
to persons other than current shareholders, $28,650;
compensation
to dealers, $13,756; compensation to sales personnel,
$23,404;
seminars and meetings, $3,439; travel and
entertainment, $6,783;
general and administrative, $9,476; telephone, $858;
and
occupancy and equipment rental, $2,028.
During the period from April 1, 1994 (the date on
which
Class B shares of the Fund were first offered for sale
to the
public) to June 30, 1994, MIFDI expended the following
amounts in
marketing Class B shares of the Fund: advertising, $7;
printing
and mailing of prospectuses to persons other than
current
shareholders, $166; compensation to dealers, $70;
compensation to
sales personnel, $163; seminars and meetings, $17;
travel and
entertainment, $46; general and administrative, $68;
telephone,
$7; and occupancy and equipment rental, $14.
During the six-month period ended December 31,
1994, MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $26; printing and mailing of
prospectuses to
persons other than current shareholders, $556;
compensation to
dealers, $267; compensation to sales personnel, $454;
seminars
and meetings, $67; travel and entertainment, $132;
general and
administrative, $184; telephone, $17; and occupancy and
equipment
rental, $39.
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 with
respect to the
class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109 (the "Custodian"), has been
retained
to act as the Trust's Custodian for assets of the Fund
held in
the United States. Rules adopted under the 1940 Act
permit the
Trust to maintain its Canadian securities and cash in
the custody
of certain eligible Canadian banks and securities
depositories.
Pursuant to those rules, the Fund's portfolio
securities and
cash, when invested in Canadian securities, will be
held by its
Sub-Custodian, The Bank of Nova Scotia. Similarly,
Brown
Brothers Harriman & Co. has entered into subcustodial
agreements
for the holding of the Fund's non-Canadian foreign
securities.
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. For
the period from July 16, 1991 to June 30, 1992 and for
the fiscal
years ended June 30, 1993 and 1994, the Fund paid MIMI
$28,793,
$32,742 and $32,492, respectively, under the agreement.
For the
six-month period ended December 31, 1994, the Fund paid
MIMI
$16,442.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
six months ended December 31, 1994 totalled $57,966.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the six months ended December 31, 1994
totalled $15,647.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
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
Trust's tax
returns.
CAPITALIZATION AND VOTING RIGHTS
The Fund results from a reorganization of
Mackenzie Canada
Fund, a series of The Mackenzie Funds Inc., which
reorganization
was approved by shareholders on January 27, 1995. 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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Growth Fund, Ivy Emerging
Growth Fund,
Ivy Growth with Income Fund, Ivy Money Market Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Fund, Ivy Global Fund, Ivy Bond
Fund, Ivy
International Bond Fund and Ivy Short-Term Bond Fund,
as well as
Class I for Ivy International Fund, Ivy Bond Fund and
Ivy Short-
Term Bond Fund. In addition, the Trustees have
authorized an
additional class, Class C, for Ivy Growth with Income
Fund issued
only to shareholders of Mackenzie Growth & Income Fund,
a former
series of The Mackenzie Funds Inc., in connection with
the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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).
On matters affecting only the Fund, only the
shareholders of the
Fund are entitled to vote. All classes of shares of
the Fund
will vote together, except with respect to the
distribution plan
applicable to its Class A or Class B shares or when a
class vote
is required by the 1940 Act. On matters relating to
all funds of
the Trust, but affecting the funds 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 Amended and Restated 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 as if Section 26(c) of
the Act were
applicable.
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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned beneficially or of record 5% or more
of the
Fund's outstanding shares; except that of the
outstanding Class B
shares of the Fund, S. Kantha, 8 Old Greenhouse Lane,
Madison,
New Jersey 07940, owned of record 23,860.989 shares
(25.20%) and
the Kaufman QTIP Trust, 19987 Moran Lane, Saratoga,
California
95070, owned of record 9,049.884 shares (9.55%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by MFC and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
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), every
Monday through
Friday (exclusive of national business holidays). The
Trust's
offices will be closed, and net asset value will not be
calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the
six-month period
ended December 31, 1994 and for the fiscal years ended
June 30,
1994 and 1993 was 36% (annualized), 62% and 32%,
respectively. A
Portfolio turnover rate that exceeds 100% usually
involves
correspondingly higher brokerage commissions and other
transaction costs, which are borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 New York Stock 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 a Fund.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed in whole
or in part in securities of the Fund taken at current
values. If
any such redemption in kind is to be made, the Fund
intends to
make an election pursuant to Rule 18f-1 under the 1940
Act. This
will require the Fund to redeem with cash at a
shareholder's
election in any case where the redemption involves less
than
$250,000 (or 1% of the Fund's net asset value at the
beginning of
each 90-day period during which such redemptions are in
effect,
if that amount is less than $250,000). Should payment
be made in
securities, the redeeming shareholder may incur
brokerage costs
in converting such securities to cash.
Subject to state law restrictions, 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 Fund's 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: (i) 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.
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 advisor 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; (b) derive in
each
taxable year less than 30% of its gross income from the
sale or
other disposition of certain assets held less than
three months,
namely: (i) stock or securities; (ii) options,
futures, or
forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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.
FOREIGN CURRENCY FORWARD CONTRACTS
Some of the 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
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 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 a
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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in forward
contracts.
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 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. If section 988 losses exceed other
investment
company taxable income during a taxable year, the Fund
would not
be able to make any ordinary dividend distributions, or
distributions made before the losses were realized
would be
recharacterized as a return of capital to shareholders,
rather
than as an ordinary dividend, reducing each
shareholder's basis
in his or her Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply. In
addition,
other elections may become available that would affect
the tax
treatment of PFIC shares held by the Fund.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and 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 a 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. Investors
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 generally 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 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 the Fund's 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, 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.
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 (the "IRS") all 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 Funds or shareholders.
Shareholders are advised to consult their own tax
advisers with
respect to the particular tax consequences to them of
an
investment in a Fund.
PERFORMANCE INFORMATION
Comparisons of the Fund's performance may be made
with
respect to various unmanaged indices (including the
Toronto Stock
Exchange 300, S&P 100, S&P 500, Dow Jones Industrial
Average and
Major Market Index) which assume reinvestment of
dividends, but
do not reflect deductions for administrative and
management
costs. The Fund also may be compared to Lipper's
Analytical
Reports, reports produced by a widely used independent
research
firm that ranks mutual funds by overall performance,
investment
objectives and assets, or to Wiesenberger Reports.
Lipper
Analytical Services does not include sales charges in
computing
performance. Further information on comparisons is
contained in
the prospectus for the Fund. Performance rankings will
be based
on historical information and are not intended to
indicate future
performance.
In addition, the Trust may, from time to time,
include the
average annual total return and the cumulative total
return of
shares of the Fund in advertisements, promotional
literature or
reports to shareholders or prospective investors.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
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, the
maximum 5.75% sales charge is deducted from the initial
$1,000
payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B shares
held for the period is deducted. Standardized Return
quotations
for the Funds 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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods
indicated.[#]
STANDARDIZED
NON-STANDARDIZED
RETURN[1] RETURN[2]
CLASS A[3] CLASS B CLASS A[3]
Class B
One year ended
December 31,
1994: (18.81%) N/A[*] (13.86%)
N/A[*]
Five years ended
December 31,
1994: (2.71%) N/A[*] (1.55%)
N/A[*]
Inception[**] to
December 31,
1994:[6] 0.47%[4] (16.78%) 1.31%[5]
(12.40%)
_________________________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[3] Shares of the Fund outstanding as of March 31,
1994 were
designated Class A shares of the Fund.
[4] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (.01%).
[5] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been .82%.
[6] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[*] Standardized and Non-Standardized Total Return
figures are
not presented for Class B shares because no Class
B shares
were outstanding during the time periods
indicated.
[#] Until December 31, 1994, Mackenzie Investment
Management
Inc. served as investment adviser to the Fund,
which until
that date was a series of Mackenzie Series Trust.
[**] The inception date for the Fund (and the Class A
shares of
the Fund) was November 17, 1987; the inception
date for the
Class B shares of the Fund was April 1, 1994.
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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
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.
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 a Fund's shares and assume that all
dividends and
capital gains distributions during the period were
reinvested in
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum sales
charge has been
assessed.
CUMULATIVE TOTAL RETURN
FOR PERIOD ENDED DECEMBER 31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A (18.81%) (12.83%) 3.44%
Class B N.A[*] N/A[*]
(16.78%)
The following table summarizes the calculation of
Cumulative
Total Return for the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum sales
charge has not
been assessed.
CUMULATIVE TOTAL RETURN
FOR PERIOD ENDED DECEMBER 31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A (13.86%) (7.51%) 9.75%
Class B N/A[*] N/A[*]
(12.40%)
___________________________
[*] Cumulative total return quotations are not
presented for
Class B shares because no Class B shares were
outstanding
during the time periods indicated.
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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended June
30, 1994
and for the six-month period ended December 31, 1994,
the
Statement of Changes in Net Assets for the six-month
period ended
December 31, 1994 and for the fiscal years ended June
30, 1994
and June 30, 1993, Financial Highlights, the Notes to
Financial
Statements, and Report of Independent Accountants are
included in
the Fund's December 31, 1994 Semi-Annual Report to
Shareholders
June 30, 1994 Annual Report to shareholders of the
Fund, which
are incorporated by reference into this SAI. Copies of
the
Fund's December 31, 1994 Semi-Annual Report to
Shareholders and
this SAI may be obtained upon request and without
charge from the
Trust at the Distributor's address and telephone number
provided
on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY CHINA REGION FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy China
Region Fund
(the "Fund"). The other twelve portfolios of the Trust
are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Forward Foreign Currency Contracts
Foreign Securities
Investing in Emerging Markets
Foreign Currencies
Restricted and Illiquid Securities
Warrants
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Stock
Indices
Risks of Options Transactions
Stock Index Futures Contracts
Risks of Stock Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Letter of Intent
Retirement Plans
Individual Retirement Accounts
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of IMI
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Cumulative Total Return
Other Quotations, Comparisons and General
Information
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
Ivy Fund (the "Trust") is organized as a
diversified, open-
end management investment company with thirteen series
of shares.
One series of the Trust, Ivy China Region Fund (the
"Fund"), is
discussed in this SAI.
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of such
certificates.
Accordingly, it is not possible to predict accurately
the average
life of a particular pool. Reinvestment of prepayments
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,
GNMA
certificates can be less effective than typical bonds
of similar
maturities at "locking in" yields during periods of
declining
interest rates. GNMA certificates 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; and 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, and
Student
Loan Marketing Association.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities or other
high-grade debt securities in a segregated account with
its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors", which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focusing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objective and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the over-the-counter ("OTC")
markets
(such OTC options together with any other illiquid
securities
shall not be in an amount exceeding 10% of the Fund's
assets).
The Fund will not purchase put and call options if the
aggregate
premium paid for such options would exceed 5% of its
total assets
at the time of purchase.
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 an 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
cancelled 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.
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 which 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 a 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 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.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON STOCK INDICES.
The Fund
may purchase and sell (write) put and call options on
stock
indices. An index assigns relative values to the
securities
included in the index and the index fluctuates with
changes in
the market values of the securities so included.
Options on
stock indices are similar to options on individual
securities,
except that, rather than giving the purchaser the right
to take
delivery of an individual security at a specified
price, they
give the purchaser the right to receive cash. The
amount of cash
is equal to the difference between the closing price of
the index
and the exercise price of the option, expressed in
dollars, times
a specified multiple (the "multiplier"). The writer of
the
option is obligated, in return for the premium
received, to make
delivery of this amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered", in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high-
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
STOCK INDEX FUTURES CONTRACTS
The Fund may enter into stock 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
Standard & Poor's Stock Index (the "S&P 500 Index") is
composed
of 500 selected common stocks, most of which are listed
on the
New York Stock 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 stock index futures contract
specifies
that no delivery of the actual stock 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 STOCK 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 stock 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 stock 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 stock 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 a stock index futures contract,
the Fund
will maintain with its custodian (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
highly liquid
debt 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 a stock index futures contract, the
Fund will
maintain with its custodian (and mark-to-market on a
daily basis)
liquid assets 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).
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in
the
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary purposes
where
investment transactions might advantageously
require
it. Any such loan may not be for a period in
excess of
60 days, and the aggregate amount of all
outstanding
loans may not at any time exceed 10% of the
value of
the total assets of the Fund at the time any
such loan
is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that
this
restriction shall not prohibit (a) the entry
into
repurchase agreements, (b) the purchase of
publicly
distributed bonds, debentures and other
securities of a
similar type, or privately placed municipal
or
corporate bonds, debentures and other
securities of a
type customarily purchased by institutional
investors
or publicly traded in the securities markets,
or (c)
the lending of portfolio securities (provided
that the
loan is secured continuously by collateral
consisting
of U.S. Government securities or cash or cash
equivalents maintained on a daily
marked-to-market
basis in an amount at least equal to the
market value
of the securities loaned;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers
or
trustees, or firms of which any of them are
members or
which they control, any securities (other
than capital
stock of the Fund), but such persons or firms
may act
as brokers for the Fund for customary
commissions to
the extent permitted by the Investment
Company Act of
1940;
(vii) purchase or sell real estate or commodities
and
commodity contracts;
(viii) make an investment in securities of companies
in any
one industry (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities, or
instrumentalities) if such investment would
cause
investments in such industry to exceed 25% of
the
market value of the Fund's total assets at
the time of
such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted
to incur,
and except to the extent that shares of the
separate
classes or series of the Trust may be deemed
to be
senior securities; provided that collateral
arrangements with respect to currency-related
contracts, futures contracts, options or
other
permitted investments, including deposits of
initial
and variation margin, are not considered to
be the
issuance of senior securities for purposes of
this
restriction; or
(x) purchase securities of any one issuer (except
U.S.
Government securities) if as a result more
than 5% of
the Fund's total assets would be invested in
such
issuer or the Fund would own or hold more
than 10% of
the outstanding voting securities of that
issuer;
provided, however, that up to 25% of the
value of the
Fund's total assets may be invested without
regard to
these limitations.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described in
the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than 2%
of its total assets in warrants, so valued,
which are
not listed on either the New York or American
Stock
Exchanges;
(v) invest more than 5% of the value of its total
assets in
the securities of unseasoned issuers,
including their
predecessors, which have been in operation
for less
than three years;
(vi) purchase or retain securities of any company
if, to the
knowledge of the Trust, officers and Trustees
of the
Trust and officers and directors of Ivy
Management
Inc., MIMI or Mackenzie Financial Corporation
who
individually own more than 1/2 of 1% of the
securities
of that company together own beneficially
more than 5%
of such securities;
(vii) 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 or
by any
state in which its shares are registered; or
(viii) invest more than 10% 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 a fund has written, securities
for which
market quotations are not readily available,
or other
securities which legally or in IMI'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, to the Fund's
compliance
with certain conditions intended to provide
liquidity,
or to other factors, is liquid.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and
(c) the broker-dealers with whom the Fund enters into
such
transactions have a minimum net worth of $20 million.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy Latin America Strategy Fund,
Ivy
International Bond Fund, Ivy Canada Fund, Ivy Global
Fund, Ivy
Bond Fund, Ivy Short-Term Bond Fund, Ivy New Century
Fund and Ivy
Money Market Fund, the other twelve series of Ivy Fund;
Mackenzie
California Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund, Mackenzie Limited Term Municipal Fund,
Mackenzie
National Municipal Fund and Mackenzie New York
Municipal Fund,
the five series of Mackenzie Series Trust
(collectively, with the
Funds, the "Ivy Mackenzie Funds"). Investors should
obtain a
current prospectus before exercising any right or
privilege that
may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Bond Fund, Ivy Canada Fund,
Ivy Global
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging
Growth Fund, Ivy International Fund, Ivy Latin America
Strategy
Fund, Ivy New Century Fund and Ivy International Bond
Fund
("Table 1 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Florida
Limited Term
Municipal Fund, Ivy Short-Term Bond Fund and Mackenzie
Limited
Term Municipal Fund ("Table 2 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 3
1/2%
Second 2
1/2%
Third 2%
Fourth 1
1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 3% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth Fund, Ivy Growth
with
Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund,
Ivy International Bond Fund, Ivy Short-Term Bond Fund,
Ivy Bond
Fund, Ivy Canada Fund, Ivy Global Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
Limited Term Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund and Mackenzie New York Municipal Fund
(and shares
that have been exchanged into Ivy Money Market Fund
from any of
the other funds in the Ivy Mackenzie Funds) held of
record by him
or her as of the date of his or her Letter of Intent as
an
accumulation credit toward the completion of such
Letter. 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
MIFDI an amount equal to the difference between the
dollar amount
of sales charge which 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 thereof before signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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
Trust 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 MIISC, which may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a fund
which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 Fund in
conjunction with
such an arrangement. The sales charge for purchases of
less than
$10,000 of Class A shares is set forth under "403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge
Alternative--Class A
Shares" in the Prospectus. The special application for
a
403(b)(7) Account is available from MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy
International Bond
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging
Growth Fund, Ivy International Fund, Ivy Short-Term
Bond Fund,
Ivy Bond Fund, Ivy Canada Fund, Ivy Global Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund,
Mackenzie New York Municipal Fund, Mackenzie Limited
Term
Municipal Fund and Mackenzie Florida Limited Term
Municipal Fund
(and shares that have been exchanged into Ivy Money
Market Fund
from any of the other funds in the Ivy Mackenzie Funds)
and of
any other investment company distributed by MIFDI,
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 or
more for
the Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy
Emerging Growth Fund, Ivy International Fund, Ivy
International
Bond Fund, Ivy Canada Fund and Ivy Global Fund;
$100,000 or more
for Ivy Bond Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund and Mackenzie New York
Municipal Fund;
$25,000 or more for Mackenzie Florida Limited Term
Municipal Fund
and Mackenzie Limited Term Municipal Fund; or
$1,000,000 or more
for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by IMI in connection with
the services
it provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers that provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
During the period from October 23, 1993
(commencement of
operations) to December 31, 1993, the Fund paid
brokerage
commissions of $43,919. During that period, the Fund
paid no
brokerage fees to Brown Brothers Harriman & Co. ("Brown
Brothers"). During the fiscal year ended December 31,
1994, the
Fund paid brokerage commissions of $26,579. During
that period,
the Fund paid $938 in brokerage fees to Brown Brothers.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
Age: 49 President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66 Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A shares
and none of the outstanding Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by the sole
shareholder of the Fund on October 23, 1993. Prior to
approval
by the sole shareholder, the Agreement was approved on
August 20,
1993, with respect to the Fund by the Board of
Trustees,
including a majority of the Trustees who are neither
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have any
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). IMI also acts
as
manager and investment adviser to the following
investment
companies registered under the 1940 Act: Ivy Emerging
Growth
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Bond
Fund, Ivy Short-Term Bond Fund, Ivy International Fund,
Ivy
International Bond Fund, Ivy Canada Fund, Ivy Global
Fund, Ivy
New Century Fund, Ivy Latin America Strategy Fund and
Ivy Money
Market Fund. IMI is a wholly owned subsidiary of MIMI.
MIMI
currently acts as manager and investment adviser to the
following
investment companies registered under the 1940 Act:
Mackenzie
National Municipal Fund, Mackenzie New York Municipal
Fund,
Mackenzie California Municipal Fund, Mackenzie Limited
Term
Municipal Fund and Mackenzie Florida Limited Term
Municipal Fund.
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 Toronto Stock Exchange. MFC
is
registered in Ontario as a mutual fund dealer and
advises Ivy
Canada Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
1.00% of the
Fund's average daily net assets. For the period from
October 23,
1993 (commencement of operations) to December 31, 1993
and during
the fiscal year ended December 31, 1994, IMI was paid
$10,340 and
$193,875, respectively, by the Fund (of which IMI
reimbursed
$2,907 and $106,631, respectively, pursuant to
voluntary expense
limitations). During the fiscal year ended December
31, 1994,
IMI reimbursed $1,036 pursuant to required
reimbursement.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
For the
period from October 23, 1993 (commencement of
operations) to
December 31, 1993, no reimbursements were made pursuant
to this
state expense limitation.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses,
and other
extraordinary expenses) to an annual rate of 1.95% of
the Fund's
average daily net assets. As long as the Fund's
expense
limitation continues, it may lower the Fund's expense
and
increase its yield. The Fund's expense limitation may
be
terminated or revised at any time, at which time the
Fund's
expense may increase and its yield may be reduced,
depending on
the total assets of the Fund.
The initial term of the Agreement between IMI and
the Fund
commenced on October 23, 1993 and will run for a period
of two
years from that date. The Agreement will continue in
effect with
respect to the Fund for more than the initial period
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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of the
Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A and
Class B shares of the Fund under an Amended and
Restated
Distribution Agreement with the Trust dated October 23,
1993 (the
"Distribution Agreement"). Effective October 1, 1993,
MIFDI, a
wholly-owned subsidiary of MIMI, succeeded to and is
continuing
MIMI's broker-dealer activities. MIFDI 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 MIFDI. MIFDI distributes shares
of the
Fund on a continuous basis, but reserves the right to
suspend or
discontinue distribution on such basis. MIFDI is not
obligated
to sell any specific amount of Fund shares. Pursuant
to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the period from October 23,
1993
(commencement of operations) to December 31, 1993 and
during the
fiscal year ended December 31, 1994, MIFDI received
from sales of
Class A shares of the Fund $215,030 and $328,530,
respectively,
in sales commissions, of which $33,451 and $52,347,
respectively,
was retained after dealers' re-allowances.
Furthermore, MIFDI is
entitled to deduct a contingent deferred sales charge
on the
redemption of Class A shares sold without an initial
sales charge
and Class B shares, in accordance with, and in the
manner set
forth in, the Fund's Prospectus. MIFDI may re-allow
all or a
portion of the contingent deferred sales charge to
dealers as
MIFDI may determine from time to time. During the
period from
October 23, 1993 (commencement of operations) to
December 31,
1993, MIFDI received no contingent deferred sales
charges.
During the fiscal year ended December 31, 1994, MIFDI
received
$17,290 in contingent deferred sales charges on
redemptions of
Class B shares of the Fund.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, payments made out of or charged
against the
assets attributable to the Fund's Class A or Class B
shares must
be in reimbursement for services rendered for or on
behalf of
that Class of the Fund. The expenses not reimbursed in
any one
given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
For the period from October 23, 1993 (commencement of
operations)
to December 31, 1993 and during the fiscal year ended
December 31, 1994, the Fund paid MIFDI $1,844 and
$31,640,
respectively, pursuant to the Class A Plan. For the
period from
October 23, 1993 (commencement of operations) to
December 31,
1993 and during the fiscal year ended December 31,
1994, the Fund
paid MIFDI $2,962 and $67,315, respectively, pursuant
to the
Class B Plan.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $1,114; printing and mailing of
prospectuses
to persons other than current shareholders, $34,926;
compensation
to dealers, $29,290; compensation to sales personnel,
$24,138;
seminars and meetings, $7,322; travel and
entertainment, $6,801;
general and administrative, $9,657; telephone, $920;
and
occupancy and equipment rental, $2,132.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $592; printing and mailing of
prospectuses to
persons other than current shareholders, $18,576;
compensation to
dealers, $15,578; compensation to sales personnel,
$12,838;
seminars and meetings, $3,895; travel and
entertainment, $3,617;
general and administrative, $5,136; telephone, $490;
and
occupancy and equipment rental, $1,134.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers, a private bank and member of the
principal
securities exchanges located at 40 Water Street,
Boston,
Massachusetts 02109, acts as custodian for the Trust's
securities
and cash pursuant to a Custodian Agreement with the
Trust, on
behalf of the Fund. 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, Brown Brothers Harriman & Co.
has
entered into subcustodial agreements for the holding of
the
Fund's foreign securities. Brown Brothers may receive,
as
partial payment for its services, 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. During
the period from October 23, 1993 (commencement of
operations) to
December 31, 1993 and during the fiscal year ended
December 31,
1994, the Fund paid MIMI $2,513 and $32,137,
respectively, under
the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
fiscal year ended December 31, 1994 totalled $32,137.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the fiscal year ended December 31, 1994
totalled
$19,387.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation of the Trust's
tax
returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term Bond
Fund, Ivy
Money Market Fund, Ivy Latin America Strategy Fund, Ivy
New
Century Fund, Ivy Growth Fund, Ivy Emerging Growth
Fund, Ivy
Money Market Fund, Ivy Growth with Income Fund and Ivy
International Fund, as well as Class I for Ivy
Short-Term Bond
Fund, Ivy Bond Fund and Ivy International Fund. In
addition, the
Trustees have authorized an additional class, Class C,
for Ivy
Growth with Income Fund issued only to shareholders of
Mackenzie
Growth & Income Fund, a former series of The Mackenzie
Funds
Inc., in connection with the reorganization between
that fund and
Ivy Growth with Income Fund and not offered for sale to
the
public.
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
Amended and Restated Declaration of Trust. Shares of
each Class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
Classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a Class vote is required by the 1940 Act.
Shareholders of
the Fund vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding Class A or Class B shares.
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The portfolio securities of the Fund will include
equity
securities which are listed on foreign exchanges.
Certain
foreign exchanges may be open on Saturdays and
customary United
States business holidays. As a consequence, the
portfolio
securities of the Fund may be traded, and the net asset
values of
shares of the Fund may be significantly affected, on
days on
which shares of the Fund may not be purchased or
redeemed.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the period
from
October 23, 1993 (commencement of operations) to
December 31,
1993 was 0%. The Fund's Portfolio turnover rate for
the fiscal
year ended December 31, 1994 was 4%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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
under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
pro rata share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his pro
rata
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods indicated.
NON-STANDARDIZED
STANDARDIZED RETURN [1]
RETURN[2]
CLASS A CLASS B CLASS A
CLASS B
One year ended
December 31,
1994: (29.20%)[3] (29.18%)[5] (24.88%)[7]
(25.45%)[9]
Inception[*] to
December 31,
1994:[11] (15.59%)%[4] (14.91%)[6] (11.21%)[8]
(11.91%)[10]
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%.
The standardized figures for Class B shares
reflect the
deduction of the applicable contingent deferred
sales charge
imposed on a redemption of Class B shares held for
the
period.
[2] The Non-Standardized Return figures for Class A
shares do
not reflect the deduction of any initial or
contingent
deferred sales charge.
[3] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (29.57%).
[4] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (16.05%).
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (29.48%).
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (15.30%).
[7] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (25.28%).
[8] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (11.73%).
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (25.77%).
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (12.32%).
[11] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Fund was October 23,
1993.
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
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS
ENDED
DECEMBER 31, 1994
SINCE
ONE YEAR OCTOBER 23,
1993
Class A (29.20%) (18.12%)
Class B (29.18%) (17.34%)
The following table summarizes the calculation of
Cumulative
Total Return for the Class A and Class B shares of the
fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has not been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS
ENDED
DECEMBER 31, 1994
SINCE
ONE YEAR OCTOBER 23,
1993
Class A (24.88%) (13.13%)
Class B (25.45%) (13.90%)
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return quotation will continue in the future. The Fund
may 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 Director 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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal year
ended December 31, 1994 and for the period from October
23, 1993
(commencement of operations) to December 31, 1994,
Financial
Highlights, the Notes to Financial Statements, and the
Report of
Independent Accountants are included in the December
31, 1994
Annual Report to shareholders of the Fund, which is
incorporated
by reference into this SAI. Copies of these financial
statements
and this SAI may be obtained upon request and without
charge from
the Trust at the address and telephone number provided
on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY EMERGING GROWTH FUND
A SERIES OF
IVY FUND
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FLORIDA 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy Emerging
Growth
Fund (the "Fund"). The other twelve portfolios of the
Trust are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Warrants
Forward Foreign Currency Contracts
Small Company Risk
Foreign Securities
Foreign Currencies
Restricted and Illiquid Securities
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Stock
Indices
Risks of Options Transactions
Stock Index Futures Contracts
Risks of Stock Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Letter of Intent
Retirement Plans
Individual Retirement Accounts (IRAs)
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of IMI
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Cumulative Total Return
Other Quotations, Comparisons and General
Information
FINANCIAL STATEMENTS
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("S&P")
AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND
AND
COMMERCIAL PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of such
certificates.
Accordingly, it is not possible to predict accurately
the average
life of a particular pool. Reinvestment of prepayments
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,
GNMA
certificates can be less effective than typical bonds
of similar
maturities at "locking in" yields during periods of
declining
interest rates. GNMA certificates 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; and 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, and
Student
Loan Marketing Association.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities or other
high-grade debt securities in a segregated account with
its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
SMALL COMPANY RISK
Investors in the Fund should recognize that
investing in
smaller company stocks involves certain special
considerations
and risks, including those set forth below and in the
Fund's
Prospectus under "The Investment Goals of the Fund,"
which are
not customarily associated with investing in larger,
more
established companies. For example, smaller companies
may be
more susceptible to losses and risks of bankruptcy.
Also, the
securities of smaller companies may be thinly traded
(and
therefore have to be sold at a discount from current
market
prices sold in small lots over an extended period of
time).
Transaction costs in smaller company stocks may be
higher than
those of larger companies.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors," which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focussing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objectives and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the over-the-counter ("OTC")
markets
(such OTC options together with any other illiquid
securities
shall not be in an amount exceeding 10% of the Fund's
assets).
The Fund will not purchase put and call options if the
aggregate
premium paid for such options would exceed 5% of its
total assets
at the time of purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI does not anticipate significant appreciation
of the
underlying security in the near future or has otherwise
determined to dispose of the security.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON STOCK INDICES.
The Fund
may purchase and sell (write) put and call options on
stock
indices. An index assigns relative values to the
securities
included in the index and the index fluctuates with
changes in
the market values of the securities so included.
Options on
stock indices are similar to options on individual
securities,
except that, rather than giving the purchaser the right
to take
delivery of an individual security at a specified
price, they
give the purchaser the right to receive cash. The
amount of cash
is equal to the difference between the closing price of
the index
and the exercise price of the option, expressed in
dollars, times
a specified multiple (the "multiplier"). The writer of
the
option is obligated, in return for the premium
received, to make
delivery of this amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered," in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high-
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
STOCK INDEX FUTURES CONTRACTS
The Fund may enter into stock 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
Standard & Poor's Stock Index (the "S&P 500 Index") is
composed
of 500 selected common stocks, most of which are listed
on the
New York Stock 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 stock index futures contract
specifies
that no delivery of the actual stock 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 STOCK 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 stock 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 stock 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 stock 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 a stock index futures contract,
the Fund
will maintain with its Custodian (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
high-grade debt
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 a stock index futures contract, the
Fund will
maintain with its custodian (and mark-to-market on a
daily basis)
liquid assets 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).
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary purposes
where
investment transactions might advantageously
require
it. Any such loan may not be for a period
in excess
of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed
10% of
the value of the total assets of the Fund at
the time
any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that
this
restriction shall not prohibit (a) the entry
into
repurchase agreements or (b) the purchase of
publicly
distributed bonds, debentures and other
securities of
a similar type, or privately placed
municipal or
corporate bonds, debentures and other
securities of a
type customarily purchased by institutional
investors
or publicly traded in the securities
markets;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers
or
trustees, or firms of which any of them are
members or
which they control, any securities (other
than capital
stock of the Fund), but such persons or
firms may act
as brokers for the Fund for customary
commissions to
the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities
and
commodity contracts;
(viii) make an investment in securities of
companies in any
one industry (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities, or
instrumentalities) if such investment would
cause
investments in such industry to exceed 25%
of the
market value of the Fund's total assets at
the time of
such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted
to incur,
and except to the extent that shares of the
separate
classes or series of the Trust may be deemed
to be
senior securities; provided that collateral
arrangements with respect to
currency-related
contracts, futures contracts, options or
other
permitted investments, including deposits of
initial
and variation margin, are not considered to
be the
issuance of senior securities for purposes
of this
restriction; or
(x) purchase securities of any one issuer
(except U.S.
Government securities) if as a result more
than 5% of
the Fund's total assets would be invested in
such
issuer or the Fund would own or hold more
than 10% of
the outstanding voting securities of that
issuer;
provided, however, that up to 25% of the
value of the
Fund's total assets may be invested without
regard to
these limitations.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases
or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described
in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than 2%
of its total assets in warrants, so valued,
which are
not listed on either the New York or
American Stock
Exchanges;
(v) invest more than 5% of the value of its
total assets
in the securities of unseasoned issuers,
including
their predecessors, which have been in
operation for
less than three years;
(vi) purchase or retain securities of any company
if, to
the knowledge of the Trust, officers and
Trustees of
the Trust and officers and directors of Ivy
Management, Inc., MIMI or Mackenzie
Financial
Corporation who individually own more than
1/2 of 1%
of the securities of that company together
own
beneficially more than 5% of such
securities;
(vii) 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 1940
Act and
rules thereunder or by any state in which
its shares
are registered; or
(viii) invest more than 10% 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 a fund has written,
securities
for which market quotations are not readily
available,
or other securities which legally or in
IMI'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, to
the
Fund's compliance with certain conditions
intended to
provide liquidity, or to other factors, is
liquid.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and
(c) the broker-dealers with whom the Fund enters into
such
transactions have a minimum net worth of $20 million.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
with Income
Fund, Ivy Growth Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy Bond Fund, Ivy
Short-
Term Bond Fund, Ivy International Bond Fund, Ivy Canada
Fund, Ivy
Global Fund, Ivy International Fund and Ivy Money
Market Fund,
the other twelve series of Ivy Fund; Mackenzie
California
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund,
Mackenzie Limited Term Municipal Fund, Mackenzie
National
Municipal Fund and Mackenzie New York Municipal Fund
the five
series of Mackenzie Series Trust; (collectively, with
the Funds,
the "Ivy Mackenzie Funds"). Investors should obtain a
current
prospectus before exercising any right or privilege
that may
relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Bond
Fund, Ivy International Bond Fund, Ivy Latin America
Strategy
Fund, Ivy New Century Fund, Ivy Growth Fund, Ivy Growth
with
Income Fund, Ivy International Fund and Ivy China
Region Fund
("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Florida
Limited Term
Municipal Fund, Mackenzie Limited Term Municipal Fund
and Ivy
Short-Term Bond Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2- % contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth Fund, Ivy Growth
with
Income Fund, Ivy China Region Fund, Ivy International
Fund, Ivy
Latin America Strategy Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy New Century Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Short-Term Bond Fund, Mackenzie National Municipal
Fund,
Mackenzie California Municipal Fund, Mackenzie Limited
Term
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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 (IRAS). Shares of
the Trust
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
MIISC, which
may impose a charge for establishing the account.
Individuals
may wish to consult their tax advisers before investing
IRA
assets in a fund which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 Fund in
conjunction with
such an arrangement. The sales charge for purchases of
less than
$10,000 of Class A shares is set forth under "403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge
Alternative--Class A
Shares" in the Prospectus. The special application for
a
403(b)(7) Account is available from MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy New Century
Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy China
Region Fund,
Ivy Bond Fund, Ivy Short-Term Bond Fund, Ivy
International Bond
Fund, Ivy Latin America Strategy Fund, Ivy Canada Fund,
Ivy
Global Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie New York Municipal
Fund,
Mackenzie Limited Term Municipal Fund and Mackenzie
Florida
Limited Term Municipal Fund (and shares that have been
exchanged
into Ivy Money Market Fund from any of the other funds
in the Ivy
Mackenzie Funds) and of any other investment company
distributed
by MIFDI, 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 or more for the Fund, Ivy Growth Fund, Ivy
Growth with
Income Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Bond Fund, Ivy China Region
Fund, Ivy
International Fund, Ivy Canada Fund, Ivy Global Fund;
$100,000 or
more for Ivy Bond Fund, Mackenzie National Municipal
Fund,
Mackenzie California Municipal Fund and Mackenzie New
York
Municipal Fund; $25,000 or more for Mackenzie Florida
Limited
Term Municipal Fund and Mackenzie Limited Term
Municipal Fund; or
$1,000,000 or more for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 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 in servicing all of its accounts. In
addition, not
all of these services may be used by IMI in connection
with the
services it provides to the Fund or the Trust. IMI may
consider
sales of shares of the Fund as a factor in the
selection of
broker-dealers and may select broker-dealers that
provide it with
research services. IMI will not, however, execute
brokerage
transactions other than at the best price and
execution.
During the period from March 3, 1993 (commencement
of
operations) to December 31, 1993, the Fund paid
brokerage
commissions of $94,628. During that period, the Fund
paid
brokerage fees of $1,373 to Brown Brothers. During the
fiscal
year ended December 31, 1994, the Fund paid brokerage
commissions
of $83,831. During that period, the Fund paid no
brokerage fees
to Brown Brothers.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
Age: 49 President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66 Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A and
Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSAT-
AGGREGATE ACCRUED AS ANNUAL
ION FROM
COMPEN- PART OF BENEFITS
TRUST
NAME, SATION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc., ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by the sole
shareholder of the Fund on April 30, 1993. Prior to
approval by
the sole shareholder, the Agreement was approved on
February 19,
1993, with respect to the Fund, by the Board of
Trustees,
including a majority of the Trustees who are neither
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have any
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). IMI also acts
as manager
and investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Growth Fund, Ivy
Growth with
Income Fund, Ivy Global Fund, Ivy Canada Fund, Ivy New
Century
Fund, Ivy International Fund, Ivy Latin America
Strategy Fund,
Ivy China Region Fund, Ivy Bond Fund, Ivy International
Bond
Fund, Ivy Short-Term Bond Fund and Ivy Money Market
Fund. IMI is
a wholly owned subsidiary of MIMI. MIMI currently acts
as
manager and investment adviser to the following
investment
companies registered under the 1940 Act: Mackenzie
National
Municipal Fund, Mackenzie New York Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund.
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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
0.85% of the
Fund's average daily net assets. For the period March
3, 1993
(commencement of operations) to December 31, 1993, IMI
was paid
$37,707 by the Fund (of which IMI reimbursed $18,141
pursuant to
voluntary expense limitations). During the fiscal year
ended
December 31, 1994, IMI was paid $168,819 by the Fund
(of which
IMI reimbursed $3,923 pursuant to voluntary expense
limitations).
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
For the
period from March 3, 1993 (commencement of operations)
to
December 31, 1993 and for the fiscal year ended
December 31,
1994, no reimbursements were made pursuant to this
state expense
limitation.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses,
and other
extraordinary expenses) to an annual rate of 1.95% of
the Fund's
average daily net assets. As long as the Fund's
expense
limitation continues, it may lower the Fund's expense
and
increase its yield. The Fund's expense limitation may
be
terminated or revised at any time at which time the
Fund's
expense may increase and its yield may be reduced,
depending on
the total assets of the Fund.
The initial term of the Agreement between IMI and
the Fund
commenced on March 5, 1993 and will run for a period of
two years
from that date. The Agreement will continue in effect
with
respect to a Fund for more than the initial period 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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of the
Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A1
[Shares of the Fund outstanding as of October 22, 1993
have been
designated as "Class A" shares of the Fund.] and Class
B shares
of the Fund under an Amended and Restated Distribution
Agreement
with the Trust dated October 23, 1993 (the
"Distribution
Agreement"). Effective October 1, 1993, MIFDI, a
wholly-owned
subsidiary of MIMI, succeeded to and is continuing
MIMI's broker-
dealer activities. The provisions of the Trust's
previous
Distribution Agreement with MIMI remain unchanged by
the
succession. MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the period from March 3,
1993
(commencement of operations) to September 30, 1993,
MIMI received
from sales of Class A shares of the Fund $198,884 in
sales
commissions, of which $30,643 was retained after
dealers' re-
allowances. During the period from October 1, 1993 to
December 31, 1993 and during the fiscal year ended
December 31,
1994, MIFDI received from sales of Class A shares of
the Fund
$267,621 and $193,050, respectively, in sales
commissions, of
which $41,714 and $31,480 respectively, was retained
after
dealers' re-allowances. Furthermore, MIFDI is entitled
to deduct
a contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the periods from
March 3,
1993 (commencement of operations) to September 30, 1993
and from
October 1, 1993 to December 31, 1993, MIMI and MIFDI,
respectively, received no contingent deferred sales
charges upon
certain redemptions of Class A shares of the Fund.
During the
period from October 23, 1993 and during the fiscal year
ended
December 31, 1994, (the date on which Class B shares of
the Fund
were first offered for sale to the public) to December
31, 1993
and during the fiscal year ended December 31, 1994,
MIFDI
received $239 and $12,352, respectively, in contingent
deferred
sales charges paid upon certain redemptions of Class B
shares of
the Fund.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on
Form N-1A
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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, payments made out of or charged
against the
assets attributable to the Fund's Class A or Class B
shares must
be in reimbursement for services rendered for or on
behalf of
that Class of the Fund. The expenses not reimbursed in
any one
given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to
either Plan,
and the purposes for which such expenditures were
incurred, must
be made to the Board of Trustees for its review at
least
quarterly. For the period from March 3, 1993
(commencement of
operations) to September 30, 1993, the Fund paid MIMI
$3,137
pursuant to the Class A Plan. For the period from
October 1,
1993 to December 31, 1993 and during the fiscal year
ended
December 31, 1994, the Fund paid MIFDI $7,644 and
$41,576
respectively, pursuant to the Class A Plan. For the
period from
October 23, 1993 (the date on which Class B shares of
the Fund
were first offered for sale to the public) to December
31, 1993
and during the fiscal year ended December 31, 1994, the
Fund paid
MIFDI $1,235 and $32,179, respectively, pursuant to the
Class B
Plan.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $1,363; printing and mailing of
prospectuses
to persons other than current shareholders, $29,231;
compensation
to dealers, $28,598; compensation to sales personnel,
$27,780;
seminars and meetings, $7,149; travel and
entertainment, $7,833;
general and administrative, $11,321; telephone, $1,063;
and
occupancy and equipment rental, $2,426.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $265; printing and mailing of
prospectuses to
persons other than current shareholders, $5,677;
compensation to
dealers, $5,554; compensation to sales personnel,
$5,395;
seminars and meetings, $1,389; travel and
entertainment, $1,521;
general and administrative, $2,199; telephone, $206;
and
occupancy and equipment rental, $471.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges
located at
40 Water Street, Boston, Massachusetts 02109, acts as
custodian
for the Trust's securities and cash pursuant to a
Custodian
Agreement with the Trust. 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, Brown Brothers
Harriman &
Co. has entered into subcustodial agreements for the
holding of
the Fund's foreign securities. Brown Brothers may
receive, as
partial payment for its services, 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. During
the period from March 3, 1993 to December 31, 1993 and
during the
fiscal year ended December 31, 1994, the Fund paid MIMI
$12,798
and $31,948, respectively, under the agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
fiscal year ended December 31, 1994 totalled $71,438.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the fiscal year ended December 31, 1994
totalled
$19,861.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.,
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation of the Trust's
tax
returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy New Century, Ivy International Bond Fund, Ivy Bond
Fund, Ivy
Short-Term Bond Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Money
Market Fund, Ivy Latin America Strategy Fund, Ivy China
Region
Fund and Ivy International Fund, as well as Class I for
Ivy
International Fund, Ivy Short-Term Bond Fund and Ivy
Bond Fund.
In addition, the Trustees have authorized an additional
class,
Class C, for Ivy Growth with Income Fund issued only to
shareholders of Mackenzie Growth & Income Fund, a
former series
of The Mackenzie Funds Inc., in connection with the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act.
Shareholders of
the Trust vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding Class A or Class B shares, except
that of the
outstanding Class A shares of the Fund, Amalgamated
Bank of New
York (custodian), TWU-NYC Private Bus Lines Pension
Fund, P.O.
Box 370 Cooper Station, New York, New York 10003, owned
of record
83,908.349 shares (7.29%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal
to the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of
a put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by
dividing the lesser of purchases or sales of portfolio
securities
for the fiscal year by the monthly average of the value
of the
portfolio securities owned by the Fund during the
fiscal year.
For purposes of determining such portfolio turnover,
all
securities whose maturities at the time of acquisition
were one
year or less are excluded.
A portfolio turnover rate that exceeds 100%
involves
correspondingly higher brokerage commissions and other
transaction costs, which will be borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
The Fund's portfolio turnover rate for the period
March 3,
1993 (commencement of operations) to December 31, 1993
and for
the fiscal year ended December 31, 1994 was 41%
(annualized) and
67%, respectively.
REDEMPTIONS
Shares of the Fund are redeemed at their net
asset value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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 debts
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.
Certain 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 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
under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
PRO RATA share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his PRO
RATA
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods indicated.
STANDARDIZED
NON-STANDARDIZED
RETURN[1]
RETURN[2]
CLASS A[3] CLASS B CLASS A[3]
CLASS B
One year ended
December 31,
1994 (2.65%)[8] (2.49%)[9] 3.29%[10]
2.51%[11]
Inception* to
December 31,
1993[12] 23.10%[5] (1.29%)[4] 27.52%[7]
2.07%[6]
_________________________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[3] Shares of the Fund outstanding as of October 22,
1993 have
been redesignated as "Class A" shares of the Fund.
[4] The Standardized Return figure reflects expense
reimbursement and the deduction of a 5% contingent
deferred
sales charge. Without expense reimbursement, the
Standardized Return would have been (1.42%).
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 23.01%.
[6] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 1.93%.
[7] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 27.45%.
[8] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standard
Return would have been (2.65%)
[9] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standard
Return would have been (2.49%)
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 3.29%
[11] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 2.51%.
[12] The Total Return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Fund was March 3, 1993.
Class A
shares of the Fund were first offered for sale to
the public
on April 30, 1993, and Class B shares of the Fund
were first
offered for sale to the public on October 23,
1993.
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
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
SINCE
ONE YEAR MARCH 3, 1993
Class A (2.65%) 41.48%
Class B (2.49%) (1.54%)
The following table summarizes the calculation of
Total
Return for the Class A and Class B shares of the Fund
for the
periods indicated, assuming the maximum 5.75% sales
charge has
not been assessed.
Cumulative Total Return for periods ended December
31, 1994
SINCE
ONE YEAR MARCH 3, 1993
Class A 3.29% 50.12%
Class B 2.51% 2.46%
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return 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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the period from March 3,
1993
(commencement of operations) to December 31, 1993, the
Statement
of Changes in Net Assets for the fiscal year ended to
December 31, 1994, Financial Highlights, the Notes to
Financial
Statements, and Report of Independent Accountants are
included in
the Fund's December 31, 1994 Annual Report to
shareholders of the
Fund, which is incorporated by reference into this SAI.
Copies
of these financial statements and this SAI may be
obtained upon
request and without charge from the Trust at the
address and
telephone number provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY GLOBAL FUND
a series of
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of the portfolios, Ivy Global
Fund (the
"Fund"). The other twelve portfolios of the Trust are
described
in separate Statements of Additional Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Borrowing
Commercial Paper
Banking Industry and Savings and Loan Obligations
Warrants
American Depository Receipts (ADRs)
Foreign Securities
Investing in Emerging Markets
Forward Foreign Currency Contracts
Repurchase Agreements
Firm Commitment Agreements and When-Issued
Securities
Loans of Portfolio Securities
Zero Coupon Bonds
Restricted and Illiquid Securities
Stock Index Futures Contracts
Stock Index Options
Risks of Stock Index Futures and Options on Stock
Indices
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Letter of Intent
Retirement Plans
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of IMI
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
PERFORMANCE INFORMATION
Average Annual Total Return Quotations
Cumulative Total Return
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND ANDCOMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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).
In these
securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and
thus they
are of the highest possible credit quality. Such
securities are
subject to variations in market value due to
fluctuations in
interest rates, but, if held to maturity, will be paid
in full.
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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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 directly
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, and
Student
Loan Marketing Association.
BORROWING
As a fundamental policy, the Fund may borrow from
banks as a
temporary measure for extraordinary or emergency
purposes. The
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. The
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. 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).
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, at the date of investment, is
rated A-1 by
Standard & Poor's Corporation ("S&P") or Prime-1 by
Moody's
Investors Service, Inc. ("Moody's") or, if not rated by
Moody's
or S&P, issued by companies having an outstanding debt
issue
rated AAA or AA by S&P or Aaa or Aa by Moody's.
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 on
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' acceptances 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
(currently $100,000) is fully insured by the Federal
Deposit
Insurance Corporation (the "FDIC"), (iii) savings and
loan
associations 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.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
would be entitled as the owner of sponsored ADRs.
FOREIGN SECURITIES
The Fund may invest in debt securities of foreign
issuers,
including non-U.S. dollar-denominated debt securities,
Eurodollar
securities and debt securities issued, assumed or
guaranteed by
foreign governments or political subdivisions or the
instrumentalities thereof. Investors 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 domestic
investments.
Although the Fund intends to invest only in nations
that IMI
considers to have relatively stable and friendly
governments,
there is the possibility of expropriation,
nationalization or
confiscatory taxation, taxation of 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 in 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
in reports
about companies in the United States. For example,
ownership of
unsponsored ADRs may not entitle the owner to financial
or other
reports from the issuer to which it might otherwise be
entitled
as the owner of a sponsored ADR. 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
government
supervision and regulation of business and industry
practices,
stock exchanges, brokers and listed companies than in
the United
Sates. Foreign securities transactions may 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.
Further, the Fund may encounter difficulties or be
unable to
pursue legal remedies and obtain judgment in foreign
courts.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
(a "forward contract"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities, or
other high grade debt securities in a segregated
account with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
REPURCHASE AGREEMENTS
The Fund may enter into 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. The Fund may not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities, including such repurchase
agreements. Under
guidelines approved by the Trust's Board of Trustees,
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 the
Fund's
investment adviser 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
the Fund's
investment adviser under guidelines approved by the
Board of
Trustees. 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.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a firm
commitment or
when-issued basis. New issues of certain debt
securities are
often offered on a when-issued basis; that is, 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 transactions are entered into 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. The
Fund will
maintain in a segregated account with its custodian
cash, U.S.
Government securities, or other high grade debt
securities equal
(on daily marked-to-market basis) to the amount of its
commitment
to purchase the securities on a when-issued or firm
commitment
basis.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to
brokers,
dealers and financial institutions for the purpose of
realizing
additional income. Loans of securities by the Fund
will be
collateralized by cash, letters of credit, or
securities issued
or guaranteed by the U.S Government or its agencies or
instrumentalities. The collateral will equal (on a
daily marked-
to-market basis) at least 100% of the current market
value of the
loaned securities. The aggregate market value of the
securities
loaned will not at any time exceed 30% of the total
assets of the
Fund. The risks in lending portfolio securities, as
with other
extensions of credit, consist of possible loss of
rights in the
collateral should the borrower fail financially. In
determining
whether to lend securities, IMI will consider all
relevant facts
and circumstances, including the creditworthiness of
the
borrower.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in
accordance with
the Funds credit quality standards. Zero coupons 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, however, 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 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 the Fund 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focussing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
STOCK INDEX FUTURES CONTRACTS
The Fund may purchase and sell stock index futures
contracts
in order to hedge against a change in the market prices
of
securities that the Fund owns or intends to purchase.
The Fund
will only enter into futures contracts 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
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 stock
index futures contract specifies that no delivery of
the actual
stock 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).
STOCK INDEX OPTIONS
The Fund may purchase and sell put and call
options on
securities indices in standardized contracts traded on
national
securities exchanges, boards of trade or similar
entities, or
quoted on NASDAQ. The Fund may also purchase and sell
put and
call options on securities indices traded in the OTC
markets. A
stock index assigns relative values to the common
stocks included
in the index and the index fluctuates with changes in
the market
values of the common stocks so included. Options on
stock
indices are similar to options on stock, except that,
rather than
giving the purchaser the right to take delivery of
stock at a
specified price, they give the purchaser the right to
receive
cash. The amount of cash is equal to the difference
between the
closing price of the index and the exercise price of
the option
expressed in dollars, times a specified multiple (the
"multiplier"). The writer of the option is obligated,
in return
for the premium received, to make delivery of this
amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices may have different multipliers.
When the Fund writes an index option, it will be
required to
deposit and maintain with its Custodian or pledge to a
broker
securities equal in value to the aggregate exercise
price of a
put option or the aggregate contract price of a call
option (the
current index value times the multiplier). If at the
close of
business on any day the market value of such deposited
securities
falls below the contract price of the option, the Fund
will
deposit cash, U.S. Government securities or money
market
securities equal in value to the amount of such
deficiency. In
addition, if the Fund writes a call option on an index
and the
aggregate contract value exceeds the aggregate exercise
price
when the option is written, the Fund will deposit cash,
U.S.
Government securities or money market securities equal
in value
to such excess.
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 or sells (writes) an OTC option, it
relies on the
party from whom it has purchased or to whom is has sold
the
option (the "counterparty") to make or take 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. OTC options, together with any other
illiquid
securities, shall not be in an amount exceeding 10% of
the Fund's
assets.
RISKS OF STOCK INDEX FUTURES AND OPTIONS ON STOCK
INDICES
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 both the
futures
and options markets as well as the securities markets
and on
IMI's ability to select the proper type, time and
duration of
hedges. The skills necessary for successful use of
hedges are
different than 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 options on stock
indices
and in stock 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 and options
exchanges may
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. 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. 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. 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.
When the Fund purchases an option, its potential
loss is
limited to the premium paid for the option; the Fund's
potential
loss on an option which it has written is limited to
the exercise
price, plus the premium which it has received, minus
the market
value of the option purchased to close the position
(except to
the extent that the loss is offset by gains in the
securities
which covered the option). In a futures transaction,
the Fund's
potential loss may be unlimited, except to the extent
that the
loss is offset by gains in the underlying securities.
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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 Objectives and Policies,"
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. Under
these
restrictions, the Fund may not:
(i) With respect to 75% of its total assets,
purchase
the securities of any one issuer, other
than
securities issued by the U.S. Government
or its
agencies or instrumentalities, if
immediately
after such purchase more than 5% of the
value of
the total assets of the Fund would be
invested in
securities of such issuer;
(ii) Invest in real estate, real estate
mortgage loans,
commodities or interests in oil, gas
and/or
mineral exploration or development
programs,
although (a) the Fund may purchase and
sell
marketable securities of issuers which
are secured
by real estate, (b) the Fund may
purchase and sell
securities of issuers which invest or
deal in real
estate, (c) the Fund may enter into
forward
foreign currency contracts as described
in the
Fund's prospectus, and (d) the Fund may
write or
buy puts, calls, straddles or spreads
and may
invest in commodity futures contracts
and options
on futures contracts;
(iii) Make investments in securities for the
purpose of
exercising control over or management of
the
issuer;
(iv) 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;
(v) Purchase the securities of any one
issuer if,
immediately after such purchase, the
Fund would
own more than 10% of the outstanding
voting
securities of such issuer;
(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 loans, except this restriction
shall not
prohibit (a) the purchase and holding of
a portion
of an issue of publicly distributed debt
securi-
ties, (b) the entry into repurchase
agreements
with banks or broker-dealers, or (c) the
lending
of the Fund's portfolio securities in
accordance
with applicable guidelines established
by the
Securities and Exchange Commission (the
"SEC") and
any guidelines established by the
Trust's
Trustees;
(viii) 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;
(ix) Purchase the securities of issuers
conducting
their principal business activities in
the same
industry if immediately after such
purchase the
value of the Fund's investments in such
industry
would exceed 25% of the value of the
total assets
of the Fund;
(x) Act as an underwriter of securities,
except to the
extent that, in connection with the sale
of
securities, it may be deemed to be an
underwriter
under applicable securities laws;
(xi) 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
(xii) Issue senior securities, except insofar
as the
Fund may be deemed to have issued a
senior
security in connection with any
repurchase
agreement or any permitted borrowing.
Further, as a matter of fundamental policy, the
Fund may not
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").
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) purchase or retain securities of any
company if
officers and Trustees of the Trust and
officers
and directors of the Manager who
individually own
more than 1/2 of 1% of the securities of
that
company, together own beneficially more
than 5% of
such securities; or
(iv) 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 of
companies (including predecessors) less
than three
years old.
In addition, so long as it remains a restriction
of the Ohio
Division of Securities, the Fund will treat securities
eligible
for resale under Rule 144A of the Securities Act of
1933 as
subject to the Fund's restriction on investing in
restricted
securities. Further, as a matter of nonfundamental
policy, the
Fund may not make short sales of securities or maintain
a short
position. Moreover, so long as it remains a policy of
the
California Department of Corporations, the Fund may
purchase and
sell OTC options on stock indices if (a)
exchange-traded options
are not available, (b) an active OTC market exists that
establishes pricing and liquidity, and (c) the
broker-dealers
with whom the Fund enters into such transactions have a
minimum
net worth of $20 million.
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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Bond Fund, Ivy Short-Term Bond
Fund and Ivy
Money Market Fund, the other twelve series of Ivy Fund;
and
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund,
Mackenzie National Municipal Fund and Mackenzie New
York
Municipal Fund, the five series of Mackenzie Series
Trust
(collectively, with the Fund, the "Ivy Mackenzie
Funds").
Investors should obtain a current prospectus before
exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt by The Mackenzie Ivy Investor Services
Corp.
("MIISC") of telephone instructions or written notice
to MIISC
from the investor. See "Automatic Investment Method"
in the
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus ("outstanding Class A shares"), for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Bond Fund, Ivy Canada Fund, Mackenzie California
Municipal
Fund, Mackenzie National Municipal Fund, Mackenzie New
York
Municipal Fund ("Table 1 Funds"):
Contingent
Deferred Sales
Charge as a
Percentage of
Dollar Amount
Subject to
Year Since Purchase Charge
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
Contingent
Deferred Sales
Charge as a
Percentage of
Dollar Amount
Subject to
Year Since Purchase Charge
First 3%
Second 2.5%
Third 2%
Fourth 1.5%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2.5% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all the shares of the Fund) may be made if
it would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can be legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such noticed is required by SEC rules. See
"Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund will result in a taxable
gain or loss.
Generally, any such taxable gain or loss 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 Fund's
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
the value (at the applicable offering price) of all
Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Bond Fund, Ivy Short-Term Bond
Fund, Ivy
Canada Fund, Ivy Bond Fund, Mackenzie National
Municipal Fund,
Mackenzie Florida Limited Term Municipal Fund,
Mackenzie Limited
Term Municipal Fund, Mackenzie California Municipal
Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof 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 MIFDI may be purchased in a single
application
establishing a single plan account, and shares held in
such an
account may be exchanged among the funds in the Ivy
Mackenzie
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 account
For shareholders whose retirement accounts are
diversified across
several funds of the Ivy Mackenzie 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 a funding medium for an Individual Retirement
Account
("IRA"). Eligible individuals may establish an IRA by
adopting a
model custodial account available from IMI, who may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a Fund
that primarily distribute 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of one spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is less than a specified level ($40,000 for
married
couples filing a joint return, $25,000 for single
individuals,
and $0 for a married individual filing a separate
return). The
deduction is phased out ratably for active participants
with
adjusted gross income between certain levels ($40,000
and $50,000
for married individuals filing a joint return, $25,000
and
$35,000 for single individuals, and $0 and $10,000 for
married
individuals filing separate returns). Individuals with
income
above the specified phase-out level may not deduct
their IRA
contributions. 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. 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
benefi-
ciary, if any, or rolled over into another IRA.
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
distribu-
tions will result in the imposition of a 50%
non-deductible
penalty tax. Extremely large distributions in any one
year from
an IRA (or from an IRA and other retirement plans) may
also
result in a penalty tax.
QUALIFIED PLANS: For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 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 sales charge for
purchases of less
than $10,000 of Class A shares is set forth under
"403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge Alternative
--
Class A Shares" in the Prospectus. The special
application for a
403(b)(7) Account is available from Mackenzie
Investment
Management Inc. ("MIMI").
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.
REINVESTMENT PRIVILEGE
Investors 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
MIISC 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 for
the Fund. 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). It
is also
applicable to current purchases of all of the funds in
the Ivy
Mackenzie Funds (except Ivy Money Market Fund) by any
of the
persons enumerated above, where the aggregate quantity
of Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy China Region Fund, Ivy
Latin
America Strategy Fund, Ivy New Century Fund, Ivy
International
Bond Fund, Ivy International Fund, Ivy Bond Fund, Ivy
Short-Term
Bond Fund, Ivy Canada Fund, Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund and,
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) and of any other investment
company
distributed by MIFDI, 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 or more for the Fund, Ivy
Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund and Ivy Canada
Fund; $100,000
or more for International Bond Fund, Ivy Bond Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund and
Mackenzie New York Municipal Fund; or $25,000 or more
for
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund; or $1,000,000 or more for
Ivy Short-
Term Bond Fund.
At the time an investment takes place, MIISC 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
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him or her. To be eligible, a shareholder must have at
least
$5,000 in the shareholder's 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
use of principal and, to the extent that it does,
depending on
the amount withdrawn, the investor's principal may be
depleted.
A redemption under a Withdrawal Plan is a taxable
event.
Investors contemplating participation 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 or contingent
deferred
sales charges.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, participation in the Withdrawal Plan will
terminate
automatically. The Trust or MIISC may terminate the
Withdrawal
Plan option at any time after reasonable notice to
shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI places orders for
the pur-
chase and sale of the Fund's portfolio securities. All
portfolio
transactions are effected at the best price and
execution
obtainable. In connection with OTC transactions, IMI
attempts to
deal directly with the principal market makers, except
in those
circumstances where IMI believes that better price and
execution
are available elsewhere.
IMI 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 in servicing all of its accounts. In
addition, not
all of these services may be used by IMI in connection
with the
services it provides to the Fund or the Trust. IMI may
consider
sales of shares of the Fund as a factor in the
selection of
broker-dealers and may select broker-dealers who
provide it with
research services. IMI will not, however, execute
brokerage
transactions other than at the best price and
execution.
During the fiscal years ended June 30, 1992, June
30, 1993,
and June 30, 1994, the Fund paid brokerage commissions
of
$32,493, $31,789, and $58,828, respectively. During
the six-
month period ended December 31, 1994, the Fund paid
brokerage
commissions of $43,367.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President
of
Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994); Chairman
and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Director
and President
of The
Mackenzie Funds
Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned 3.18% of the outstanding Class A
shares of the
Fund and none of the outstanding Class B shares of the
Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") currently provides
business
management and investment advisory services to the Fund
pursuant
to a Business Management and Investment Advisory
Agreement (the
"Agreement"). Until January 31, 1995 MIMI served as
the
investment adviser to the Fund, which until January 31,
1995 was
a series of The Mackenzie Funds Inc. (the "Company").
On January
31, 1995, MIMI's interest in the Agreement was assigned
by MIMI
to IMI, which is a wholly owned subsidiary of MIMI.
The
provisions of the Agreement remain unchanged by IMI's
succession
to MIMI thereunder. The Management Agreement was
initially
approved on September 29, 1994 by the Trust's Board of
Trustees
including a majority of the Trustees who neither are
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have a
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). The Agreement
was
approved by the sole shareholder of the Fund on January
27, 1995.
IMI is a wholly owned subsidiary of MIMI. 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 Toronto Stock Exchange. MFC is registered in
Ontario as a
mutual fund dealer and advises Ivy Canada Fund. IMI
currently
acts as manager and investment adviser to the following
investment companies registered under the 1940 Act:
the Fund,
Ivy Growth Fund, Ivy Emerging Growth Fund, Ivy Growth
with Income
Fund, Ivy China Region Fund, Ivy Latin America Strategy
Fund, Ivy
New Century Fund, Ivy International Fund, Ivy Bond
Fund, Ivy
International Bond Fund, Ivy Short-Term Bond Fund and
Ivy Money
Market Fund; and acts as investment manager to Ivy
Canada Fund.
The 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 Fund's Prospectus, the 1940 Act and the provisions
of the
Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 which 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 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 first $500 million of its average daily
net assets,
reduced to 0.75% on average daily net assets over $500
million.
During the fiscal years ended June 30, 1992, 1993 and
1994 and
the six-month period ended December 31, 1994, MIMI, as
the
investment adviser to the Fund when it was a series of
the
Company, received fees of $54,360, $104,015, $155,540,
and
$107,966, respectively, from the Fund.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year (other than interest, taxes,
distribution
expenses, brokerage commissions and other portfolio
transaction
expenses, other expenditures which are capitalized in
accordance
with generally accepted accounting principles and any
extraor-
dinary expenses including, without limitation,
litigation and
indemnification expenses) exceed the permissible limits
appli-
cable to the Fund in any state in which its shares are
then
qualified for sale, IMI will bear the excess expenses.
At the
present time, the most restrictive state expense
limitation
provision limits the Fund's annual expenses to 2.5% of
the first
$30 million of its average daily net assets, 2.0% of
the next $70
million and 1.5% of its average daily net assets over
$100
million. In addition, IMI may voluntarily reimburse
the Fund's
expenses. Voluntary expense reimbursements for the
Fund for the
fiscal year ended June 30, 1994 were $34,779.
On September 29, 1994, the Trustees of the Trust,
including
a majority of the Independent Trustees, voted to
approve the
Agreement for the Fund. The 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
securi-
ties (as defined in the 1940 Act) of the Fund or (b) by
the vote
of a majority of the entire Board of Trustees. If the
question
of continuance of the Agreements (or adoption of any
new agree-
ment) is presented to shareholders, continuance (or
adoption)
shall be effected only if approved by the affirmative
vote of a
majority of the outstanding voting securities of the
Fund. See
"Capitalization and Voting Rights."
The 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 of Trustees, 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 Agreement shall terminate automatically
in the
event of its assignment.
DISTRIBUTION SERVICES
MIFDI, a wholly owned subsidiary of MIMI, serves
as the
exclusive distributor of the Fund's shares pursuant to
a
Distribution Agreement with the Trust. MIFDI is not
obligated to
sell any specific amount of Fund shares. During the
fiscal years
ended June 30, 1992, and June 30, 1993, and the three
months
ended September 30, 1993, MIMI, which at that time was
the Fund's
distributor, received from sales of Class A 1[Shares of
the Fund
outstanding as of March 31, 1994 were designated Class
A shares
of the Fund.] shares of the Fund $171,238, $192,128 and
$57,279,
respectively, in sales commissions, of which $37,624,
$35,500 and
$8,869, respectively, was retained after dealers'
reallowances.
During the nine months ended June 30, 1994, and the
period from
July 1, 1994 through December 31, 1994, MIFDI received
commissions of $166,539 and $96,349, respectively, from
sales of
Class A shares of the Fund, of which $25,240 and
$16,508,
respectively, was retained after dealers' reallowances.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. Furthermore, MIFDI is entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may reallow all or a portion of the
contingent
deferred sales charge to dealers as MIFDI may determine
from time
to time. During the period April 1, 1994 (commencement
of sales
of Class B shares) to December 31, 1994, MIFDI received
no
contingent deferred sales charges on redemptions of
Class B
shares of the Fund.
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 of Trustees 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 MIFDI 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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). In
adopting each Plan, a majority of the Independent
Trustees have
concluded in conformity with the requirements of the
1940 Act
that there is a reasonable likelihood that the 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 Fund shares, although it is impossible
to know for
certain the level of sales and redemptions of Fund
shares in the
absence of a Plan or under an alternative distribution
arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, service fee payments made out of or
charged
against the assets attributable to the Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that Class of the Fund. The expenses not
reimbursed in
any one given 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 Plan, the Fund also pays
MIFDI 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 shares. MIFDI may reallow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
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 Plan, MIFDI 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. The
SEC order
permitting the imposition of a contingent deferred
sales charge
on Class B shares does not currently permit MIFDI to
recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust 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) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid by the Fund. MIFDI
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 MIFDI.
During the period from October 1, 1993 to June 30,
1994 and
the period from July 1, 1994 through December 31, 1994,
the Fund
paid MIFDI $30,665 and $24,936, respectively, pursuant
to the
Class A plan. During the period from April 1, 1994
(the date on
which Class B shares of the Fund were first offered to
the
public) to June 30, 1994 and the period from July 1,
1994 through
December 31, 1994, the Fund paid MIFDI $434 and $8,224,
respectively, pursuant to the Class B plan.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review. During
the period
from October 1, 1993 to June 30, 1994, MIFDI expended
the
following amounts in marketing Class A shares of the
Fund:
advertising, $870; printing and mailing of prospectuses
to
persons other than current shareholders, $24,820;
compensation to
dealers, $9,312; compensation to sales personnel,
$20,852;
seminars and meetings, $2,328; travel and
entertainment, $5,939;
general and administrative, $8,722; telephone, $838;
and
occupancy and equipment rental, $1,810.
During the period from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $883; printing and mailing
of
prospectuses to persons other than current
shareholders, $19,070;
compensation to dealers, $15,749; compensation to sales
personnel, $15,795; seminars and meetings, $3,937;
travel and
entertainment, $4,505; general and administrative,
$6,270;
telephone,
$584; and occupancy and equipment rental, $1,363.
During the period from April 1, 1994 (the date on
which
Class B shares of the Fund were first offered for sale
to the
public) to June 30, 1994, MIFDI expended the following
amounts in
marketing Class B shares of the Fund: advertising,
$10; printing
and mailing of prospectuses to persons other than
current
shareholders, $279; compensation to dealers, $105;
compensation
to sales personnel, $235; seminars and meetings, $26;
travel and
entertainment, $67; general and administrative, $98;
telephone,
$9; and occupancy and equipment rental, $20.
During the period from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
B shares
of the Fund: advertising, $73; printing and mailing of
prospectuses to persons other than current
shareholders, $1,572;
compensation to dealers, $1,299; compensation to sales
personnel,
$1,302; seminars and meetings, $325; travel and
entertainment,
$372; general and administrative, $517; telephone, $48;
and
occupancy and equipment rental, $112.
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 with
respect to the
class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109 (the "Custodian"), has been
retained
to act as the Trust's Custodian for 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, Brown Brothers Harriman & Co.
has
entered into subcustodial agreements for the holding of
the
Fund's foreign securities. Brown Brothers may receive,
as
partial payment for its services, 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. For
the period from July 16, 1991 through June 30, 1992 and
for the
fiscal years ended June 30, 1993 and 1994, the Fund
paid MIMI
$11,623, $25,612 and $31,448, respectively, under the
agreement.
For the period from July 1, 1994 through December 31,
1994, the
Fund paid MIMI $15,957.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
six months ended December 31, 1994 totalled $20,960.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the six months ended December 31, 1994
totalled $10,797.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.,
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
Trust's tax
returns.
CAPITALIZATION AND VOTING RIGHTS
The Fund results from a reorganization of
Mackenzie Global
Fund, which reorganization was approved by shareholders
on
January 27, 1995. 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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Growth Fund, Ivy Emerging
Growth Fund,
Ivy Growth with Income Fund, Ivy Money Market Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy International Fund, Ivy Canada Fund, Ivy Bond
Fund, Ivy
International Bond Fund and Ivy Short-Term Bond Fund,
as well as
Class I for Ivy International Fund, Ivy Bond Fund and
Ivy Short-
Term Bond Fund. In addition, the Trustees have
authorized an
additional class, Class C, for Ivy Growth with Income
Fund issued
only to shareholders of Mackenzie Growth & Income Fund,
a former
series of The Mackenzie Funds Inc., in connection with
the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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).
On matters affecting only the Fund, only the
shareholders of the
Fund are entitled to vote. All classes of shares of
the Fund
will vote together, except with respect to the
distribution plan
applicable to its Class A or Class B shares or when a
class vote
is required by the 1940 Act. On matters relating to
all funds of
the Trust, but affecting the funds 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 Amended and Restated 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 as if Section 26(c) of
the Act were
applicable.
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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned beneficially or of record 5% or more
of the
Fund's outstanding Class A or Class B shares, except
that of the
outstanding Class B shares of the Fund, First Alabama
(custodian)
FBO J. Martin, P.O. Box 216, Pelham, Alabama 35124,
owned of
record 18,507.893 shares (6.53%) and Donaldson, Lufkin
Jenrette
Securities Corporation, Inc., P.O. Box 2052, Jersey
City, New
Jersey 07303, owned of record 15,402.000 shares
(5.44%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
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), every
Monday through
Friday (exclusive of national business holidays). The
Trust's
offices will be closed, and net asset value will not be
calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
call or a
put option will be deducted from its assets and an
equal amount
will be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the
six-month period
ended December 31, 1994 (annualized) and for the fiscal
years
ended June 30, 1994 and 1993 was 23%, 85% and 67%,
respectively.
A Portfolio turnover rate that exceeds 100% usually
involves
correspondingly higher brokerage commissions and other
transaction costs, which are borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 New York Stock 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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed in whole
or in part in securities of the Fund taken at current
values. If
any such redemption in kind is to be made, the Fund
intends to
make an election pursuant to Rule 18f-1 under the 1940
Act. This
will require the Fund to redeem with cash at a
shareholder's
election in any case where the redemption involves less
than
$250,000 (or 1% of the Fund's net asset value at the
beginning of
each 90-day period during which such redemptions are in
effect,
if that amount is less than $250,000). Should payment
be made in
securities, the redeeming shareholder may incur
brokerage costs
in converting such securities to cash.
Subject to state law restrictions, 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 Fund's 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.
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 advisor 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; (b) derive in
each
taxable year less than 30% of its gross income from the
sale or
other disposition of certain assets held less than
three months,
namely: (i) stock or securities; (ii) options,
futures, or
forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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
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 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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. If section 988
losses
exceed other investment company taxable income during a
taxable
year, the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his or her Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply. In
addition,
other elections may become available that would affect
the tax
treatment of PFIC shares held by the Fund.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and 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. Investors
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 generally 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 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 the Fund's 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, 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.
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 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
Comparisons of the Fund's performance may be made
with
respect to various unmanaged indices (including the
Toronto Stock
Exchange 300, S&P 100, S&P 500, Dow Jones Industrial
Average and
Major Market Index) which assume reinvestment of
dividends, but
do not reflect deductions for administrative and
management
costs. The Fund also may be compared to Lipper's
Analytical
Reports, reports produced by a widely used independent
research
firm that ranks mutual funds by overall performance,
investment
objectives and assets, or to Wiesenberger Reports.
Lipper
Analytical Services does not include sales charges in
computing
performance. Further information on comparisons is
contained in
the prospectus for the Fund. Performance rankings will
be based
on historical information and are not intended to
indicate future
performance.
In addition, the Trust may, from time to time,
include the
average annual total return and the cumulative total
return of
shares of the Fund in advertisements, promotional
literature or
reports to shareholders or prospective investors.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
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, the
maximum 5.75% sales charge is deducted from the initial
$1,000
payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B shares
held for the period is deducted. Standardized Return
quotations
for the Funds 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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods
indicated.[#]
STANDARDIZED
NON-STANDARDIZED
RETURN[1]
RETURN[2]
CLASS A[3] CLASS B[*] CLASS A[3]
CLASS B
One year ended
December 31,
1994: (10.09%)[4] N/A[*] (4.60%)[7]
N/A[*]
Five years ended
December 31,
1994: N/A N/A[*] N/A
N/A[*]
Inception[**] to
December 31,
1994:[10] 6.99%[5] (6.66%)[6] 8.71%[8]
(1.74%)[9]
_________________________
[1] The Standardized Return figures for Class A
shares
reflect the deduction of the maximum initial
sales
charge of 5.75%. The Standardized Return
figures for
Class B shares reflect the deduction of the
applicable
contingent deferred sales charge imposed on a
redemption of Class B shares held for the
period.
[2] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent
deferred sales
charge.
[3] Shares of the Fund outstanding as of March
31, 1994
were redesignated as "Class A" shares of the
Fund.
[4] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been (10.24%).
[5] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been 5.74%.
[6] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been (6.71%).
[7] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the Non-
Standardized Return would have been (4.76%).
[8] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the Non-
Standardized Return would have been 7.45%.
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the Non-
Standardized Return would have been (1.80%)
[10] The total return for a period less than a
full year is
calculated on an aggregate basis and is not
annualized.
[#] Until December 31, 1994, Mackenzie Investment
Management Inc. served as investment adviser
to the
Fund, which until that date was a series of
The
Mackenzie Funds Inc.
[*] Standardized and Non-Standardized Total
Return figures
are not presented for Class B shares because
no Class B
shares were outstanding during the time
periods
indicated.
[**] The inception date for the Fund (and Class A
shares of
the Fund) was April 18, 1991; the inception
date for
Class B shares of the Fund was April 1, 1994.
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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
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.
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 a Fund's shares and assume that all
dividends and
capital gains distributions during the period were
reinvested in
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated[#], assuming the maximum 5.75%
sales charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR
PERIOD ENDED DECEMBER 31, 1994
One Year Since Inception
Class A (10.09%) 28.48%
Class B N/A* (6.66%)
The following table summarizes the calculation of
Cumulative
Total Return for the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has not been assessed.
CUMULATIVE TOTAL RETURN FOR
PERIOD ENDED DECEMBER 31, 1994
One Year Since Inception
Class A (4.60%) 36.32%
Class B N/A* (1.74%)
___________________________
[#] Until December 31, 1994, Mackenzie Investment
Management
Inc. served as investment adviser to the Fund
which until
that date was a series of The Mackenzie Funds Inc.
[*] Cumulative total return quotations are not
presented for
Class B shares because no Class B shares were
outstanding
during the time periods indicated.
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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended June
30, 1994
and for the six-month period ended December 31, 1994,
the
Statement of Changes in Net Assets for the six-month
period ended
December 31, 1994 and the fiscal years ended June 30,
1994 and
June 30, 1993, Financial Highlights, the Notes to
Financial
Statements, and Report of Independent Accountants are
included in
the Fund's December 31, 1994 Semi-Annual Report to
shareholders
and June 30, 1994 Annual Report to shareholders, which
are
incorporated by reference into this SAI. Copies of the
Fund's
December 31, 1994 Semi-Annual Report to Shareholders
and this SAI
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number provided
on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY GROWTH FUND
A SERIES OF
IVY FUND
VIA MIZNER FINANCIAL PLAZA
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FLORIDA 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy Growth
Fund (the
"Fund"). The other twelve portfolios of the Trust are
described
in separate Statements of Additional Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Warrants
American Depository Receipts (ADRs)
Forward Foreign Currency Contracts
Foreign Securities
Foreign Currencies
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Stock
Indices
Risks of Options Transactions
Stock Index Futures Contracts
Risks of Stock Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Letter of Intent
Retirement Plans
Individual Retirement Accounts (IRAs)
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of IMI
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Cumulative Total Return
Other Quotations, Comparisons and General
Information
FINANCIAL STATEMENTS
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("S&P") AND
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND
AND COMMERCIAL PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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; and 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, and
Student
Loan Marketing Association.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
would be entitled as the owner of sponsored ADRs.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities or other
high-grade debt securities in a segregated account with
its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors," which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 to the
actual market values and may be adverse to Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objectives and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the OTC markets (such OTC
options
together with any other illiquid securities shall not
be in an
amount exceeding 10% of the Fund's assets). The Fund
will not
purchase put and call options if the aggregate premium
paid for
such options would exceed 5% of its total assets at the
time of
purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI does not anticipate significant appreciation
of the
underlying security in the near future or has otherwise
determined to dispose of the security.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON STOCK INDICES.
The Fund
may purchase and sell (write) put and call options on
stock
indices. An index assigns relative values to the
securities
included in the index and the index fluctuates with
changes in
the market values of the securities so included.
Options on
stock indices are similar to options on individual
securities,
except that, rather than giving the purchaser the right
to take
delivery of an individual security at a specified
price, they
give the purchaser the right to receive cash. The
amount of cash
is equal to the difference between the closing price of
the index
and the exercise price of the option, expressed in
dollars, times
a specified multiple (the "multiplier"). The writer of
the
option is obligated, in return for the premium
received, to make
delivery of this amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered," in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high-
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
STOCK INDEX FUTURES CONTRACTS
The Fund may enter into stock 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
Standard & Poor's Stock Index (the "S&P 500 Index") is
composed
of 500 selected common stocks, most of which are listed
on the
New York Stock 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 stock index futures contract
specifies
that no delivery of the actual stock 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 STOCK 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 stock 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 stock 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 stock 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 a stock index futures contract,
the Fund
will maintain with its Custodian (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
high-grade debt
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 a stock index futures contract, the
Fund will
maintain with its custodian (and mark-to-market on a
daily basis)
liquid assets 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).
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary purposes
where
investment transactions might advantageously
require
it. Any such loan may not be for a period
in excess
of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed
10% of
the value of the total assets of the Fund at
the time
any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that
this
restriction shall not prohibit (a) the entry
into
repurchase agreements or (b) the purchase of
publicly
distributed bonds, debentures and other
securities of
a similar type, or privately placed
municipal or
corporate bonds, debentures and other
securities of a
type customarily purchased by institutional
investors
or publicly traded in the securities
markets;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers
or
trustees, or firms of which any of them are
members or
which they control, any securities (other
than capital
stock of the Fund), but such persons or
firms may act
as brokers for the Fund for customary
commissions to
the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities
and
commodity contracts;
(viii) make an investment in securities of
companies in any
one industry (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities, or
instrumentalities) if such investment would
cause
investments in such industry to exceed 25%
of the
market value of the Fund's total assets at
the time of
such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted
to incur,
and except to the extent that shares of the
separate
classes or series of the Trust may be deemed
to be
senior securities; provided that collateral
arrangements with respect to
currency-related
contracts, futures contracts, options or
other
permitted investments, including deposits of
initial
and variation margin, are not considered to
be the
issuance of senior securities for purposes
of this
restriction;
(x) invest more than 5% of the value of its
total assets
in the securities of any one issuer (except
obligations of domestic banks or the U.S.
Government,
its agencies, authorities and
instrumentalities);
(xi) hold more than 10% of the voting securities
of any one
issuer (except obligations of domestic banks
or the
U.S. Government, its agencies, authorities
and
instrumentalities); or
(xii) purchase the securities of any other
open-end
investment company, except as part of a plan
of merger
or consolidation.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases
or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described
in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than 2%
of its total assets in warrants, so valued,
which are
not listed on either the New York or
American Stock
Exchanges;
(v) invest more than 5% of the value of its
total assets
in the securities of unseasoned issuers,
including
their predecessors, which have been in
operation for
less than three years;
(vi) invest more than 5% of the value of its
total assets
in the securities of issuers which are not
readily
marketable; or
(vii) purchase any security which it is restricted
from
selling to the public without registration
under the
Securities Act of 1933.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and (c) the
broker-dealers with whom the Fund enters into such
transactions
have a minimum net worth of $20 million.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this Statement of Additional Information.
These
funds are: Ivy Growth with Income Fund, Ivy Emerging
Growth Fund,
Ivy International Fund, Ivy Bond Fund, Ivy
International Bond
Fund, Ivy China Region Fund, Ivy Latin America Strategy
Fund, Ivy
New Century Fund, Ivy Money Market Fund, Ivy Canada
Fund, Ivy
Global Fund and Ivy Short-Term Bond Fund, the other
twelve series
of Ivy Fund; Mackenzie California Municipal Fund,
Mackenzie
Florida Limited Term Municipal Fund, Mackenzie Limited
Term
Municipal Fund, Mackenzie National Municipal Fund and
Mackenzie
New York Municipal Fund, the five series of Mackenzie
Series
Trust (collectively, with the Fund, the "Ivy Mackenzie
Funds").
Investors should obtain a current prospectus before
exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by Mackenzie Ivy
Investor
Services Corp. ("MIISC") or written notice to MIISC
from the
investor. See "Automatic Investment Method" in the New
Account
Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other
Mackenzie and
Ivy Funds. Before effecting an exchange, shareholders
of the
Fund should obtain and read the currently effective
prospectus
for the Mackenzie or Ivy 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 Mackenzie or Ivy Fund (or for
shares of
another Mackenzie or Ivy Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Mackenzie or Ivy Fund (or for shares of another
Mackenzie
or Ivy Fund that currently offers only a single class
of shares)
("new Class A shares") on the basis of the relative net
asset
value per Class A share, without the payment of any
contingent
deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Mackenzie or Ivy Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the
Mackenzie or Ivy Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Mackenzie or Ivy Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Mackenzie or Ivy Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Mackenzie or Ivy Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Bond
Fund,Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy
Latin
America Strategy Fund, Ivy New Century Fund and Ivy
China Region
Fund ("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2-1/2%
Third 2%
Fourth 1-1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2-1/2% contingent
deferred
sales charge that generally would apply to a redemption
of
outstanding Class B shares held for two years would not
be
deducted at the time of the exchange. If, three years
later, the
investor redeems the new Class B shares, a 2%
contingent deferred
sales charge will be assessed upon the redemption
because by
"tacking" the two year holding period of the
outstanding Class B
shares onto the three year holding period of the new
Class B
shares, the investor will be deemed to have held the
new Class B
shares for five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth with Income
Fund, Ivy
Emerging Growth Fund, Ivy China Region Fund, Ivy
International
Bond Fund, Ivy New Century Fund, Ivy Latin America
Strategy Fund,
Ivy International Fund, Ivy Short-Term Bond Fund, Ivy
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Mackenzie National
Municipal
Fund, Mackenzie California Municipal Fund, Mackenzie
Limited Term
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
Fund to sell the indicated amount of Class A shares and
the
investor should read carefully all the provisions
thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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 (IRAS). Shares of
the Trust
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
MIISC, which
may impose a charge for establishing the account.
Individuals
may wish to consult their tax advisers before investing
IRA
assets in a fund which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. Rollover
contributions are
not deductible in computing an individual's Federal
income tax.
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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 applied 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 medial
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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 Fund in
conjunction with
such an arrangement. The sales charge for purchases of
less than
$10,000 of Class A shares is set forth under "403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge
Alternative--Class A
Shares" in the Prospectus. The special application for
a
403(b)(7) Account is available from MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Growth with
Income
Fund, Ivy Emerging Growth Fund, Ivy China Region Fund,
Ivy
International Fund, Ivy International Bond Fund, Ivy
Latin
America Strategy Fund, Ivy New Century Fund, Ivy Bond,
Fund, Ivy
Short-Term Bond Fund, Ivy Canada Fund, Ivy Global Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund,
Mackenzie New York Municipal Fund, Mackenzie Limited
Term
Municipal Fund and Mackenzie Florida Limited Term
Municipal Fund
(and shares that have been exchanged into Ivy Money
Market Fund
from any of the other funds in the Ivy Mackenzie Funds)
and of
any other investment company distributed by MIFDI,
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 or
more for
the Fund, Ivy Growth with Income Fund, Ivy Emerging
Growth Fund,
Ivy China Region Fund, Ivy International Fund, Ivy
Latin America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Canada Fund, and Ivy Global Fund: $100,000 or more
for Ivy
Bond Fund, Mackenzie National Municipal Fund, Mackenzie
California Municipal Fund and Mackenzie New York
Municipal Fund;
$25,000 or more for Mackenzie Florida Limited Term
Municipal Fund
and Mackenzie Limited Term Municipal Fund; or
$1,000,000 or more
for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
Systematic Withdrawal Plan
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 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 in
servicing all of its accounts. In addition, not all of
these
services may be used by IMI in connection with services
it
provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers that provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
During the fiscal years ended December 31, 1992,
1993 and
1994, the Fund paid brokerage commissions of $914,146,
$1,071,036
and $265,471 respectively. During the fiscal year
ended December
31, 1992, the Fund paid brokerage fees of $700 to Brown
Brothers.
During the fiscal year ended December 31, 1993, the
Fund paid no
brokerage fees. During the fiscal year ended December
31, 1994,
the Fund paid no brokerage fees to Brown Brothers.
The Trust may, under some circumstances, accept
securities
in lieu of cash as payment for Fund shares. The Trust
will
consider accepting securities only to increase its
holdings in a
portfolio security or to take a new portfolio position
in a
security that IMI deems to be a desirable investment
for the
Fund. While no minimum has been established, it is
expected that
the Trust 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 Fund shares with
securities and may
discontinue accepting securities as payment for 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 Fund
shares will be
sold for net asset value determined at the same time
the accepted
securities are valued. The Trust will accept only
securities
which are 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 applicable
laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A and
Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/
Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by
shareholders of
the Fund on December 30, 1991. Prior to approval by
shareholders, the Agreement was approved on October 28,
1991,
with respect to the Fund by the Board of Trustees,
including a
majority of the Trustees who are neither "interested
persons" (as
defined in the 1940 Act) of the Trust nor have any
direct or
indirect financial interest in the operation of the
distribution
plan (see "Distribution Services") or in any related
agreement
(the "Independent Trustees"). IMI also acts as manager
and
investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Growth with Income
Fund, Ivy
Emerging Growth Fund, Ivy Bond Fund, Ivy Short-Term
Bond Fund,
Ivy International Bond Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy New Century Fund, Ivy Latin America Strategy Fund,
Ivy China
Region Fund, Ivy International Fund and Ivy Money
Market Fund.
IMI is a wholly owned subsidiary of MIMI. MIMI
currently acts as
manager and investment adviser to the following
investment
companies registered under the 1940 Act: Mackenzie
National
Municipal Fund, Mackenzie New York Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund.
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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
0.85% of the
Fund's average daily net assets.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
For the
fiscal years ended December 31, 1992, December 31, 1993
and
December 31, 1994, no reimbursements were made pursuant
to this
state expense limitation.
Prior to January 1, 1992, IMI provided the Fund
with similar
management and investment advisory services under a
prior
management contract. For the fiscal years ended
December 31,
1992, 1993 and 1994, IMI was paid $1,883,350,
$2,203,771 and
$2,133,471, respectively, by the Fund, of which IMI
reimbursed
$189,867, $323,541 and $285,510, respectively, pursuant
to
voluntary expense limitations).
The initial term of the Agreement between IMI and
the Fund
ran for a two-year period effective as of the closing
of the
acquisition of the capital stock of IMI by MIMI on
December 31,
1991. The Agreement will continue in effect with
respect to the
Fund for more than the initial period 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 of Trustees. On
September
17, 1994, the Board of Trustees, including a majority
of the
Independent Trustees, last approved the continuance of
the
Agreement. If the question of continuance of the
Agreement (or
adoption of any new agreement) is presented to
shareholders,
continuance (or adoption) shall be effected only if
approved by
the affirmative vote of a majority of the outstanding
voting
securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A
1[Shares of the Fund outstanding as of October 22, 1993
have been
designated as "Class A" shares of the Fund.] and Class
B shares
of the Fund under an Amended and Restated Distribution
Agreement
with the Trust dated October 23, 1993 (the
"Distribution
Agreement"). Effective October 1, 1993, MIFDI, a
wholly-owned
subsidiary of MIMI, succeeded to and is continuing
MIMI's broker-
dealer activities. The provisions of the Trust's
previous
Distribution Agreement with MIMI remain unchanged by
the
succession. MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the fiscal year ended
December 31,
1992, MIMI received from sales of Class A shares of the
Fund
$201,640 in sales commissions, of which $48,316 was
retained
after dealers' re-allowances; and during the period
from
January 1, 1993 to September 30, 1993, MIMI received
from sales
of Class A shares of the Fund $310,897 in sales
commissions, of
which $51,790 was retained after dealers'
re-allowances. During
the period from October 1, 1993 to December 31, 1993,
MIFDI
received from sales of Class A shares of the Fund
$26,792 in
sales commissions, of which $4,463 was retained after
dealers'
re-allowances. During the fiscal year ended December
31, 1994,
MIFDI received from sales of Class A shares of the Fund
$70,092
in sales commissions, of which $10,667 was retained
after
dealers' re-allowances. MIFDI is also entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the period from
January 1,
1993 to September 30, 1993, MIMI received no contingent
deferred
sales charges. During the period from October 1, 1993
to
December 31, 1993, MIFDI received no contingent
deferred sales
charges. During the fiscal year ended December 31,
1994, MIFDI
received 4,669.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be; except that the Fund's Class A Plan provides
that the
service fee will apply only to Class A shares issued
after
December 31, 1991. The services for which service fees
may be
paid include, among other services, 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 the Fund's Plans, payments made out of or
charged
against the assets attributable to the Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that Class of the Fund. The expenses not
reimbursed in
any one given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
For the period from January 1, 1993 to September 30,
1993, the
Fund paid MIMI $36,753 pursuant to the Class A Plan.
For the
period from October 1, 1993 to December 31, 1993, the
Fund paid
MIFDI $21,315 pursuant to the Class A Plan. For the
period from
October 23, 1993 (the date on which Class B shares of
the Fund
were first offered for sale to the public) to December
31, 1993,
the Fund paid MIFDI $109 pursuant to the Class B Plan.
For the
fiscal year ended December 31, 1994, the Fund paid
MIFDI $89,478
pursuant to the Class A Plan, and $6,983 pursuant to
the Class B
Plan.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $21,866; printing and mailing of
prospectuses
to persons other than current shareholders, $132,071;
compensation to dealers, $199,565; compensation to
sales
personnel, $404,182; seminars and meetings, $49,891;
travel and
entertainment, $116,753; general and administrative,
$184,493;
telephone, $15,895; and occupancy and equipment rental,
$34,696.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $61; printing and mailing of
prospectuses to
persons other than current shareholders, $369;
compensation to
dealers, $557; compensation to sales personnel, $1,128;
seminars
and meetings, $139; travel and entertainment, $326;
general and
administrative, $515; telephone, $44; and occupancy and
equipment
rental, $97.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges
located at
40 Water Street, Boston, Massachusetts 02109, acts as
custodian
for the Trust's securities and cash pursuant to a
Custodian
Agreement with the Trust. 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, Brown Brothers
Harriman &
Co. has entered into subcustodial agreements for the
holding of
the Fund's foreign securities. Brown Brothers may
receive, as
partial payment for its services, 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. During
the fiscal years ended December 31, 1994, and the
period from
January 25, 1993 through December 31, 1994, the Fund
paid MIMI
$103,232 and $101,323, respectively. Prior to January
25, 1993,
the Fund utilized an unrelated entity for fund
accounting and
pricing services.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
fiscal year ended December 31, 1994 totalled $859,224.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the fiscal year ended December 31, 1994
totalled
$250,997.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
six funds of the Trust. Other services provided
primarily relate
to filings with the SEC and the preparation of the
Trust's tax
returns.
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
thirteen series, each of which represents a fund. The
Trustees
have further authorized the issuance of Classes A, B
and I for
the Ivy Bond Fund, Ivy Short-Term Bond Fund and Ivy
International
Fund; and Class A and B for the Fund, Ivy International
Bond
Fund, Ivy Emerging Growth Fund, Ivy Growth with Income
Fund, Ivy
Money Market Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund and Ivy
International Fund.
In addition, the Trustees have authorized an additional
class,
Class C, for Ivy Growth with Income Fund issued only to
shareholders of Mackenzie Growth & Income Fund, a
former series
of The Mackenzie Funds Inc., in connection with the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act.
Shareholders of
the Trust vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding Class A or Class B shares; except
that of the
outstanding Class B shares of the Fund, IBT (custodian)
FBO G.
Pattyson, P.O. Box 11, Terrace Bay, Ontario, Canada,
POT 2WO,
owned of record 13,955.414 shares (12.25%), and
Donaldson Lufkin
Jenrette Securities Corporation Inc., P.O. Box 2052,
Jersey City,
New Jersey 07107, owned of record 6,841.242 shares
(6.00%)..
Under Massachusetts law, the Trust's shareholders
could, under
certain circumstances, be held personally liable for
the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
classes.
The total of such liabilities allocated to a class plus
that
class's distribution fee and any other expenses
specially
allocated to that class are then deducted from the
class's
proportionate interest in the Fund's assets, and the
resulting
amount for each class is divided by the number of
shares of that
class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., Eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's portfolio turnover rates for the fiscal
years
ended December 31, 1993 and 1994 were 77% and 39%,
respectively.
A Portfolio turnover rate that exceeds 100% involves
correspondingly higher brokerage commissions and other
transaction costs, which will be borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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
under 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.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
PRO RATA share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his PRO
RATA
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
Average Annual Total Return Quotations.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods indicated.
One year ended December
STANDARDIZED RETURN [1]
CLASS A[3] CLASS B
One year ended
December 31, 1994: (8.55)%[4] (8.70)%[8]
Five years ended
December 31, 1994: 6.34% [5] N/A%
Ten years ended
December 31, 1994: 11.26%[6] N/A%
Inception* to
December 31, 1994:[16] 10.10%[7] (4.71)%[9]
NON-STANDARDIZED RETURN [2]
CLASS A[3] CLASS B
One year ended
December 31, 1994: (2.97)%[10] (3.90)%[14]
Five years ended
December 31, 1994: 7.61% [11] N/A%
Ten years ended
December 31, 1994: 11.92%[12] N/A%
Inception* to
December 31, 1994:[16] 10.30%[13] (1.38)%[15]
_________________________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[3] Shares of the Fund outstanding as of October 22,
1993 have
been redesignated as "Class A" shares of the Fund.
[4] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (8.67)%
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 6.27%.
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 11.22%.
[7] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 10.09%.
[8] The Standardized Return figure reflects expense
reimbursement and the deduction of a 4% contingent
deferred
sales charge. Without expense reimbursement, the
Standardized Return would have been (8.76)%.
[9] The Standardized Return figure reflects expense
reimbursement and the deduction of a 5% contingent
deferred
sales charge. Without expense reimbursement, the
Standardized Return would have been (4.90)%.
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (3.10)%.
[11] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 7.53%.
[12] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 11.88%.
[13] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 10.29%.
[14] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (3.96)%.
[15] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (1.59)%.
[16] The total return for a period less than a full
fiscal year
is calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Class B shares of the
Fund was
October 23, 1993.
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
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
Class A (8.55)% 35.97% 190.66% 2,359.58%
Class B (8.70)% N/A% N/A% (5.58)%
The following table summarizes the calculation of
Total
Return for the Class A and Class B shares of the Fund
for the
periods indicated, assuming the maximum 5.75% sales
charge has
not been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
Class A (2.97)% 44.27% 208.39% 2,509.63%
Class B 3.90% N/A% N/A% (1.65)%
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return 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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal years
ended December 31, 1994 and December 31, 1993,
Financial
Highlights, the Notes to Financial Statements, and
Report of
Independent Accountants are included in the Fund's
December 31,
1994 Annual Report to shareholders of the Fund, which
is
incorporated by reference into this SAI. Copies of
these
financial statements and this SAI may be obtained upon
request
and without charge from the Trust at the address and
telephone
number provided on the cover of this SAI.
IVY GROWTH WITH INCOME FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
m
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
("SAI")
Information describes one of these portfolios, Ivy
Growth with
Income Fund (the "Fund"). The other twelve portfolios
of the
Trust are described in separate Statements of
Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. (the "IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Warrants
American Depository Receipts (ADRs)
Forward Foreign Currency Contracts
Foreign Securities
Investing in Emerging Markets
Foreign Currencies
Real Estate Investment Trusts (REITs)
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Stock
Indices
Risks of Options Transactions
Stock Index Futures Contracts
Risks of Stock Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Letter of Intent
Retirement Plans
Individual Retirement Accounts (IRAs)
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of IMI
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Other Quotations, Comparisons and General
Information
Cumulative Total Return
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL PAPER
RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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; and 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, and
Student
Loan Marketing Association.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
would be entitled as the owner of sponsored ADRs.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U. S. Government
securities or
other high-grade debt securities in a segregated
account with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors," which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 to the
actual market values and may be adverse to Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
REAL ESTATE INVESTMENT TRUSTS (REITS)
The Fund may invest in equity real estate
investment trusts
("REITs"). Equity REITs are dependent upon management
skill, may
not be diversified and are subject to the risks of
financing
projects. Such trusts are also subject to heavy cash
flow
dependency, defaults by borrowers, self-liquidation and
the
possibility of failing to qualify for tax-free
pass-through of
income under the Internal Revenue Code of 1986, as
amended (the
"Code") and to maintain exemption from the Investment
Company Act
of 1940, as amended (the "1940 Act"). Changes in
interest rates
may also affect the value of the debt securities in the
Fund's
portfolio. By investing in REITs indirectly through
the fund, a
shareholder will bear not only his or her proportionate
share of
the expenses of the Fund, but also, indirectly, similar
expenses
of the REITs.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objectives and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the OTC markets (such OTC
options
together with any other illiquid securities shall not
be in an
amount exceeding 10% of the Fund's assets). The Fund
will not
purchase put and call options if the aggregate premium
paid for
such options would exceed 5% of its total assets at the
time of
purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI does not anticipate significant appreciation
of the
underlying security in the near future or has otherwise
determined to dispose of the security.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON STOCK INDICES.
The Fund
may purchase and sell (write) put and call options on
stock
indices. An index assigns relative values to the
securities
included in the index and the index fluctuates with
changes in
the market values of the securities so included.
Options on
stock indices are similar to options on individual
securities,
except that, rather than giving the purchaser the right
to take
delivery of an individual security at a specified
price, they
give the purchaser the right to receive cash. The
amount of cash
is equal to the difference between the closing price of
the index
and the exercise price of the option, expressed in
dollars, times
a specified multiple (the "multiplier"). The writer of
the
option is obligated, in return for the premium
received, to make
delivery of this amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered," in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
STOCK INDEX FUTURES CONTRACTS
The Fund may enter into stock 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
Standard & Poor's Stock Index (the "S&P 500 Index") is
composed
of 500 selected common stocks, most of which are listed
on the
New York Stock 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 stock index futures contract
specifies
that no delivery of the actual stock 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 STOCK INDEX FUTURES. The Fund's success
in using
hedging techniques depends, among other things, on the
Manager'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 stock 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 stock 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 stock 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 a stock index futures contract,
the Fund
will maintain with its custodian (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
high-grade debt
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 a stock index futures contract, the
Fund will
maintain with its Custodian (and mark-to-market on a
daily basis)
liquid assets 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).
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary purposes
where
investment transactions might advantageously
require
it. Any such loan may not be for a period
in excess
of 60 days, and the aggregate amount of all
outstanding loans may not at any time exceed
10% of
the value of the total assets of the Fund at
the time
any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that
this
restriction shall not prohibit (a) the entry
into
repurchase agreements or (b) the purchase of
publicly
distributed bonds, debentures and other
securities of
a similar type, or privately placed
municipal or
corporate bonds, debentures and other
securities of a
type customarily purchased by institutional
investors
or publicly traded in the securities
markets;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers
or
trustees, or firms of which any of them are
members or
which they control, any securities (other
than capital
stock of the Fund), but such persons or
firms may act
as brokers for the Fund for customary
commissions to
the extent permitted by the 1940 Act;
(vii) purchase or sell real estate or commodities
and
commodity contracts;
(viii) make an investment in securities of
companies in any
one industry (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities, or
instrumentalities) if such investment would
cause
investments in such industry to exceed 25%
of the
market value of the Fund's total assets at
the time of
such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted
to incur,
and except to the extent that shares of the
separate
classes or series of the Trust may be deemed
to be
senior securities; provided that collateral
arrangements with respect to
currency-related
contracts, futures contracts, options or
other
permitted investments, including deposits of
initial
and variation margin, are not considered to
be the
issuance of senior securities for purposes
of this
restriction;
(x) invest more than 5% of the value of its
total assets
in the securities of any one issuer (except
obligations of domestic banks or the U.S.
Government,
its agencies, authorities and
instrumentalities);
(xi) hold more than 10% of the voting securities
of any one
issuer (except obligations of domestic banks
or the
U.S. Government, its agencies, authorities
and
instrumentalities); or
(xii) purchase the securities of any other
open-end
investment company, except as part of a plan
of merger
or consolidation.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases
or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described
in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than 2%
of its total assets in warrants, so valued,
which are
not listed on either the New York or
American Stock
Exchanges;
(v) invest more than 5% of the value of its
total assets
in the securities of unseasoned issuers,
including
their predecessors, which have been in
operation for
less than three years;
(vi) invest more than 5% of the value of its
total assets
in the securities of issuers which are not
readily
marketable; or
(vii) purchase any security which it is restricted
from
selling to the public without registration
under the
Securities Act of 1933.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and (c) the
broker-dealers with whom the Fund enters into such
transactions
have a minimum net worth of $20 million.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Emerging Growth Fund, Ivy China Region Fund, Ivy
International
Fund, Ivy International Bond Fund, Ivy New Century
Fund, Ivy
Latin America Strategy Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy Bond Fund, Ivy Short-Term Bond Fund and Ivy Money
Market
Fund, the other twelve series of Ivy Fund; and
Mackenzie
California Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund, Mackenzie Limited Term Municipal Fund,
Mackenzie
National Municipal Fund and Mackenzie New York
Municipal Fund,
the five series of Mackenzie Series Trust
(collectively, with the
Fund, the "Ivy Mackenzie Funds"). Investors should
obtain a
current prospectus before exercising any right or
privilege that
may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Bond
Fund, Ivy International Bond Fund, Ivy Latin America
Strategy
Fund, Ivy New Century Fund, Ivy Growth Fund, Ivy
Emerging Growth
Fund, Ivy International Fund and Ivy China Region Fund
("Table 1
Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2 % contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth Fund, Ivy
Emerging Growth
Fund, Ivy China Region Fund, Ivy International Fund,
Ivy
International Bond Fund, Ivy New Century Fund, Ivy
Latin America
Strategy Fund, Ivy Canada Fund, Ivy Global Fund, Ivy
Bond Fund,
Ivy Short-Term Bond Fund, Mackenzie National Municipal
Fund,
Mackenzie California Municipal Fund, Mackenzie Limited
Term
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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 (IRAS). Shares of
the Trust
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
MIISC, which
may impose a charge for establishing the account.
Individuals
may wish to consult their tax advisers before investing
IRA
assets in a fund which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 , 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 sales charge
for
purchases of less than $10,000 of Class A shares is set
forth
under "403(b)(7) Retirement Plans" in the Fund's
Prospectus.
Sales charges for purchases of $10,000 or more of Class
A shares
are the same as those set forth under "Initial Sales
Charge
Alternative--Class A Shares" in the Prospectus. The
special
application for a 403(b)(7) Account is available from
MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Growth
Fund, Ivy
Emerging Growth Fund, Ivy China Region Fund, Ivy
International
Fund, Ivy International Bond Fund, Ivy New Century
Fund, Ivy
Latin America Strategy Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy Bond Fund, Ivy Short-Term Bond Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
New York Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund (and
shares
that have been exchanged into Ivy Money Market Fund
from any of
the other funds in the Ivy Mackenzie Funds) and of any
other
investment company distributed by MIFDI, 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 or more for the Fund, Ivy
Growth
Fund, Ivy Emerging Growth Fund, Ivy China Region Fund,
Ivy Latin
America Strategy Fund, Ivy New Century Fund, Ivy
International
Bond Fund, Ivy International Fund, Ivy Canada Fund and
Ivy Global
Fund; $100,000 or more for Ivy Bond Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund and
Mackenzie
New York Municipal Fund; $25,000 or more for Mackenzie
Florida
Limited Term Municipal Fund and Mackenzie Limited Term
Municipal
Fund; or $1,000,000 or more for Ivy Short-Term Bond
Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 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 in
servicing all of its accounts. In addition, not all of
these
services may be used by IMI in connection with services
it
provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers that provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
During the fiscal years ended December 31, 1992,
1993 and
1994, the Fund paid brokerage commissions of $107,594,
$97,896
and $34,028, respectively. During the fiscal years
ended
December 31, 1992 and 1993, the Fund paid no brokerage
fees.
During the fiscal year ended December 31, 1994, the
Fund paid no
brokerage fees of to Brown Brothers.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A and
Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
The above table reflects compensation paid to
Trustees of
Ivy Fund for the fiscal year ended December 31, 1994.
The Trustees of Ivy Fund include the individuals
listed in
the above table (except for Stanley Channick in
addition to
Michael R. Peers (Trustee and Chairman of the Board)
and Richard
N. Silverman (Trustee).
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by
shareholders of
the Fund on December 30, 1991. Prior to approval by
shareholders, the Agreement was approved on October 28,
1991,
with respect to the Fund by the Board of Trustees,
including a
majority of the Trustees who are neither "interested
persons" (as
defined in the 1940 Act) of the Trust nor have any
direct or
indirect financial interest in the operation of the
distribution
plan (see "Distribution Services") or in any related
agreement
(the "Independent Trustees"). IMI also acts as manager
and
investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Growth Fund, Ivy
Emerging
Growth Fund, Ivy Canada Fund, Ivy Global Fund, Ivy New
Century
Fund, Ivy Latin America Strategy Fund, Ivy China Region
Fund, Ivy
International Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Short-Term Bond Fund and Ivy Money Market Fund.
IMI is a
wholly owned subsidiary of MIMI. MIMI currently acts
as manager
and investment adviser to the following investment
companies
registered under the 1940 Act: Mackenzie National
Municipal
Fund, Mackenzie New York Municipal Fund, Mackenzie
California
Municipal Fund, Mackenzie Limited Term Municipal Fund
and
Mackenzie Florida Limited Term Municipal Fund. 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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
0.85% of the
Fund's average daily net assets.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
For the
fiscal years ended December 31, 1992, December 31, 1993
and
December 31, 1994, no reimbursements were made pursuant
to this
state expense limitation.
Prior to January 1, 1992, IMI provided the Fund
with similar
management and investment advisory services under a
prior
management contract. For the fiscal years ended
December 31,
1992, 1993 and 1994, IMI was paid $160,517, $185,897
and
$277,991, respectively, by the Fund.
The initial term of the Agreement between IMI and
the Fund
ran for a two-year period effective as of the closing
of the
acquisition of the capital stock of IMI by MIMI on
December 31,
1991. The Agreement will continue in effect with
respect to the
Fund for more than the initial period 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 of Trustees. On
September
17, 1994, the Board of Trustees, including a majority
of the
Independent Trustees, last approved the continuance of
the
Agreement. If the question of continuance of the
Agreement (or
adoption of any new agreement) is presented to
shareholders,
continuance (or adoption) shall be effected only if
approved by
the affirmative vote of a majority of the outstanding
voting
securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A
1[Shares of the Fund outstanding as of October 22, 1993
have been
designated as "Class A" shares of the Fund.] and Class
B shares
of the Fund under an Amended and Restated Distribution
Agreement
with the Trust dated October 23, 1993 (the
"Distribution
Agreement"). Effective October 1, 1993, MIFDI, a
wholly-owned
subsidiary of MIMI, succeeded to and is continuing
MIMI's broker-
dealer activities. The provisions of the Trust's
previous
Distribution Agreement with MIMI remain unchanged by
the
succession. MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the fiscal year ended
December 31,
1992, MIMI received from sales of Class A shares of the
Fund
$90,486 in sales commissions, of which $26,826 was
retained after
dealers' re-allowances; and during the period from
January 1,
1993 to September 30, 1993, MIMI received from sales of
Class A
shares of the Fund $145,295 in sales commissions, of
which
$23,818 was retained after dealers' re-allowances.
During the
period from October 1, 1993 to December 31, 1993, MIFDI
received
from sales of Class A shares of the Fund $60,844 in
sales
commissions, of which $9,974 was retained after
dealers' re-
allowances. During the fiscal year ended December 31,
1994,
MIFDI received from sales of Class A shares of the Fund
$236,691
in sales commissions, of which $37,077 was retained
after
dealers' re-allowances. MIFDI is also entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of
the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the period from
January 1,
1993 to September 30, 1993, MIMI received no contingent
deferred
sales charges. During the period from October 1, 1993
to
December 31, 1993 and during the fiscal year ended
December 31,
1994, MIFDI received no contingent deferred sales
charges.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be; except that the Fund's Class A Plan provides
that the
service fee will apply only to Class A shares issued
after
December 31, 1991. The services for which service fees
may be
paid include, among other services, 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 the Fund's Plans, payments made out of or
charged
against the assets attributable to the Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that Class of the Fund. The expenses not
reimbursed in
any one given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion
of the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
For the period from January 1, 1993 to September 30,
1993, the
Fund paid MIMI $8,540 pursuant to the Class A Plan.
For the
period from October 1, 1993 to December 31, 1993, the
Fund paid
MIFDI $2,459 pursuant to the Class A Plan. For the
period from
October 23, 1993 (the date on which Class B shares of
the Fund
were first offered for sale to the public) to December
31, 1993,
the Fund paid MIFDI $312 pursuant to the Class B Plan.
For the
fiscal year ended December 31, 1994, the Fund paid
MIFDI $34,975
pursuant to the Class A Plan, and $38,866 pursuant to
the Class B
Plan.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $2,507; printing and mailing of
prospectuses
to persons other than current shareholders, $19,689;
compensation
to dealers, $40,923; compensation to sales personnel,
$47,747;
seminars and meetings, $10,231; travel and
entertainment,
$13,609; general and administrative, $20,621;
telephone, $1,851;
and occupancy and equipment rental, $4,118.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $387; printing and mailing of
prospectuses to
persons other than current shareholders, $3,041;
compensation to
dealers, $6,321; compensation to sales personnel,
$7,375;
seminars and meetings, $1,580; travel and
entertainment, $2,102;
general and administrative, $3,185; telephone, $286;
and
occupancy and equipment rental, $636.
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 with
respect to the
class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges
located at
40 Water Street, Boston, Massachusetts 02109, acts as
custodian
for the Trust's securities and cash pursuant to a
Custodian
Agreement with the Trust. 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, Brown Brothers
Harriman &
Co. has entered into subcustodial agreements for the
holding of
the Fund's foreign securities. Brown Brothers may
receive, as
partial payment for its services, 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
beginning
on April 1, 1993, 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. During the period from April 1, 1993
through
December 31, 1993 and the fiscal year ended December
31, 1994,
the Fund paid MIMI $24,500 and $33,702, respectively.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
fiscal year ended December 31, 1994 totalled $97,739.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the fiscal year ended December 31, 1994
totalled
$32,705.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
six funds of the Trust. Other services provided
primarily relate
to filings with the SEC and the preparation of the
Trust's tax
returns.
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
thirteen series, each of which represents a fund. The
Trustees
have further authorized the issuance of Classes A, B
and I for
the Ivy Bond Fund, Ivy Short-Term Bond Fund and Ivy
International
Fund; and Class A and B for the Fund, Ivy International
Bond
Fund, Ivy Growth Fund, Ivy Emerging Growth Fund, Ivy
Money Market
Fund, Ivy China Region Fund, Ivy Latin America Strategy
Fund, Ivy
New Century Fund and Ivy International Fund. In
addition, the
Trustees have authorized an additional class, Class C,
for the
fund issued only to shareholders of Mackenzie Growth &
Income
Fund, a former series of The Mackenzie Funds Inc., in
connection
with the reorganization between that fund and Ivy
Growth with
Income Fund and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act.
Shareholders of
the Trust vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding Class A or Class B shares.
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
classes.
The total of such liabilities allocated to a class plus
that
class's distribution fee and any other expenses
specially
allocated to that class are then deducted from the
class's
proportionate interest in the Fund's assets, and the
resulting
amount for each class is divided by the number of
shares of that
class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., Eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the fiscal
years
ended December 31, 1994 and 1993 was 36% and 85%,
respectively.
A Portfolio turnover rate that exceeds 100% involves
correspondingly higher brokerage commissions and other
transaction costs, which will be borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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
under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
pro rata share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his pro
rata
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods indicated.
STANDARDIZED RETURN[1] NON-STANDARDIZED
RETURN[2]
CLASS A[3] CLASS B CLASS A[3]
CLASS B
One year ended
December 31,
1994: (7.66)% (7.73)%[7] (2.03)%
(2.88)%
Five years ended
December 31,
1994: 8.21%[4] N/A 9.50%[9]
N/A
Ten years ended
December 31,
1994: 13.43%[5] N/A 14.11%[10]
N/A
Inception*
to December 31,
1994:[12] 13.60%[6] (5.23)%[8] 14.24%[11]
(1.92)%
_________________________
[1] The Standardized Return figures for Class A
shares
reflect the deduction of the maximum initial
sales
charge of 5.75%. The Standardized Return
figures for
Class B shares reflect the deduction of the
applicable
contingent deferred sales charge imposed on a
redemption of Class B shares held for the
period.
[2] The Non-Standardized Return figures do not
reflect the
deduction of any initial or contingent
deferred sales
charge.
[3] Shares of the Fund outstanding as of October
22, 1993
have been redesignated as "Class A" shares of
the Fund.
[4] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been 8.19%.
[5] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been 13.42%.
[6] The Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Standardized Return would have been 13.59%.
[7] The Standardized Return figure reflects the
deduction
of a 4% contingent deferred sales charge.
[8] The Standardized Return figure reflects the
deduction
of a 5% contingent deferred sales charge.
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Non-Standardized Return would have been
9.48%.
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Non-Standardized Return would have been
14.09%.
[11] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense
reimbursement, the
Non-Standardized Return would have been
14.22%.
[12] The total return for a period less than a
full fiscal
year is calculated on an aggregate basis and
is not
annualized.
[*] The inception date for the Fund (and the
Class A shares
of the Fund) was April 1, 1984; the inception
date for
the Class B shares of the Fund was October
23, 1993.
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return quotation will continue in the future.
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
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION
Class A (7.66)% 48.39% 252.64%
290.40%
Class B (7.73)% N/A N/A
(6.19)%
The following table summarizes the calculation of
Total
Return for the Class A and Class B shares of the Fund
for the
periods indicated, assuming the maximum 5.75% sales
charge has
not been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE YEAR FIVE YEARS TEN YEARS SINCE
INCEPTION
Class A (2.03)% 57.45% 274.16%
314.22%
Class B (2.88)% N/A N/A
(2.28)%
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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal years
ended December 31, 1994 and December 31, 1993 Financial
Highlights, the Notes to Financial Statements, and
Report of
Independent Accountants are included in the Fund's
December 31,
1994 Annual Report to shareholders of the Fund, which
is
incorporated by reference into this SAI. Copies of
these
financial statements and this SAI may be obtained upon
request
and without charge from the Trust at the address and
telephone
number provided on the cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY INTERNATIONAL FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy
International Fund
(the "Fund"). The other twelve portfolios of the Trust
are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Warrants
American Depository Receipts (ADRs)
Forward Foreign Currency Contracts
Foreign Securities
Investing in Emerging Markets
Foreign Currencies
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Stock
Indices
Risks of Options Transactions
Stock Index Futures Contracts
Risks of Stock Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Class I Shares
Letter of Intent
Retirement Plans
Individual Retirement Accounts (IRAs)
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
Personal Investments by Employees of
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Provisions of the Subadvisory Contract
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Cumulative Total Return
Other Quotations, Comparisons and General
Information
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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; and 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, and
Student
Loan Marketing Association.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
would be entitled as the owner of sponsored ADRs.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities or other
high grade debt obligations in a segregated account
with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors," which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objectives and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the OTC markets (such OTC
options
together with any other illiquid securities shall not
be in an
amount exceeding 10% of the Fund's assets). The Fund
will not
purchase put and call options if the aggregate premium
paid for
such options would exceed 5% of its total assets at the
time of
purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI does not anticipate significant appreciation
of the
underlying security in the near future or has otherwise
determined to dispose of the security.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON STOCK INDICES.
The Fund
may purchase and sell (write) put and call options on
stock
indices. An index assigns relative values to the
securities
included in the index and the index fluctuates with
changes in
the market values of the securities so included.
Options on
stock indices are similar to options on individual
securities,
except that, rather than giving the purchaser the right
to take
delivery of an individual security at a specified
price, they
give the purchaser the right to receive cash. The
amount of cash
is equal to the difference between the closing price of
the index
and the exercise price of the option, expressed in
dollars, times
a specified multiple (the "multiplier"). The writer of
the
option is obligated, in return for the premium
received, to make
delivery of this amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered," in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other high
grade debt obligations equal to the contract value. A
call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high grade debt obligations. A put option is
also
"secured" if the Fund holds a put on the same index as
the put
written where the exercise price of the put held is (i)
equal to
or greater than the exercise price of the put written
or (ii)
less than the exercise price of the put written,
provided that
the Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high
grade debt obligations.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
STOCK INDEX FUTURES CONTRACTS
The Fund may enter into stock 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.
A stock index futures contract is a contract to
buy or sell
units of a stock 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
Standard & Poor's Stock Index (the "S&P 500 Index") is
composed
of 500 selected common stocks, most of which are listed
on the
New York Stock 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 stock index futures contract
specifies
that no delivery of the actual stock 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 STOCK 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 stock 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 stock 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 stock 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 a stock index futures contract,
the Fund
will maintain with its Custodian (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
highly liquid
debt 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 a stock index futures contract, the
Fund will
maintain with its custodian (and mark-to-market on a
daily basis)
liquid assets 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).
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary
purposes where
investment transactions might
advantageously require
it. Any such loan may not be for a period
in excess
of 60 days, and the aggregate amount of
all
outstanding loans may not at any time
exceed 10% of
the value of the total assets of the Fund
at the
time any such loan is made;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except
that this
restriction shall not prohibit (a) the
entry into
repurchase agreements or (b) the purchase
of
publicly distributed bonds, debentures and
other
securities of a similar type, or privately
placed
municipal or corporate bonds, debentures
and other
securities of a type customarily purchased
by
institutional investors or publicly traded
in the
securities markets;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities except for its own capital
stock;
(vi) purchase from or sell to any of its
officers or
trustees, or firms of which any of them
are members
or which they control, any securities
(other than
capital stock of the Fund), but such
persons or
firms may act as brokers for the Fund for
customary
commissions to the extent permitted by the
1940 Act;
(vii) purchase or sell real estate or
commodities and
commodity contracts;
(viii) make an investment in securities of
companies in any
one industry (except obligations of
domestic banks
or the U.S. Government, its agencies,
authorities,
or instrumentalities) if such investment
would cause
investments in such industry to exceed 25%
of the
market value of the Fund's total assets at
the time
of such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is
permitted to
incur, and except to the extent that
shares of the
separate classes or series of the Trust
may be
deemed to be senior securities; provided
that
collateral arrangements with respect to
currency-
related contracts, futures contracts,
options or
other permitted investments, including
deposits of
initial and variation margin, are not
considered to
be the issuance of senior securities for
purposes of
this restriction;
(x) invest more than 5% of the value of its
total assets
in the securities of any one issuer
(except
obligations of domestic banks or the U.S.
Government, its agencies, authorities and
instrumentalities);
(xi) hold more than 10% of the voting
securities of any
one issuer (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities and
instrumentalities); or
(xii) purchase the securities of any other
open-end
investment company, except as part of a
plan of
merger or consolidation.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases
or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described
in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than
2% of its total assets in warrants, so
valued, which
are not listed on either the New York or
American
Stock Exchanges;
(v) invest more than 5% of the value of its
total assets
in the securities of unseasoned issuers,
including
their predecessors, which have been in
operation for
less than three years;
(vi) invest more than 5% of the value of its
total assets
in the securities of issuers which are not
readily
marketable; or
(vii) purchase any security which it is
restricted from
selling to the public without registration
under the
Securities Act of 1933.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and (c) the
broker-dealer with whom the Fund enters into such
transactions
have a minimum net worth of $20 million.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain fee-based investment advisors and
financial planners
who place trades for their own accounts and the
accounts of their
clients may purchase Class A shares of the Fund without
an
initial sales charge or a contingent deferred sales
charge
provided such purchases are placed through a broker or
agent who
maintains an omnibus account with the Fund. Clients of
such
advisors and planners may make purchases under the same
conditions if the purchases are linked to the master
account of
such advisor or planner on the books of such broker or
agent.
Further, purchases of Class A shares of the Fund
without an
initial sales charge or contingent deferred sales
charge may be
made for retirement and deferred compensation plans and
trusts
used to fund those plans, including but not limited to,
those
defined in Section 401(a), 403(b), and 457 of the
Internal
Revenue Code of 1986, as amended, (the "Code") and
"rabbi trusts"
provided such purchases are placed through a broker or
agent who
maintains an omnibus account with the Fund. An omnibus
account
is an account in a broker or agent's name with
interests held for
the benefit of any number of account holders.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Bond Fund, Ivy Latin America Strategy
Fund, Ivy New
Century Fund, Ivy Canada Fund, Ivy Global Fund, Ivy
Short-Term
Bond Fund, Ivy Bond Fund, Ivy China Region Fund and Ivy
Money
Market Fund, the twelve other series of Ivy Fund;
Mackenzie
California Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund, Mackenzie Limited Term Municipal Fund,
Mackenzie
National Municipal Fund and Mackenzie New York
Municipal Fund,
the five series of Mackenzie Series Trust
(collectively, with the
Funds, the "Ivy Mackenzie Funds"). Investors should
obtain a
current prospectus before exercising any right or
privilege that
may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy and Mackenzie 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 Ivy and Mackenzie Fund (or
for shares
of another Ivy and Mackenzie Fund that currently offers
only a
single class of shares) ("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
outstanding Class A shares that have been invested for
a period
of 12 months or longer.) Class A shareholders may also
exchange
their Class A shares for Class A shares of Ivy Money
Market Fund
(no initial sales charge will be assessed at the time
of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy and Mackenzie Fund (or for shares of
another Ivy and
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy and Mackenzie Fund
subject to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
and Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy and Mackenzie Fund ("new Class B shares")
on the
basis of the relative net asset value per Class B
share, without
the payment of any contingent deferred sales charge
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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy and Mackenzie Fund will
be subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy and Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of Mackenzie California
Municipal
Fund, Mackenzie National Municipal Fund, Mackenzie New
York
Municipal Fund, Ivy Canada Fund, Ivy Global Fund, Ivy
Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy New Century Fund, Ivy Latin America Strategy Fund
and Ivy
China Region Fund ("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Ivy Short-Term Bond
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2 1/2% contingent
deferred
sales charge that generally would apply to a redemption
of
outstanding Class B shares held for two years would not
be
deducted at the time of the exchange. If, three years
later, the
investor redeems the new Class B shares, a 2%
contingent deferred
sales charge will be assessed upon the redemption
because by
"tacking" the two year holding period of the
outstanding Class B
shares onto the three year holding period of the new
Class B
shares, the investor will be deemed to have held the
new Class B
shares for five years.
CLASS I SHARES. Class I shareholders may exchange
their
Class I shares for Class I shares of another Ivy and
Mackenzie
Fund on the basis of the relative net asset value per
Class I
share.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000 ($5,000,000 in the case of Class I of the Fund).
No
exchange out of the Fund (other than by a complete
exchange of
all shares of the Fund) may be made if it would reduce
the
shareholder's interest in the Fund to less than $1,000
($5,000,000 in the case of Class I of the Fund).
Exchanges are
available only in states where the exchange can legally
be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Bond Fund, Ivy
Short-Term Bond
Fund, Ivy International Bond Fund, Ivy New Century
Fund, Ivy
Latin America Strategy Fund, Ivy Growth Fund, Ivy
Growth with
Income Fund, Ivy Emerging Growth Fund, Ivy China Region
Fund, Ivy
Canada Fund, Ivy Global Fund, Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund, Mackenzie Limited
Term
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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 (IRAS). Shares of
the Trust
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
MIISC, which
may impose a charge for establishing the account.
Individuals
may wish to consult their tax advisers before investing
IRA
assets in a fund which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 sales charge
for
purchases of less than $10,000 of Class A shares is set
forth
under "403(b)(7) Retirement Plans" in the Fund's
Prospectus.
Sales charges for purchases of $10,000 or more of Class
A shares
are the same as those set forth under "Initial Sales
Charge
Alternative--Class A Shares" in the Prospectus. The
special
application for a 403(b)(7) Account is available from
MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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.
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Bond Fund,
Ivy Short-
Term Bond Fund, Ivy International Bond Fund, Ivy New
Century
Fund, Ivy Latin America Strategy Fund, Ivy Growth Fund,
Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
China
Region Fund, Ivy Canada Fund, Ivy Global Fund,
Mackenzie National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
New York Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund (and
shares
that have been exchanged into Ivy Money Market Fund
from any of
the other funds in the Ivy Mackenzie Funds) and of any
other
investment company distributed by MIFDI, 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 or more for the Fund, Ivy
Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
China Region Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy
International Bond Fund, Ivy New Century Fund and Ivy
Latin
America Strategy Fund; $100,000 or more for Ivy Bond
Fund,
Mackenzie National Municipal Fund, Mackenzie California
Municipal
Fund and Mackenzie New York Municipal Fund; $25,000 or
more for
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund; or $1,000,000 or more for
Ivy Short-
Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts
in Class I
of the Fund) may establish a Systematic Withdrawal Plan
(the
"Withdrawal Plan") by telephone instructions to MIISC
or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI and the Northern
Cross
Investments Limited ("Northern Cross," or the
"Subadviser") place
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 the
Subadviser attempt
to deal directly with the principal market makers,
except in
those circumstances where they believe that better
prices and
execution are available elsewhere.
IMI and the Subadviser select broker-dealers to
execute
transactions and evaluate the reasonableness of
commissions on
the basis of quality, quantity, and the nature of the
firms' pro-
fessional 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 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 Subadviser in servicing all of its
accounts. In
addition, not all of these services may be used by IMI
and
Subadviser in connection with the services it provides
to the
Fund or the Trust. IMI and the Subadviser may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and they may select broker-dealers that provide them
with
research services. IMI and the Subadviser will not,
however,
execute brokerage transactions other than at the best
price and
execution.
When a security proposed to be purchased or sold
for the
Fund is also to be purchased or sold at the same time
for other
accounts managed by the Subadviser, purchases or sales
are
effected on a pro rata, rotating or other equitable
basis so as
to avoid any one account being preferred over any other
account.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI or the Subadviser 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 Fund shares with
securities and may
discontinue accepting securities as payment for 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 Fund
shares will be
sold for net asset value determined at the same time
the accepted
securities are valued. The Trust will accept only
securities
which are 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 applicable
laws of
certain states.
During the fiscal years ended December 31, 1992,
1993 and
1994, the Fund paid brokerage commissions of $170,357,
$98,756
and $139,426, respectively. During the fiscal years
ended
December 31, 1992, 1993 and 1994, the Fund paid
brokerage fees to
Brown Brothers of $492, $95 and $9,125, respectively.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A, Class B
and Class I shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. provides business management
and
investment advisory services to the Fund pursuant to a
Business
Management and Investment Advisory Agreement with the
Trust (the
"Agreement"), which was approved by the shareholders of
the Fund
on December 30, 1991. Prior to approval by
shareholders, the
Agreement was approved on October 28, 1991, with
respect to the
Fund by the Board of Trustees, including a majority of
the
Trustees who are neither "interested persons" (as
defined in the
1940 Act) of the Trust nor have any direct or indirect
financial
interest in the operation of the distribution plan (see
"Distribution Services") or in any related agreement
(the
"Independent Trustees"). IMI also currently acts as
manager and
investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Emerging Growth
Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy Bond
Fund, Ivy
International Bond Fund, Ivy Canada Fund, Ivy Global
Fund, Ivy
China Region Fund, Ivy Latin America Strategy Fund, Ivy
New
Century Fund, Ivy Money Market Fund and Ivy Short-Term
Bond Fund.
IMI is a wholly owned subsidiary of MIMI. MIMI
currently acts as
manager and investment adviser to the following
investment
companies registered under the 1940 Act: Mackenzie
National
Municipal Fund, Mackenzie New York Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund.
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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
1.00% of the
Fund's average daily net assets.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
For the
fiscal years ended December 31, 1991, December 31, 1992
and
December 31, 1993, no reimbursements were made pursuant
to this
state expense limitation.
For the fiscal years ended December 31, 1994, 1993
and 1992,
IMI was paid $2,217,950, $1,302,526 and $1,129,708 by
the Fund
(of which IMI reimbursed $0, $0 and $103,863 pursuant
to
voluntary expense limitations described below).
On September 17, 1994, the Board of Trustees,
including a
majority of the Independent Trustees, last approved the
continuance of the Agreement. The Agreement will
continue in
effect with respect to the Fund for more than the
initial period
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 of
Trustees. If the question of continuance of the
Agreement (or
adoption of any new agreement) is presented to
shareholders,
continuance (or adoption) shall be effected only if
approved by
the affirmative vote of a majority of the outstanding
voting
securities of the Fund. See "Capitalization and Voting
Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
PROVISIONS OF THE SUBADVISORY CONTRACT. The Trust
and IMI
have entered into a Subadvisory Contract with an
independent
investment adviser with respect to the Fund. Under the
Subadvisory Contract, 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, of the Board of Trustees. Fees payable
under the
Subadvisory Contract accrue daily and are paid
quarterly by IMI.
Effective April 1, 1993, Northern Cross serves as
subadviser
for the Fund's portfolio pursuant to a Subadvisory
Contract (the
"Subadvisory Contract"). As compensation for its
services,
Northern Cross is paid a fee by IMI at the annual rate
of 0.60%
of the Fund's average net assets. As compensation for
advisory
services rendered for the period from April 1, 1993 to
December 31, 1993 and for the fiscal year ended
December 31,
1994, IMI paid Northern Cross $617,520 and $1,330,770,
respectively. Northern Cross, wholly-owned and
operated by Hakan
Castegren, is the successor to the investment advisory
functions
of Boston Overseas Investors, Inc. ("BOI"), which also
was
wholly-owned and operated by Hakan Castegren. Boston
Investor
Services, Inc., the successor to the administrative and
research
functions of BOI, provides administrative and research
services
to Northern Cross.
BOI served as subadviser for the Fund's portfolio
from
July 1, 1990 until March 31, 1993. Under its
subadvisory
contract, IMI paid BOI a fee at an annual rate of 0.60%
of the
Fund's average net assets. As compensation for
advisory services
rendered for the fiscal year ended December 31, 1992,
and the
three-month period ended March 31, 1993, IMI paid BOI
$677,825
and $163,879, respectively.
Any amendment to the current Subadvisory Contract
requires
approval by votes of (a) a majority of the outstanding
voting
securities of the Fund affected thereby and (b) a
majority of the
Trustees who are not interested persons of the Trust or
of any
other party to such Contract. The Subadvisory Contract
terminates automatically in the event of its assignment
(as
defined in the 1940 Act) or upon termination of the
Agreement.
Also, the Subadvisory Contract may be terminated by not
more than
60 days' nor less than 30 days' written notice by
either the
Trust or IMI or upon not less than 120 days' notice by
the
Subadviser. The Subadvisory Contract provides that IMI
or the
Subadviser shall not be liable to the Trust, to any
shareholder
of the Trust, or to any other person, except for loss
resulting
from willful misfeasance, bad faith, gross negligence
or reckless
disregard of duty.
The Subadvisory Contract will continue in effect
(subject to
provisions for earlier termination as described above)
only if
such continuance is approved at least annually (a) by a
majority
of the Trustees who are not interested persons of the
Trust or of
any other party to the Contract and (b) by either (i) a
majority
of all of the Trustees of the Trust or (ii) a vote of a
majority
of the outstanding voting securities of any Fund
affected
thereby. On September 17, 1994, the Board of Trustees,
including
a majority of the Independent Trustees, last approved
the
continuance of the Subadvisory Contract.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A
1[Shares of the Fund outstanding as of October 22, 1993
have been
redesignated as "Class A" shares of the Fund.] and
Class B shares
of the Fund under an Amended and Restated Distribution
Agreement
with the Trust dated October 23, 1993 (the
"Distribution
Agreement"). Effective October 1, 1993, MIFDI, a
wholly-owned
subsidiary of MIMI, succeeded to and is continuing
MIMI's broker-
dealer activities. The provisions of the Trust's
previous
Distribution Agreement with MIMI remain unchanged by
the
succession. MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the fiscal year ended
December 31,
1992, MIMI received from sales of Class A shares of the
Fund
$233,541 in sales commissions, of which $61,392 was
retained
after dealers' re-allowances; and during the period
from
January 1, 1993 to September 30, 1993, MIMI received
from sales
of Class A shares of the Fund $262,908 in sales
commissions, of
which $41,306 was retained after dealers'
re-allowances. During
the period from October 1, 1993 to December 31, 1993,
MIFDI
received from sales of Class A shares of the Fund
$215,623 in
sales commissions, of which $33,877 was retained after
dealers'
re-allowances. During the fiscal year ended December
31, 1994,
MIFDI received from sales of Class A shares of the Fund
$788,610
in sales commissions, of which $124,786 was retained
after
dealers' re-allowances. Furthermore, MIFDI is entitled
to deduct
a contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the fiscal year
ended
December 31, 1992, the periods from January 1, 1993 to
September 30, 1993, and from October 1, 1993 to
December 31,
1993, MIMI and MIFDI, respectively, received no
contingent
deferred sales charges upon certain redemptions of
Class A shares
of the Fund. During the period from October 23, 1993
(the date
on which Class B shares of the Fund were first offered
for sale
to the public) to December 31, 1993, MIFDI received
$439 in
contingent deferred sales charges paid upon certain
redemptions
of Class B shares of the Fund. During the fiscal year
ended
December 31, 1994, MIFDI received $23,381 in contingent
deferred
sales charges paid upon certain redemptions of Class B
shares of
the Fund.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be; except that the Fund's Class A Plan provides
that the
service fee will apply only to Class A shares issued
after
December 31, 1991. The services for which service fees
may be
paid include, among other services, 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 the Fund's Plans, payments made out of or
charged
against the assets attributable to the Fund's Class A
or Class B
shares must be in reimbursement for services rendered
for or on
behalf of that Class of the Fund. The expenses not
reimbursed in
any one given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
For the fiscal year ended December 31, 1992, the Fund
paid MIMI
$17,921, pursuant to the Class A Plan. For the period
from
January 1, 1993 to September 30, 1993, the Fund paid
MIMI $22,673
pursuant to the Class A Plan. For the period from
October 1,
1993 to December 31, 1993, the Fund paid MIFDI $9,196
pursuant to
the Class A Plan. For the fiscal year ended December
31, 1994,
the Fund paid MIFDI $168,356, pursuant to the Class A
Plan. For
the period from October 23, 1993 (the date on which
Class B
shares of the Fund were first offered for sale to the
public) to
December 31, 1993, the Fund paid MIFDI $2,339 pursuant
to the
Class B Plan. For the fiscal year ended December 31,
1994, the
Fund paid MIFDI $175,505, pursuant to the Class B Plan.
During the fiscal year ended to December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $17,209; printing and mailing of
prospectuses
to persons other than current shareholders, $82,479;
compensation
to dealers, $257,799; compensation to sales personnel,
$331,426;
seminars and meetings, $64,450; travel and
entertainment,
$94,174; general and administrative, $141,130;
telephone,
$12,810; occupancy and equipment rental, $28,637.
During the fiscal year ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $1,487; printing and mailing of
prospectuses
to persons other than current shareholders, $7,128;
compensation
to dealers, $22,281; compensation to sales personnel,
$28,644;
seminars and meetings, $5,570; travel and
entertainment, $8,139;
general and administrative, $12,197; telephone, $1,107;
and
occupancy and equipment rental, $2,475.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
Ivy Financial Services, Inc. previously served as
the
principal distributor of the Fund's shares until
December 31,
1991. Ivy Financial Services, Inc. bore all of the
expenses it
incurred under the previous Distribution Agreement.
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges
located at
40 Water Street, Boston, Massachusetts 02109, acts as
custodian
for the Trust's securities and cash pursuant to a
Custodian
Agreement with the Trust. Under the Custodian
Agreement, Brown
Brothers also provides certain financial services for
the Fund,
including bookkeeping, computation of daily net asset
value,
maintenance of income, expense and brokerage records,
and
provision of all information required by the Trust in
order to
satisfy its reporting and filing requirements. 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,
Brown Brothers Harriman & Co. has entered into
subcustodial
agreements for the holding of the Fund's foreign
securities.
Brown Brothers may receive, as partial payment for its
services,
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,
effective
April 1, 1994, MIMI provides certain accounting and
pricing
services for the Fund. As compensation for those
services, the
Fund pays MIMI a monthly fee plus telephone, delivery,
and other
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
payments to MIMI amounted to $48,788 for the nine
months ended
December 31, 1994. Prior to April 1, 1994, the Fund
utilized an
unrelated entity for fund accounting and pricing
services. Such
fees and expenses for the fiscal year ended December
31, 1994
totalled $88,790.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account for Class A and Class B, and
$10.25 per
open account for Class I. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
fiscal year ended December 31, 1994 totalled $367,973.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets for
Class A and Class B, and .01% of its average daily net
assets for
Class I. Such fees for the fiscal year ended December
31, 1994
totalled $218,308.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation of the Trust's
tax
returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy New Century Fund, Ivy Bond
Fund, Ivy
Canada Fund, Ivy Global Fund, Ivy Short-Term Bond Fund,
Ivy
Growth Fund, Ivy Emerging Growth Fund, Ivy Growth with
Income
Fund, Ivy International Fund, Ivy Money Market Fund,
Ivy China
Region Fund and Ivy Latin America Strategy Fund, as
well as Class
I for Ivy Short-Term Bond Fund, Ivy Bond Fund and Ivy
International Fund. In addition, the Trustees have
authorized an
additional class, Class C, for Ivy Growth with Income
Fund issued
only to shareholders of Mackenzie Growth & Income Fund,
a former
series of The Mackenzie Funds Inc., in connection with
the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act.
Shareholders of
the Trust vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding Class A, Class B or Class I shares;
except
that of the Class A shares of the Fund, Charles Schwab
& Co. Inc.
Reinvest Account, 101 Montgomery Street, San Francisco,
California 94104, owned of record 2,155,294.368 shares
(22.48%);
and except that of the class I shares of the Fund,
BankAmerica
State Trust Company (custodian), FBO Klukwan, Inc.,
P.O. Box
32077, Juneau, Alaska 99803, owned of record
178,808.020 shares
(82.35%), and National City Bank Indiana (trustee),
Mechanics
Laundry & Supply Inc. Employee Pension Plan, P.O. Box
94777,
Cleveland, Ohio 44101, owned of record 27,935.018
shares
(12.86%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., Eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The portfolio securities of the Fund will include
equity
securities which are listed on foreign exchanges.
Certain
foreign exchanges may be open on Saturdays and
customary United
States business holidays. As a consequence, the
portfolio
securities of the Fund may be traded, and the net asset
values of
shares of the Fund may be significantly affected, on
days on
which shares of the Fund may not be purchased or
redeemed.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the fiscal
years
ended December 31, 1994 and 1993 was 7% and 19%,
respectively. A
portfolio turnover rate that exceeds 100% involves
correspondingly higher brokerage commissions and other
transaction costs, which will be borne directly by the
Fund. In
addition, net short-term gains realized from portfolio
transactions are taxable to shareholders as ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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
under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
pro rata share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his pro
rata
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A, Class B and Class I shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A, Class B and Class I 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 above computation is assumed to be the fee that
would be
charged to the mean account size of the Fund.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A, Class B
and Class I shares of the Fund for the periods
indicated.
STANDARDIZED RETURN[1]
CLASS A[3] CLASS B CLASS I[5]
One year ended
December 31,
1994: (2.06%) (2.04%) (1.77%)
Five years ended
December 31,
1994: 8.15%[6] N/A N/A
Inception[*] to
December 31,
1994:[10] 14.62%[7] 5.71%[4] 4.27%
NON-STANDARDIZED RETURN[2]
CLASS A[3] CLASS B CLASS I[5]
One year ended
December 31,
1994: 3.92% 2.96% 3.23%
Five years ended
December 31,
1994: 9.44%[8] N/A N/A
Inception[*] to
December 31,
1994:[10] 15.42%[9] 9.03% 8.41%
_________________________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%.
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures do not reflect
the
deduction of any initial or contingent deferred
sales
charge.
[3] Shares of the Fund outstanding as of October 22,
1993 have
been redesignated as "Class A" shares of the Fund.
[4] The Standardized Return figure for Class B shares
reflects
the deduction of a 5% contingent deferred sales
charge.
[5] Class I shares are not subject to an initial or a
contingent
deferred sales charge; therefore, the
Non-Standardized
Return figures would be identical to the
Standardized Return
figures. No Class I shares of the Fund were
outstanding
during the time periods indicated.
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 8.13%.
[7] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 14.61%.
[8] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 9.42%.
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 15.40%.
[10] The total return for a period less than a full
fiscal year
is calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Fund (and the Class A
shares of
the Fund) was April 21, 1986; the inception date
for the
Class B and Class I shares of the Fund was October
23, 1993.
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
Fund 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 the Class A, Class B and Class I
shares of the
Fund for the periods indicated, assuming the maximum
5.75% sales
charge has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE YEAR FIVE YEAR SINCE INCEPTION[*]
Class A (2.06%) 47.98% 226.97%
Class B (2.04%) N/A 6.84%
Class I (1.77%) N/A 6.10%
The following table summarizes the calculation of
Total
Return for the Class A and Class B shares of the Fund
for the
periods indicated, assuming the maximum 5.75% sales
charge has
not been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
ONE YEAR FIVE YEAR SINCE INCEPTION[*]
Class A 3.92% 57.00% 246.92%
Class B 2.96% N/A# 10.84%
Class I 3.23% N/A# 10.10%
[*] The inception date for the Fund was April 21,
1986.
[#] Cumulative total return quotations are not
available for
Class B and Class I shares for this period because
no Class
B or Class I shares were outstanding during the
time period
indicated.
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
Director
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.
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.
The average annual total return for the Class A,
Class B and
Class I shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A, Class B and Class I shares with
information
published for other investment companies and other
investment
vehicles. Return 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, return quotations may be
higher or
lower than past return quotations and there can be no
assurance
that any historical return quotation will continue in
the future.
FINANCIAL STATEMENTS
The Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal years
ended December 31, 1994 and December 31, 1993,
Financial
Highlights, the Notes to Financial Statements, and the
Report of
Independent Accountants are included in the December
31, 1994
Annual Report to shareholders of the Fund, which is
incorporated
by reference into this SAI. Copies of these financial
statements
and this SAI may be obtained upon request and without
charge from
the Trust at the address and telephone number provided
on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY LATIN AMERICA STRATEGY FUND
A SERIES OF
IVY FUND
VIA MIZNER FINANCIAL PLAZA, SUITE 300
700 SOUTH FEDERAL HIGHWAY
BOCA RATON, FLORIDA 33432
STATEMENT OF ADDITIONAL INFORMATION
April 30, 1995
(as supplemented on January 1, 1996)
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy Latin
America
Strategy Fund (the "Fund"). The other twelve
portfolios of the
Trust are described in separate Statements of
Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. Government Securities
Investing in Latin America
High Yield Bonds
Forward Foreign Currency Contracts
Foreign Securities
Investing in Emerging Markets
Repurchase Agreements
American Depository Receipts (ADRs)
Foreign Currencies
Restricted and Illiquid Securities
Warrants
Options Transactions
General
Writing Options on Individual Securities
Purchasing Options on Individual Securities
Purchasing and Writing Options on Securities
Indices
Risks of Options Transactions
Securities Index Futures Contracts
Risks of Securities Index Futures
Combined Transactions
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
Automatic Investment Method
Exchange of Shares
Initial Sales Charge Shares
Contingent Deferred Sales Charge Shares
Class B
Letter of Intent
Retirement Plans
Individual Retirement Accounts
Qualified Plans
Deferred Compensation for Public Schools and
Charitable Organizations ("403(b)(7)
Account")
Simplified Employee Pension ("SEP") IRAs
Reinvestment Privilege
Rights of Accumulation
Systematic Withdrawal Plan
Group Systematic Investment Program
BROKERAGE ALLOCATION
Personal Investments by Employees of IMI
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
Business Management and Investment Advisory
Services
Distribution Services
Custodian
Fund Accounting Services
Transfer Agent and Dividend Paying Agent
Administrator
Auditors
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
General
Options, Futures and Foreign Currency Forward
Contracts
Currency Fluctuations -- "Section 988" Gains or
Losses
Investment in Passive Foreign Investment Companies
Debt Securities Acquired at a Discount
Distributions
Disposition of Shares
Foreign Withholding Taxes
Backup Withholding
Other
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return Quotations
Other Quotations, Comparisons and General
Information
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
Ivy Fund (the "Trust") is organized as a
diversified, open-
end management investment company with thirteen series
of shares.
One series of the Trust, Ivy Latin America Strategy
Fund (the
"Fund"), is discussed in this SAI.
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of such
certificates.
Accordingly, it is not possible to predict accurately
the average
life of a particular pool. Reinvestment of prepayments
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,
GNMA
certificates can be less effective than typical bonds
of similar
maturities at "locking in" yields during periods of
declining
interest rates. GNMA certificates 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; and 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, and
Student
Loan Marketing Association.
INVESTING IN LATIN AMERICA
Investing in securities of Latin American issuers
may entail
risks relating to the potential political and economic
instability of certain Lain American countries and the
risks of
expropriation, nationalization, confiscation or the
imposition of
restrictions on foreign investment and on repatriation
of capital
invested. In the event of expropriation,
nationalization or
other confiscation by any country, the Fund could lose
its entire
investment in any such country.
The securities markets of Latin American countries
are
substantially smaller, less developed, less liquid and
more
volatile than the major securities markets in the U.S.
Disclosure
and regulatory standards are in many respects less
stringent than
U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the
activities of
investors in such markets.
The limited size of many Latin American securities
markets
and limited trading volume in the securities of Latin
American
issuers compared to volume of trading in the securities
of U.S.
issuers could cause prices to be erratic for reasons
apart from
factors that affect the soundness and competitiveness
of the
securities issuers. For example, limited market size
may cause
prices to be unduly influenced by traders who control
large
positions. Adverse publicity and investors'
perceptions, whether
or not based on in-depth fundamental analysis, may
decrease the
value and liquidity of portfolio securities.
The Fund invests in securities denominated in
currencies of
Latin American countries. Accordingly, changes in the
value of
these currencies against the U.S. dollar will result in
corresponding changes in the U.S. dollar value of the
Fund's
assets denominated in those currencies.
Some Latin American countries also may have
managed
currencies, which are not free floating against the
U.S. dollar.
In addition, there is risk that certain Lain American
countries
may restrict the free conversion of their currencies
into other
countries. Further, certain Latin American currencies
may not be
internationally traded. Certain of these currencies
have
experienced a steep devaluation relative to the U.S.
dollar. Any
devaluations in the currencies in which the Fund's
portfolio
securities are denominated may have a detrimental
impact on the
Fund's net asset value.
The economies of individual Latin American
countries may
differ favorably or unfavorably from the U.S. economy
in such
respects as the rate of growth of gross domestic
product, the
rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Certain
Latin
American countries have experienced high levels of
inflation
which can have a debilitating effect on the economy.
Furthermore, certain Latin American countries may
impose
withholding taxes on dividends payable to the Fund at a
higher
rate than those imposed by other foreign countries.
This may
reduce the Fund's investment income available for
distribution to
shareholders.
Certain Latin American countries such as
Argentina, Brazil
and Mexico are among the world's largest debtors to
commercial
banks and foreign governments. At times, certain Latin
American
countries have declared moratoria on the payment of
principal
and/or interest on outstanding debt. 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 defaulted sovereign debt
may be
collected in whole or in part.
Governments of many Latin American countries have
exercised
and continue to exercise substantial influence over
many aspects
of the private sector through the ownership or control
of many
companies, including some of the largest in those
countries. As
a result, government actions in the future could have a
significant effect on economic conditions which may
adversely
affect prices of certain portfolio securities.
Expropriation,
confiscatory taxation, nationalization, political,
economic or
social instability or other similar developments, such
as
military coups, have occurred in the past and could
also
adversely affect the Fund's investments in this region.
Changes in political leadership, the
implementation of
market oriented economic policies, such as
privatization, trade
reform and fiscal and monetary reform are among the
recent steps
taken to renew economic growth. External debt is being
restructured and flight capital (domestic capital that
has left
home country) has begun to return. Inflation control
efforts
have also been implemented. Latin American equity
markets can be
extremely volatile and in the past have shown little
correlation
with the U.S. market. Currencies are typically weak,
but most
are now relatively free floating, and it is not unusual
for the
currencies to undergo wide fluctuations in value over
short
periods of time due to changes in the market.
HIGH YIELD BONDS
The Fund may invest in corporate debt securities
rated Baa
or lower by Moody's Investors Service, Inc. ("Moody's")
or BBB or
lower by Standard & Poor's Corporation ("S&P"). The
Fund will
not, however, invest in securities that, at the time of
investment, are rated lower than C by either Moody's or
S&P.
Securities rated Baa or BBB (and comparable unrated
securities)
are considered by major credit-rating organizations to
have
speculative elements as well as investment-grade
characteristics.
Securities rated lower than Baa or BBB (and comparable
unrated
securities) are commonly referred to as "high yield" or
"junk"
bonds and 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. See Appendix A for a more complete
description of
the ratings assigned by Moody's and S&P and their
respective
characteristics.
While IMI may refer to ratings issued by
established credit
rating agencies, it is not IMI's policy to rely
exclusively on
such ratings, but rather to supplement such ratings
with its own
independent and ongoing review of credit quality. The
Fund's
achievement of its investment objective may, to the
extent of its
investment in high yield bonds, be more dependent upon
IMI's
credit analysis than would be the case if the Fund were
investing
in higher quality bonds. Should the rating of a
portfolio
security be downgraded, IMI will determine whether it
is in the
Fund's best interest to retain or dispose of the
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.
The secondary market on which high yield bonds are
traded
may be less liquid than the market for higher grade
bonds. Less
liquidity in the secondary trading market could
adversely affect
the price at which the Fund could sell a high yield
bond, and
could adversely affect 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 values and liquidity of high
yield
bonds, especially in a thinly traded market. When
secondary
markets for high yield securities are less liquid than
the
markets for higher grade securities, it may be more
difficult to
value the securities because such valuation may require
more
research, and elements of judgment may play a greater
role in the
valuation because there is less reliable, objective
data
available.
Furthermore, prices for high yield bonds may be
affected by
legislative and regulatory developments. For example,
federal
rules require savings and loan institutions to reduce
gradually
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 on
these securities and regulate corporate restructurings.
Such
legislation may significantly depress the prices of
outstanding
securities of this type.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold cash, U.S. Government
securities or other
high-grade debt securities in a segregated account with
its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under "Foreign
Securities" under the caption "How the Fund Seeks to
Achieve Its
Investment Goals" and under "Risk Factors", which are
not
typically associated with investing in United States
securities
and which may affect the Fund's performance favorably
or
unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements.
Repurchase
agreements are agreements 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. The Fund will not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities including such repurchase
agreements. The
Fund may enter into repurchase agreements with banks or
broker-
dealers deemed to be creditworthy by IMI under
guidelines
approved by the Board of Trustees. In the 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.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
might otherwise be entitled as the owner of sponsored
ADRs.
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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focusing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity of the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objective and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on stock indices. Options on securities
and stock
indices purchased or written by the Fund will be
limited to
options traded on national securities exchanges, boards
of trade
or similar entities, or in the over-the-counter ("OTC")
markets
(such OTC options together with any other illiquid
securities
shall not be in an amount exceeding 10% of the Fund's
assets).
The Fund will not purchase put and call options if the
aggregate
premium paid for such options would exceed 5% of its
total assets
at the time of purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI 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.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES
INDICES. The
Fund may purchase and sell (write) put and call options
on
securities indices. An index assigns relative values
to the
securities included in the index and the index
fluctuates with
changes in the market values of the securities so
included.
Options on indices are similar to options on individual
securities, except that, rather than giving the
purchaser the
right to take delivery of an individual security at a
specified
price, they give the purchaser the right to receive
cash. The
amount of cash is equal to the difference between the
closing
price of the index and the exercise price of the
option,
expressed in dollars, times a specified multiple (the
"multiplier"). The writer of the option is obligated,
in return
for the premium received, to make delivery of this
amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered", in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high-
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
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 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, U.S. Government securities, or other highly
liquid debt
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)
liquid assets 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).
COMBINED TRANSACTIONS: The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in
the
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
Investment
Company Act of 1940, as amended (the "1940 Act")) of
the
outstanding voting shares of the Fund. Under these
restrictions,
the Fund may not:
(i) borrow money, except for temporary or
emergency
purposes; provided that the Fund maintains asset
coverage of
300% for all borrowings;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except
that this
restriction shall not prohibit (a) the entry into
repurchase
agreements, (b) the purchase of publicly
distributed bonds,
debentures and other securities of a similar type,
or
privately placed municipal or corporate bonds,
debentures
and other securities of a type customarily
purchased by
institutional investors or publicly traded in the
securities
markets, or (c) the lending of portfolio
securities
(provided that the loan is secured continuously by
collateral consisting of U.S. Government
securities or cash
or cash equivalents maintained on a daily
marked-to-market
basis in an amount at least equal to the market
value of the
securities loaned;
(v) participate in an underwriting or
selling group in
connection with the public distribution of
securities except
for its own capital stock;
(vi) purchase from or sell to any of its
officers or
trustees, or firms of which any of them are
members or which
they control, any securities (other than capital
stock of
the Fund), but such persons or firms may act as
brokers for
the Fund for customary commissions to the extent
permitted
by the Investment Company Act of 1940;
(vii) purchase or sell real estate or
commodities and
commodity contracts;
(viii) make an investment in securities of
companies in
any one industry (except obligations of domestic
banks or
the U.S. Government, its agencies, authorities, or
instrumentalities) if such investment would cause
investments in such industry to exceed 25% of the
market
value of the Fund's total assets at the time of
such
investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted to
incur, and
except to the extent that shares of the separate
classes or
series of the Trust may be deemed to be senior
securities;
provided that collateral arrangements with respect
to
currency-related contracts, futures contracts,
options or
other permitted investments, including deposits of
initial
and variation margin, are not considered to be the
issuance
of senior securities for purposes of this
restriction; or
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral
leases or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described in the
Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets
in
warrants, valued at the lower of cost or market,
or more
than 2% of its total assets in warrants, so
valued, which
are not listed on either the New York or American
Stock
Exchanges;
(v) invest more than 5% of the value of its
total
assets in the securities of unseasoned issuers,
including
their predecessors, which have been in operation
for less
than three years;
(vi) purchase or retain securities of any
company if
officers and Trustees of the Trust and officers
and
directors of Ivy Management, Inc., MIMI or
Mackenzie
Financial Corporation who individually own more
than 1/2 of
1% of the securities of that company together own
beneficially more than 5% of such securities;
(vii) 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 or by any state in which its shares are
registered;
(viii) invest more than 15% of its net assets
taken at
market value at the time of investment in
"illiquid
securities," provided, however, that the Fund will
not
invest more than 10% of its total assets in
securities of
issuers that are restricted from selling to the
public
without registration under the Securities Act of
1933.
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 a fund has written, securities for
which market
quotations are not readily available, or other
securities
which legally or in IMI'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, to the Fund's compliance with certain
conditions
intended to provide liquidity, or to other
factors, is
liquid; or
(ix) purchase or retain securities of an issuer
if, with
respect to 75% of the Fund's total assets, such
purchase
would result in more than 10% of the outstanding
voting
securities of such issuer being held by the Fund.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and
(c) the broker-dealers with whom the Fund enters into
such
transactions have a minimum net worth of $20 million.
Moreover,
so long as it remains a restriction of the Ohio
Division of
Securities, the Fund will treat securities eligible for
resale
under Rule 144A of the Securities Act of 1933 as
subject to the
Fund's restriction on investing in restricted
securities.
Finally, with respect to the investment restrictions
set forth in
paragraphs (v), (vii) and (viii) above, the Fund will
notify
Shareholders 30 days before changing its investment
policies with
respect to any of the investment practices described
therein.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy New
Century Fund,
Ivy International Bond Fund, Ivy Canada Fund, Ivy
Global Fund,
Ivy Bond Fund, Ivy Short-Term Bond Fund and Ivy Money
Market
Fund, the other twelve series of Ivy Fund; Mackenzie
California
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund,
Mackenzie Limited Term Municipal Fund, Mackenzie
National
Municipal Fund and Mackenzie New York Municipal Fund,
the five
series of Mackenzie Series Trust; (collectively, with
the Funds,
the "Ivy Mackenzie Funds"). Investors should obtain a
current
prospectus before exercising any right or privilege
that may
relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Ivy Bond Fund, Mackenzie National
Municipal Fund,
Mackenzie New York Municipal Fund, Ivy Canada Fund, Ivy
Global
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
Emerging
Growth Fund, Ivy International Fund, Ivy China Region
Fund and
Ivy New Century Fund ("Table 1 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Florida
Limited Term
Municipal Fund, Ivy Short-Term Bond Fund and Mackenzie
Limited
Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO
CHARGE
First 3%
Second 2-1/2%
Third 2%
Fourth 1-1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 3% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth Fund, Ivy Growth
with
Income Fund, Ivy Emerging Growth Fund, Ivy China Region
Fund, Ivy
New Century Fund, Ivy International Fund, Ivy
International Bond
Fund, Ivy Short-Form Bond Fund, Ivy Bond Fund, Ivy
Canada Fund,
Ivy Global Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Limited Term
Municipal Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie New
York Municipal Fund (and shares that have been
exchanged into Ivy
Money Market Fund from any of the other funds in the
Ivy
Mackenzie Funds) held of record by him or her as of the
date of
his or her Letter of Intent as an accumulation credit
toward the
completion of such Letter. 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 MIFDI an amount equal
to the
difference between the dollar amount of sales charge
which 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 thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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:
For shareholders whose retirement accounts are
diversified
across more than two funds in the Ivy Mackenzie Funds,
the annual
maintenance fee will be limited to not more than $20.
Retirement Plan New Account Fee No fee
Retirement Plan Annual Maintenance Fee $10.00 per
account
The following discussion describes in general
terms 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
Trust 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 MIISC, which may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a fund
which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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
Fund in conjunction with such an arrangement. The
sales charge
for purchases of less than $10,000 of Class A shares is
set forth
under "403(b)(7) Retirement Plans" in the Fund's
Prospectus.
Sales charges for purchases of $10,000 or more of Class
A shares
are the same as those set forth under "Initial Sales
Charge
Alternative--Class A Shares" in the Prospectus. The
special
application for a 403(b)(7) Account is available from
MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or becomes
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy
China Region
Fund, Ivy New Century Fund, Ivy Short-Term Bond Fund,
Ivy Bond
Fund, Ivy Canada Fund, Ivy Global Fund, Mackenzie
National
Municipal Fund, Mackenzie California Municipal Fund,
Mackenzie
New York Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund (and
shares
that have been exchanged into Ivy Money Market Fund
from any of
the other funds in the Ivy Mackenzie Funds) and of any
other
investment company distributed by MIFDI, 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 or more for the Fund, Ivy
Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy International Bond Fund, Ivy
China Region
Fund, Ivy New Century Fund, Ivy Canada Fund and Ivy
Global Fund;
$100,000 or more for Ivy Bond Fund, Mackenzie National
Municipal
Fund, Mackenzie California Municipal Fund and Mackenzie
New York
Municipal Fund; $25,000 or more for Mackenzie Florida
Limited
Term Municipal Fund and Mackenzie Limited Term
Municipal Fund; or
$1,000,000 or more for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by IMI in connection with
the services
it provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers that provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
During the period from November 1, 1994
(commencement of
operations) to December 31, 1994, the Fund paid
brokerage
commissions of $5,491. During that period, the Fund
paid no
brokerage fees to Brown Brothers.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995 the Officers and Trustees of
the Trust
as a group owned 2.31% of the outstanding Class A and
none of the
outstanding Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan (Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/
Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc., ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by the sole
shareholder of the Fund on October 28, 1994. Prior to
approval
by the sole shareholder, the Agreement was approved on
September
17, 1994, with respect to the Fund by the Board of
Trustees,
including a majority of the Trustees who are neither
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have any
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). IMI also acts a
manager
and investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Emerging Growth
Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy Bond
Fund, Ivy
International Bond Fund, Ivy International Fund, Ivy
Global Fund,
Ivy New Century Fund, Ivy China Region Fund, Ivy Canada
Fund, Ivy
Short-Term Bond Fund and Ivy Money Market Fund. IMI is
a wholly
owned subsidiary of MIMI. MIMI currently acts as
manager and
investment adviser to the following investment
companies
registered under the 1940 Act: Mackenzie National
Municipal
Fund, Mackenzie New York Municipal Fund, Mackenzie
California
Municipal Fund, Mackenzie Limited Term Municipal Fund
and
Mackenzie Florida Limited Term Municipal Fund. 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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
1.00% of the
Fund's average daily net assets. During the period
from November
1, 1994 (commencement of operations) to December 31,
1994, IMI
received fees of $1,006, from the Fund.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
Required
expense reimbursements for the Fund for the two months
ended
December 31, 1994 were $13,333.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses,
and other
extraordinary expenses) to an annual rate of 1.95% of
the Fund's
average daily net assets. As long as the Fund's
expense
limitation continues, it may lower the Fund's expense
and
increase its yield. The Fund's expense limitation may
be
terminated or revised at any time, at which time the
Fund's
expense may increase and its yield may be reduced,
depending on
the total assets of the Fund. Voluntary expense
reimbursements
for the Fund for the two months ended December 31, 1994
were
$523.
The initial term of the Agreement between IMI and
the Fund
commenced on October 30, 1994 and will run for a period
of two
years from that date. The Agreement will continue in
effect with
respect to the Fund for more than the initial period
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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of the
Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A and
Class B shares of the Fund under an Amended and
Restated
Distribution Agreement with the Trust dated October 29,
1994 (the
"Distribution Agreement"). Effective October 1, 1993,
MIFDI, a
wholly-owned subsidiary of MIMI, succeeded to and is
continuing
MIMI's broker-dealer activities. MIFDI 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 MIFDI. MIFDI distributes shares
of the
Fund on a continuous basis, but reserves the right to
suspend or
discontinue distribution on such basis. MIFDI is not
obligated
to sell any specific amount of Fund shares. Pursuant
to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the period from November 1,
1994
(commencement of operations) to December 31, 1994,
MIFDI received
no contingent deferred sales charges on redemptions of
Class B
shares of the Fund. Furthermore, MIFDI is entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the period from
November 1,
1994 (commencement of operations to December 31, 1994,
MIFDI
received from sales of Class A shares of the Fund
$7,492, in
sales commissions, of which $1,071 was retained after
dealers re-
allowances.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, payments made out of or charged
against the
assets attributable to the Fund's Class A or Class B
shares must
be in reimbursement for services rendered for or on
behalf of
that Class of the Fund. The expenses not reimbursed in
any one
given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
During the period from November 1, 1994 (commencement
of
operations) to December 31, 1994, the Fund paid MIFDI
$208,
pursuant to the Class A plan. During the period from
November 1,
1994 (commencement of operations) to December 31, 1994,
the Fund
paid MIFDI $157, pursuant to the Class B plan.
During the two months ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class A
shares of the
Fund: advertising, $32; printing and mailing of
prospectuses to
persons other than current shareholders, $1,478;
compensation to
dealers, $635, compensation to sales personnel, $606;
seminars
and meetings, $159; travel and entertainment, $167;
general and
administrative, $230; telephone, $23; and occupancy and
equipment
rental, $52.
During the two months ended December 31, 1994,
MIFDI
expended the following amounts in marketing Class B
shares of the
Fund: advertising, $6; printing and mailing of
prospectuses to
persons other than current shareholders, $279;
compensation to
dealers, $1120; compensation to sales personnel, $114;
seminars
and meetings, $30; travel and entertainment, $31;
general and
administrative, $43; telephone, $4; and occupancy and
equipment
rental, $10.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges
located at
40 Water Street, Boston, Massachusetts 02109, acts as
custodian
for the Trust's securities and cash pursuant to a
Custodian
Agreement with the Trust, on behalf of the Fund. 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,
Brown Brothers Harriman & Co. has entered into
subcustodial
agreements for the holding of the Fund's foreign
securities.
Brown Brothers may receive, as partial payment for its
services,
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. During
the period from November 1, 1994 (commencement of
operations) to
December 31, 1994 , the Fund paid MIMI $2,505 under the
agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
for the period November 1, 1994 (commencement of
operations)
through December 31, 1994 totalled $123.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the period November 1, 1994 (commencement of
operations)
through December 31, 1994 totalled $100.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation of the Trust's
tax
returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term Bond
Fund, Ivy
Growth Fund, Ivy Emerging Growth Fund, Ivy Growth with
Income
Fund, Ivy China Region Fund, Ivy Money Market Fund, Ivy
New
Century Fund and Ivy International Fund, as well as
Class I for
Ivy Short-Term Bond Fund, Ivy Bond Fund and Ivy
International
Fund. In addition, the Trustees have authorized an
additional
class, Class C, for Ivy Growth with Income Fund issued
only to
shareholders of Mackenzie Growth & Income Fund, a
former series
of The Mackenzie Funds Inc., in connection with the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each Class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
Classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a Class vote is required by the 1940 Act.
Shareholders of
the Fund vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995 no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding shares, except that of the
outstanding Class A
shares of the Fund, Mackenzie Investment Management,
Inc, 700
South Federal Highway, Boca Raton, Florida 33432, owned
of record
13,368.353 shares (15.76%), and IBT (custodian) FBO K.
Tricinella, 6121 East 61st Street, Tulsa, Oklahoma
74136, owned
of record 4,507.652 shares (5.31%); and except that of
the
outstanding Class B shares of the Fund, IBT (custodian)
FBO G. E.
Pattyson, P.O. Box 11, Terrace Bay, Ontario, Canada POT
2W0,
owned of record 10,000 shares (30.17%), NFSC FEBO J. &
S.
Piontek, 409 Berkly Place, Olivette, MO 63132, owned of
record
4,432.624 shares (13.37%), NFSC FEBO R. S. Faley, 1706
New
Hampshire Avenue NW, Washington, DC 20009, owned of
record
4,145.937 shares (12.50%) and IBT (custodian) FBO M.
McCaffery,
215 Ermine Drive, New Castle, Delaware 19720, owned of
record
2,034.947 shares (6.13%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value. The
net asset
value per share of the Fund is computed by dividing the
value of
the assets of the Fund, less its liabilities, by the
number of
shares of the Fund outstanding. For the purposes of
determining
the aggregate net assets of the Fund, cash and
receivables will
be valued at their realizable amounts. A security
listed or
traded on a recognized stock exchange or NASDAQ is
valued at its
last sale price on the principal exchange on which the
security
is traded. 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. If no
sale is
reported at that time, the average between the current
bid and
asked price is used. All other securities for which
OTC market
quotations are readily available are valued at the
average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., Eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either the Fund's
Custodian or
the New York Stock Exchange close early as a result of
such day
being a partial holiday or otherwise, the right is
reserved to
advance the time on that day by which purchase and
redemption
requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The portfolio securities of the Fund will include
equity
securities which are listed on foreign exchanges.
Certain
foreign exchanges may be open on Saturdays and
customary United
States business holidays. As a consequence, the
portfolio
securities of the Fund may be traded, and the net asset
values of
shares of the Fund may be significantly affected, on
days on
which shares of the Fund may not be purchased or
redeemed.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's annualized Portfolio turnover rate
for the
period from November 1, 1994 (commencement of
operations) to
December 31, 1994 was 82%. A Portfolio turnover rate
that
exceeds 100% usually involves correspondingly higher
brokerage
commissions and other transaction costs, which are
borne directly
by the Fund. In addition, net short-term gains
realized from
portfolio transactions are taxable to shareholders as
ordinary
income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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 under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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. In addition, if the Fund invests in
certain
high yield OID obligations issued by corporations, a
portion of
the OID accruing on such obligations may be eligible
for the
deduction for dividends received by corporations. In
such event,
dividends of investment company taxable income received
from the
Fund by its corporate shareholders, to the extent
attributable to
such portion of accrued OID, may be eligible for this
deduction
for dividends received by corporate shareholders if so
designated
by the Fund in a written notice to shareholders.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
pro rata share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his pro
rata
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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, the
maximum 5.75% sales charge is deducted from the initial
$1,000
payment and, for Class B shares and assuming complete
redemption
at the end of the applicable period, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund. The following
table
summarizes the Standardized and Non-Standardized Return
for the
Class A and Class B shares of the Fund for the periods
indicated.
The following table summarizes the calculation of
the
Standardized and Non-Standardized Return for the Class
A and
Class B shares of the Fund for the periods indicated.
NON-STANDARDIZED
STANDARDIZED RETURN[1] RETURN[2]
CLASS A CLASS B CLASS A
CLASS B
Inception[*]
to December
31, 1994:[7] (20.92%)[3] (20.39%)[4] (16.10%)[5]
(16.20%)[6]
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%
The Standardized Return figures for Class B shares
reflect
the deduction of the applicable contingent
deferred sales
charge imposed on a redemption of Class B shares
held for
the period.
[2] The Non-Standardized Return figures for Class A
shares do
not reflect the deduction of any initial or
contingent
deferred sales charge.
[3] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (22.79%).
[4] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (21.88%).
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (18.03%).
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (17.73%).
[7] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Fund was November 1,
1994.
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 Fund
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 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
SINCE
NOVEMBER 1, 1994
Class A (20.92%)
Class B (20.39%)
The following table summarizes the calculation of
Cumulative
Total Return for the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has not been assessed.
CUMULATIVE TOTAL RETURN FOR PERIODS ENDED DECEMBER
31, 1994
SINCE NOVEMBER 1, 1994
Class A (16.10%)
Class B (16.20%)
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return quotation will continue in the future. The Fund
may cite
endorsements or use for comparison its performance
rankings and
listings reported in such newspapers 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
Director
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 Portfolio of Investments as of December 31,
1994, the
Statements of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal year
ended December 31, 1994 and for the period from
November 1, 1994
(commencement of operations) to December 31, 1994,
Financial
Highlights, the Notes to Financial Statements, and the
Report of
Independent Accountants are included in the December
31, 1994
Annual Report to shareholders of the Fund, which is
incorporated
by reference into this SAI. Copies of these financial
statements
and this SAI may be obtained upon request and without
charge from
the Trust at the address and telephone number provided
on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY NEW CENTURY FUND
a series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Statement of Additional Information
April 30, 1995
(as supplemented on January 1, 1996)
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of these portfolios, Ivy New
Century Fund
(the "Fund"). The other twelve portfolios of the Trust
are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
798 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT SECURITIES
HIGH YIELD BONDS
FOREIGN SECURITIES
INVESTING IN EMERGING MARKETS
FORWARD FOREIGN CURRENCY CONTRACTS
REPURCHASE AGREEMENTS
FOREIGN CURRENCIES
RESTRICTED AND ILLIQUID SECURITIES
WARRANTS
AMERICAN DEPOSITORY RECEIPTS (ADRS)
OPTIONS TRANSACTIONS
GENERAL
WRITING OPTIONS ON INDIVIDUAL SECURITIES
PURCHASING OPTIONS ON INDIVIDUAL SECURITIES
PURCHASING AND WRITING OPTIONS ON SECURITIES
INDICES
RISKS OF OPTIONS TRANSACTIONS
SECURITIES INDEX FUTURES CONTRACTS
RISKS OF SECURITIES INDEX FUTURES
COMBINED TRANSACTIONS
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
AUTOMATIC INVESTMENT METHOD
EXCHANGE OF SHARES
INITIAL SALES CHARGE SHARES
CONTINGENT DEFERRED SALES CHARGE SHARES
LETTER OF INTENT
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNTS
QUALIFIED PLANS
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS
REINVESTMENT PRIVILEGE
RIGHTS OF ACCUMULATION
SYSTEMATIC WITHDRAWAL PLAN
GROUP SYSTEMATIC INVESTMENT PROGRAM
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES
DISTRIBUTION SERVICES
CUSTODIAN
FUND ACCOUNTING SERVICES
TRANSFER AGENT AND DIVIDEND PAYING AGENT
ADMINISTRATOR
AUDITORS
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
TAXATION
GENERAL
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD
CONTRACTS
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR
LOSSES
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
DEBT SECURITIES ACQUIRED AT A DISCOUNT
DISTRIBUTIONS
DISPOSITION OF SHARES
FOREIGN WITHHOLDING TAXES
BACKUP WITHHOLDING
OTHER
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
CUMULATIVE TOTAL RETURN
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL
PAPER RATINGS
INVESTMENT OBJECTIVES AND POLICIES
Ivy Fund (the "Trust") is organized as a
diversified, open-
end management investment company with thirteen series
of shares.
One series of the Trust, Ivy New Century Fund (the
"Fund"), is
discussed in this SAI.
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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). The payment of
principal and
interest on these securities is unconditionally
guaranteed by the
U.S. Government, and thus they are of the highest
possible credit
quality. Such securities are subject to variations in
market
value due to fluctuations in interest rates, but, if
held to
maturity, will be paid in full.
Mortgage-backed securities are securities
representing part
ownership of a pool of mortgage loans. For example,
GNMA
certificates are such securities on 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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of such
certificates.
Accordingly, it is not possible to predict accurately
the average
life of a particular pool. Reinvestment of prepayments
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,
GNMA
certificates can be less effective than typical bonds
of similar
maturities at "locking in" yields during periods of
declining
interest rates. GNMA certificates 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; and 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, and
Student
Loan Marketing Association.
HIGH YIELD BONDS
The Fund may invest in corporate debt securities
rated Baa
or lower by Moody's Investors Service, Inc.
("Moody's"), BB or
lower by Standard & Poor's Corporation ("S&P"). The
Fund will
not, however, invest in securities that, at the time of
investment, are rated lower than C by either Moody's or
S&P.
Securities rated Baa or BBB (and comparable unrated
securities)
are considered by major credit-rating organizations to
have
speculative elements as well as investment-grade
characteristics.
Securities rated lower than Baa or BBB (and comparable
unrated
securities) are commonly referred to as "high yield" or
"junk"
bonds and 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. See Appendix A for a more complete
description of
the ratings assigned by Moody's and S&P and their
respective
characteristics.
While IMI may refer to ratings issued by
established credit
rating agencies, it is not IMI's policy to rely
exclusively on
such ratings, but rather to supplement such ratings
with its own
independent and ongoing review of credit quality. The
Fund's
achievement of its investment objective may, to the
extent of its
investment in high yield bonds, be more dependent upon
IMI's
credit analysis than would be the case if the Fund were
investing
in higher quality bonds. Should the rating of a
portfolio
security be downgraded, IMI will determine whether it
is in the
Fund's best interest to retain or dispose of the
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.
The secondary market on which high yield bonds are
traded
may be less liquid than the market for higher grade
bonds. Less
liquidity in the secondary trading market could
adversely affect
the price at which the Fund could sell a high yield
bond, and
could adversely affect 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 high
yield
bonds, especially in a thinly traded market. When
secondary
markets for high yield securities are less liquid than
the
markets for higher grade securities, it may be more
difficult to
value the securities because such valuation may require
more
research, and elements of judgment may play a greater
role in the
valuation because there is less reliable, objective
data
available.
Furthermore, prices for high yield bonds may be
affected by
legislative and regulatory developments. For example,
federal
rules require savings and loan institutions to reduce
gradually
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 on
these securities and regulate corporate restructurings.
Such
legislation may significantly depress the prices of
outstanding
securities of this type.
FOREIGN SECURITIES
The Fund may invest in debt securities of foreign
issuers,
including non-U.S. dollar-denominated debt securities,
Eurodollar
securities and debt securities issued, assumed or
guaranteed by
foreign governments or political subdivisions or the
instrumentalities thereof. Investors 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 domestic
investments.
Although the Fund intends to invest only in nations
that IMI
considers to have relatively stable and friendly
governments,
there is the possibility of expropriation,
nationalization or
confiscatory taxation, taxation of 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 in 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
in reports
about companies in the United States. For example,
ownership of
unsponsored ADRs may not entitle the owner to financial
or other
reports from the issuer to which it might otherwise be
entitled
as the owner of a sponsored ADR. 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
government
supervision and regulation of business and industry
practices,
stock exchanges, brokers and listed companies than in
the United
Sates. Foreign securities transactions may 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.
Further, the Fund may encounter difficulties or be
unable to
pursue legal remedies and obtain judgment in foreign
courts.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
contracts
("forward contracts"). 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), which 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. Such imperfect
correlation
may prevent the Fund from achieving the intended hedge
or expose
the Fund to the risk of currency exchange loss.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contracts would obligate the Fund to deliver an amount
of
currency in excess of the value of the Fund's portfolio
securi-
ties or other assets denominated in that currency.
Further, the
Fund generally will not enter into a forward contract
with a term
of greater than one year.
The Fund will hold U.S. Government securities or
other high-
grade debt securities in a segregated account with its
Custodian
in an amount equal (on a daily marked-to-market basis)
to the
amount of the commitments under these contracts. At
the maturity
of a forward contract, the Fund may either accept or
make
delivery of the currency specified in the contract, or,
prior to
maturity, enter into a closing purchase transaction
involving the
purchase or sale of an offsetting contract. Closing
purchase
transactions with respect to forward contracts are
usually
effected with the currency trader who is a party to the
original
forward contract.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements.
Repurchase
agreements are agreements 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. The Fund will not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities including such repurchase
agreements. The
Fund may enter into repurchase agreements with banks or
broker-
dealers deemed to be creditworthy by IMI under
guidelines
approved by the Board of Trustees. In the 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.
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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, as amended (the "1933 Act"), and any other
illiquid
securities (including repurchase agreements of more
than seven
days duration and other securities which are not
readily
marketable) may not constitute, at the time of
purchase, more
than 10% of the value of the Fund's net assets.
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. Restricted
securities
may be sold only in privately negotiated transactions
or in a
public offering with respect to which a registration
statement is
in effect under the 1933 Act. Where a registration
statement is
required, the Fund may be required to bear all or part
of the
registration expenses. There may be a lapse of time
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. If, during such a period, adverse market
conditions
were to develop, the Fund might obtain a price less
favorable
than the price that prevailed when it decided to sell.
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, the Fund will carefully monitor each of its
investments in these securities, focusing on such
important
factors, among others, as valuation, liquidity and
availability
of information. This investment practice could have
the effect
of increasing the level of illiquidity of the Fund to
the extent
that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
WARRANTS
The Fund may invest in warrants. The Fund's
investments in
warrants, valued at the lower of cost or market, will
not exceed
5% of the value of its net assets. Included within
that amount,
but not to exceed 2% of the Fund's net assets, may be
warrants
that are not listed on either the New York or the
American Stock
Exchanges. Warrants acquired by the Fund in units or
attached to
securities will be deemed to be without value for
purposes of
this restriction.
The holder of a warrant has the right to purchase
a given
number of shares of a particular issuer at a specified
price
until expiration of the warrant. Such investments can
provide a
greater potential for profit or loss than an equivalent
investment in the underlying security. Prices of
warrants do not
necessarily move in tandem with the prices of the
underlying
securities, and are speculative investments. Warrants
pay no
dividends and confer no rights other than a purchase
option. If
a warrant is not exercised by the date of its
expiration, the
Fund will lose its entire investment in such warrant.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
might otherwise be entitled as the owner of sponsored
ADRs.
OPTIONS TRANSACTIONS
GENERAL. The Fund may engage in transactions in
options on
securities and stock indices in accordance with the
Fund's stated
investment objective and policies. The Fund may sell
(write)
covered call options on securities owned by the Fund
with respect
to not more than 25% of the Fund's net assets (although
it is not
currently contemplated that the Fund will write such
options on
more than 5% of its assets). The Fund may also
purchase put
options on securities and may purchase and sell (write)
put and
call options on securities indices. Options on
securities and
securities indices purchased or written by the Fund
will be
limited to options traded on national securities
exchanges,
boards of trade or similar entities, or in the OTC
markets (such
OTC options together with any other illiquid securities
shall not
be in an amount exceeding 10% of the Fund's assets).
The Fund
will not purchase put and call options if the aggregate
premium
paid for such options would exceed 5% of its total
assets at the
time of purchase.
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 an 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
cancelled 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.
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 which 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 a 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 IMI does not anticipate significant appreciation
of the
underlying security in the near future or has otherwise
determined to dispose of the security.
The Fund may write covered call options as
described in the
Fund's Prospectus. 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 which 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 will purchase put options only to the
extent
permitted by the policies of state securities
authorities in
states where shares of the Fund are qualified for offer
and sale.
Such authorities may impose further limitations on the
ability of
the Fund to purchase options. The Fund may write
(sell) put
options on individual securities only to effect a
"closing sale
transaction."
PURCHASING AND WRITING OPTIONS ON SECURITIES
INDICES. The
Fund may purchase and sell (write) put and call options
on
securities indices. An index assigns relative values
to the
securities included in the index and the index
fluctuates with
changes in the market values of the securities so
included.
Options on securities indices are similar to options on
individual securities, except that, rather than giving
the
purchaser the right to take delivery of an individual
security at
a specified price, they give the purchaser the right to
receive
cash. The amount of cash is equal to the difference
between the
closing price of the index and the exercise price of
the option,
expressed in dollars, times a specified multiple (the
"multiplier"). The writer of the option is obligated,
in return
for the premium received, to make delivery of this
amount.
The multiplier for an index option performs a
function
similar to the unit of trading for a stock option. It
determines
the total dollar value per contract of each point in
the
difference between the exercise price of an option and
the
current level of the underlying index. A multiplier of
100 means
that a one-point difference will yield $100. Options
on
different indices have different multipliers.
When the Fund writes a call or put option on a
stock index,
the option is "covered", in the case of a call, or
"secured", in
the case of a put, if the Fund maintains in a
segregated account
with the Custodian cash, U.S. Government securities or
other
high-grade debt securities equal to the contract value.
A call
option is also covered if the Fund holds a call on the
same index
as the call written where the exercise price of the
call held is
(i) equal to or less than the exercise price of the
call written
or (ii) greater than the exercise price of the call
written,
provided that the Fund maintains in a segregated
account with the
Custodian the difference in cash, U.S. Government
securities or
other high-grade debt securities. A put option is also
"secured"
if the Fund holds a put on the same index as the put
written
where the exercise price of the put held is (i) equal
to or
greater than the exercise price of the put written or
(ii) less
than the exercise price of the put written, provided
that the
Fund maintains in a segregated account with the
Custodian the
difference in cash, U.S. Government securities or other
high-
grade debt securities.
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 an 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. 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. 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.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
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 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 stock 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 securities 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, U.S. Government securities, or other high-grade
debt
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)
liquid assets 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).
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
INVESTMENT RESTRICTIONS
The Fund's investment objective, as set forth in
the
Prospectus under "Investment Objectives and Policies,"
and the
investment restrictions set forth below are fundamental
policies
of the Fund and may not be changed with respect to the
Fund
without the approval of a majority (as defined by the
1940 Act)
of the outstanding voting shares of the Fund. Under
these
restrictions, the Fund may not:
(i) borrow money, except for temporary or
emergency
purposes; provided that the Fund maintains
asset
coverage of 300% for all borrowings;
(ii) purchase securities on margin;
(iii) sell securities short;
(iv) lend any funds or other assets, except that
this
restriction shall not prohibit (a) the entry
into
repurchase agreements, (b) the purchase of
publicly
distributed bonds, debentures and other
securities of
a similar type, or privately placed
municipal or
corporate bonds, debentures and other
securities of a
type customarily purchased by institutional
investors
or publicly traded in the securities
markets, or (c)
the lending of portfolio securities
(provided that
the loan is secured continuously by
collateral
consisting of U.S. Government securities or
cash or
cash equivalents maintained on a daily
marked-to-
market basis in an amount at least equal to
the
market value of the securities loaned;
(v) participate in an underwriting or selling
group in
connection with the public distribution of
securities
except for its own capital stock;
(vi) purchase from or sell to any of its officers
or
trustees, or firms of which any of them are
members
or which they control, any securities (other
than
capital stock of the Fund), but such persons
or firms
may act as brokers for the Fund for
customary
commissions to the extent permitted by the
Investment
Company Act of 1940;
(vii) purchase or sell real estate or commodities
and
commodity contracts;
(viii) make an investment in securities of
companies in any
one industry (except obligations of domestic
banks or
the U.S. Government, its agencies,
authorities, or
instrumentalities) if such investment would
cause
investments in such industry to exceed 25%
of the
market value of the Fund's total assets at
the time
of such investment;
(ix) issue senior securities, except as
appropriate to
evidence indebtedness which it is permitted
to incur,
and except to the extent that shares of the
separate
classes or series of the Trust may be deemed
to be
senior securities; provided that collateral
arrangements with respect to
currency-related
contracts, futures contracts, options or
other
permitted investments, including deposits of
initial
and variation margin, are not considered to
be the
issuance of senior securities for purposes
of this
restriction; or
(x) purchase securities of any one issuer
(except U.S.
Government securities) if as a result more
than 5% of
the Fund's total assets would be invested in
such
issuer or the Fund would own or hold more
than 10% of
the outstanding voting securities of that
issuer;
provided, however, that up to 25% of the
value of the
Fund's total assets may be invested without
regard to
these limitations.
Under the 1940 Act, the Fund is permitted, subject
to the
above investment restrictions, to borrow money only
from banks.
The Trust has no current intention of borrowing amounts
in excess
of 5% of the Fund's assets. The Fund will continue to
interpret
fundamental investment restriction (vii) to prohibit
investment
in real estate limited partnership interests; this
restriction
shall not, however, prohibit investment in readily
marketable
securities of companies that invest in real estate or
interests
therein, including real estate investment trusts.
ADDITIONAL RESTRICTIONS
Unless otherwise indicated, 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 in oil, gas or other mineral leases
or
exploration or development programs;
(ii) engage in the purchase and sale of puts,
calls,
straddles or spreads (except to the extent
described
in the Prospectus and in this SAI);
(iii) invest in companies for the purpose of
exercising
control of management;
(iv) invest more than 5% of its total assets in
warrants,
valued at the lower of cost or market, or
more than
2% of its total assets in warrants, so
valued, which
are not listed on either the New York or
American
Stock Exchanges;
(v) invest more than 5% of the value of its
total assets
in the securities of unseasoned issuers,
including
their predecessors, which have been in
operation for
less than three years;
(vi) purchase or retain securities of any company
if
officers and Trustees of the Trust and
officers and
directors of Ivy Management, Inc., MIMI or
Mackenzie
Financial Corporation who individually own
more than
1/2 of 1% of the securities of that company
together
own beneficially more than 5% of such
securities;
(vii) 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 or
by any
state in which its shares are registered; or
(viii) invest more than 15% of its net assets taken
at
market value at the time of investment in
"illiquid
securities", provided, however, that the
Fund will
not invest more than 10% of its total assets
in
securities of issuers that are restricted
from
selling to the public without registration
under the
Securities act of 1933. 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 a fund
has
written, securities for which market
quotations are
not readily available, or other securities
which
legally or in IMI'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, to the Fund's compliance
with
certain conditions intended to provide
liquidity, or
to other factors, is liquid.
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.
In addition to the above restrictions, so long as
it remains
a policy of the California Department of Corporations,
the Fund
may purchase and sell OTC options on stock indices if
(a)
exchange-traded options are not available, (b) an
active OTC
market exists that establishes pricing and liquidity,
and
(c) the broker-dealers with whom the Fund enters into
such
transactions have a minimum net worth of $20 million.
Moreover,
so long as it remains a restriction of the Ohio
Division of
Securities, the Fund will treat securities eligible for
resale
under Rule 144A of the Securities Act of 1933 as
subject to the
Fund's restriction on investing in restricted
securities.
Finally, with respect to the investment restrictions
set forth in
paragraphs (v), (vii) and (viii) above, the Fund will
notify
shareholders 30 days before changing its investment
policies with
respect to any of the investment practices described
therein.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy International Bond Fund, Ivy Canada
Fund, Ivy
Global Fund, Ivy Bond Fund, Ivy Short-Term Bond Fund,
and Ivy
Money Market Fund, the other twelve series of Ivy Fund;
and
Mackenzie California Municipal Fund, Mackenzie Florida
Limited
Term Municipal Fund, Mackenzie Limited Term Municipal
Fund,
Mackenzie National Municipal Fund and Mackenzie New
York
Municipal Fund, the five series of Mackenzie Series
Trust
(collectively, with the Funds, the "Ivy Mackenzie
Funds").
Investors should obtain a current prospectus before
exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt of telephone instructions by The Mackenzie
Ivy
Investor Services Corp. ("MIISC") or written notice to
MIISC from
the investor. See "Automatic Investment Method" in the
New
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy Latin America Strategy Fund,
Ivy
International Bond Fund, Ivy Bond Fund and Ivy China
Region Fund
("Table 1 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Florida
Limited Term
Municipal Fund, Mackenzie Limited Term Municipal Fund
and Ivy
Short-Term Bond Fund ("Table 2 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 3%
Second 2
1/2%
Third 2%
Fourth 1
1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2 1/2% contingent
deferred
sales charge that generally would apply to a redemption
of
outstanding Class B shares held for two years would not
be
deducted at the time of the exchange. If, three years
later, the
investor redeems the new Class B shares, a 2%
contingent deferred
sales charge will be assessed upon the redemption
because by
"tacking" the two year holding period of the
outstanding Class B
shares onto the three year holding period of the new
Class B
shares, the investor will be deemed to have held the
new Class B
shares for five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can legally be made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund generally will result in a
taxable
gain or loss. Generally, any such taxable gain or loss
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 New Account Application in the Fund's
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 the value (at the applicable offering price) of
all
Class A shares of the Fund, Ivy Growth Fund, Ivy Growth
with
Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund,
Ivy China Region Fund, Ivy Latin America Strategy Fund,
Ivy
Short-Term Bond Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Mackenzie National
Municipal
Fund, Mackenzie California Municipal Fund, Mackenzie
Limited Term
Municipal Fund, Mackenzie Florida Limited Term
Municipal Fund and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds) held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. 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 MIFDI
an amount
equal to the difference between the dollar amount of
sales charge
which 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
thereof before
signing.
RETIREMENT PLANS
Shares of the Fund may be purchased in connection
with
several types of tax-deferred retirement plans. Shares
of more
than one fund distributed by MIFDI may be purchased in
a single
application establishing a single plan account, and
shares held
in such an account may be exchanged among the funds in
the Ivy
Mackenzie 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
account
For shareholders whose retirement accounts are
diversified across
more than two funds in the Ivy Mackenzie Funds, the
annual
maintenance fee will be limited to not more than $20.
The following discussion describes in general
terms 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
Trust 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 MIISC, which may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a fund
which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of either spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS. For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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 Retirement
Plan.
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
$150,00 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 furnish custodial services
to the
employer and the employees, if any are included as
participants.
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 Fund in
conjunction with
such an arrangement. The sales charge for purchases of
less than
$10,000 of Class A shares is set forth under "403(b)(7)
Retirement Plans" in the Fund's Prospectus. Sales
charges for
purchases of $10,000 or more of Class A shares are the
same as
those set forth under "Initial Sales Charge
Alternative--Class A
Shares" in the Prospectus. The special application for
a
403(b)(7) Account is available from MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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 the
transfer agent 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 charge 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 for
the Fund. 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).
(The reduced
sales charge does not apply to purchases of Class A
shares of the
Fund by 403(b)(7) retirement plan accounts.) The
reduced sales
charge is also applicable to current purchases of all
of the
funds in the Ivy Mackenzie Funds (except Ivy Money
Market Fund)
by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy International Bond Fund, Ivy Bond
Fund, Ivy
Short-Term Bond Fund, Ivy Canada Fund, Ivy Global Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund,
Mackenzie New York Municipal Fund, Mackenzie Limited
Term
Municipal Fund and Mackenzie Florida Limited Term
Municipal Fund
(and shares that have been exchanged into Ivy Money
Market Fund
from any of the other funds in the Ivy Mackenzie Funds)
and of
any other investment company distributed by MIFDI,
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 or
more for
the Fund, Ivy Growth Fund, Ivy Growth with Income Fund,
Ivy
Emerging Growth Fund, Ivy International Fund, Ivy
International
Bond Fund, Ivy China Region Fund, Ivy Latin America
Strategy
Fund, Ivy Canada Fund and Ivy Global Fund; $100,000 or
more for
Ivy Bond Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund and Mackenzie New York
Municipal Fund;
$25,000 or more for Mackenzie Florida Limited Term
Municipal Fund
and Mackenzie Limited Term Municipal Fund; or
$1,000,000 or more
for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIMI, in
the case of
a wire order, or MIISC, in the case of a direct mail
remittance,
must be notified by the investor or his dealer that the
investment qualifies for the reduced charge on the
basis of
previous investments. The reduced charge is subject to
confirmation of the investor's holdings through a check
of the
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan
(the "Withdrawal Plan") by telephone instructions to
MIISC or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him. A Withdrawal Plan may not be established if the
investor is
currently participating in the Automatic Investment
Method. The
Withdrawal Plan may involve the use of principal and,
to the
extent that it does, depending on the amount withdrawn,
the
investor's principal may be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in the Fund made by
investors
participating in the Withdrawal Plan must equal at
least $1,000
each while the Withdrawal Plan is in effect. Making
additional
purchases while the Withdrawal Plan is in effect may be
disadvantageous to the investor because of applicable
initial or
contingent deferred sales charges.
An investor may terminate his participation in the
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIMI may terminate the Withdrawal Plan 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 Purchase 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
any purchase or suspend the offering of shares in
connection with
group systematic investment programs at any time 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) for each twelve-month
period
(or portion thereof) 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.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by IMI in connection with
the services
it provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers that provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
During the period from November 1, 1994
(commencement of
operations) to December 31, 1994, the Fund paid
brokerage
commissions of $2,611. During that period, the Fund
paid no
brokerage fees to Brown Brothers Harriman & Co. ("Brown
Brothers").
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned 18.29% of the outstanding Class A
shares and
none of the outstanding Class B shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved by the sole
shareholder of the Fund on October 28, 1994. Prior to
approval
by the sole shareholder, the Agreement was approved on
September
17, 1994, with respect to the Fund, by the Board of
Trustees,
including a majority of the Trustees who are neither
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have any
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). IMI also acts
as manager
and investment adviser to the following investment
companies
registered under the 1940 Act: Ivy Emerging Growth
Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy Bond
Fund, Ivy
Short-Term Bond Fund, Ivy International Bond Fund, Ivy
International Fund, Ivy Global Fund, Ivy Latin America
Fund, Ivy
Canada Fund, China Region Fund and Ivy Money Market
Fund. IMI is
a wholly owned subsidiary of MIMI. MIMI currently acts
as
manager and investment adviser to the following
investment
companies registered under the 1940 Act: Mackenzie
National
Municipal Fund, Mackenzie New York Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Limited Term
Municipal Fund
and Mackenzie Florida Limited Term Municipal Fund.
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 Toronto Stock Exchange. MFC is
registered in
Ontario as a mutual fund dealer and advises Ivy Canada
Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
1.00% of the
Fund's average daily net assets. During the period
from November
1, 1994 (commencement of operations) to December 31,
1994, IMI
received fees of $912 from the Fund.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
Required
expense reimbursements for the Fund for the two months
ended
December 31, 1994 were $16,415.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses,
and other
extraordinary expenses) to an annual rate of 1.95% of
the Fund's
average daily net assets. As long as the Fund's
expense
limitation continues, it may lower the Fund's expense
and
increase its yield. The Fund's expense limitation may
be
terminated or revised at any time, at which time the
Fund's
expense may increase and its yield may be reduced,
depending on
the total assets of the Fund. Voluntary expense
reimbursements
for the Fund for the two months ended December 31, 1994
were
$502.
The initial term of the Agreement between IMI and
the Fund
commenced on October 30, 1994 and will run for a period
of two
years from that date. The Agreement will continue in
effect with
respect to the Fund for more than the initial period
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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of the
Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A and
Class B shares of the Fund under an Amended and
Restated
Distribution Agreement with the Trust dated October 29,
1994 (the
"Distribution Agreement"). Effective October 1, 1993,
MIFDI, a
wholly-owned subsidiary of MIMI, succeeded to and is
continuing
MIMI's broker-dealer activities. MIFDI 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 MIFDI. MIFDI distributes shares
of the
Fund on a continuous basis, but reserves the right to
suspend or
discontinue distribution on such basis. MIFDI is not
obligated
to sell any specific amount of Fund shares. Pursuant
to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. During the period from November 1,
1994
(commencement of operations) to December 31, 1994,
MIFDI received
from sales of Class A Shares of the Fund $5,766 in
sales
commissions, of which $865 as retained after dealer re-
allowances. Furthermore, MIFDI is entitled to deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. During the period from
November 1,
1994 (commencement of operations) to December 31, 1994,
MIFDI
received no contingent deferred sales charges on
redemptions of
Class B Shares of the Fund.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, payments made out of or charged
against the
assets attributable to the Fund's Class A or Class B
shares must
be in reimbursement for services rendered for or on
behalf of
that Class of the Fund. The expenses not reimbursed in
any one
given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review. During
the period
from November 1, 1994 (commencement of operations) to
December
31, 1994, the Fund paid MIFDI $196 pursuant to the
Class A plan.
During the period from November 1, 1994 (commencement
of
operations) to December 31, 1994, the Fund paid MIFDI
$124
pursuant to the Class B plan.
During the period from November 1, 1994
(commencement of
operations) through December 31, 1994, MIFDI expended
the
following amounts in marketing Class A shares of the
Fund:
advertising, $30; printing and mailing of prospectuses
to persons
other than current shareholders, $1,700; compensation
to dealers,
$629; compensation to sales personnel, $574, seminars
and
meetings, $157; travel and entertainment, $158; general
and
administrative, $218; telephone, $22; and occupancy and
equipment
rental, $44.
During the period from November 1, 1994
(commencement of
operations) through December 31, 1994, MIFDI expended
the
following amounts in marketing Class B shares of the
Fund:
advertising, $5; printing and mailing of prospectuses
to persons
other than current shareholders, $267; compensation to
dealers,
$99; compensation to sales personnel, $90; seminars and
meetings,
$25; travel and entertainment, $25; general and
administrative,
$34; telephone, $ 3; and occupancy and equipment
rental, $8.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or renewed).
CUSTODIAN
Brown Brothers, a private bank and member of the
principal
securities exchanges located at 40 Water Street,
Boston,
Massachusetts 02109, acts as custodian for the Trust's
securities
and cash pursuant to a Custodian Agreement with the
Trust, on
behalf of the Fund. 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, Brown Brothers Harriman & Co.
has
entered into subcustodial agreements for the holding of
the
Fund's foreign securities. Brown Brothers may receive,
as
partial payment for its services, 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. During
the period from November 1, 1994 (commencement of
operations) to
December 31, 1994, the Fund paid MIMI $2,505 under the
agreement.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.00 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. Such fees and expenses
for the
two months from November 1, 1994 (commencement of
operations)
through December 31, 1994 totalled $140.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. Such
fees for the two months from November 1, 1994
(commencement of
operations) through December 31, 1994 totalled $91.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation of the Trust's
tax
returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term Bond
Fund, Ivy
Growth Fund, Ivy Emerging Growth Fund, Ivy Growth with
Income
Fund, Ivy International Fund, Ivy Money Market Fund,
Ivy China
Region Fund and Ivy Latin America Strategy Fund, as
well as Class
I for Ivy Short-Term Bond Fund, Ivy Bond Fund and Ivy
International Fund. In addition, the Trustees have
authorized an
additional class, Class C, for Ivy Growth with Income
Fund issued
only to shareholders of Mackenzie Growth & Income Fund,
a former
series of The Mackenzie Funds Inc., in connection with
the
reorganization between that fund and Ivy Growth with
Income Fund
and not offered for sale to the public.
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
Amended and Restated Declaration of Trust. Shares of
each class
of the Fund entitle their holders to one vote per share
(with
proportionate voting for fractional shares). All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act.
Shareholders of
the Fund vote separately by Fund on any matter
submitted to
shareholders, except when otherwise required by the
1940 Act, in
which case the shareholders of all funds of the Trust
affected by
the matter in question will vote together. 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the 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 Fund's 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned of record or beneficially 5% or more
of the
Fund's outstanding shares, except that of the
outstanding Class A
shares of the Fund, M. G. Landry, 1001 SW 2nd Avenue,
Boca Raton,
Florida 33432, owned of record 16,868.60 shares
(18.28%),
Donaldson Lufkin Jenrette Securities Corporation Inc.,
P.O. Box
2052, Jersey City, New Jersey 07303, owned of record
12,675.00
shares (13.74%), and Mackenzie Investment Management,
Inc., 700
South Federal Highway, Boca Raton, Florida 33432, owned
of record
6,798.451 shares (7.37%); and except that of the
outstanding
Class B shares of the Fund, D. Santi, 10875-6 Scripps
Ranch
Blvd., San Diego, California 92131, owned of record
3,144.654
shares (9.06%), Resources Trust Company (custodian) FBO
A.
McFarlan, P.O. Box 5900, Denver, Colorado 80217, owned
of record
2,718.308 shares (7.83%), and Paine Webber FBO R.
Kapche, 1231
Emerald Green Lane, Houston, Texas 77094, owned of
record
2,657.000 shares (7.65%).
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
Portfolio securities are valued and the net asset
value per
share of the Fund is determined as of the close of
regular
trading on the Exchange (normally 4:00 p.m., eastern
time) every
Monday through Friday (exclusive of national business
holidays).
The Trust's offices will be closed, and net asset value
will not
be calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
put
option will be deducted from its assets and an equal
amount will
be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Accounting for futures contracts and options on
futures
contracts and on certain bond indices will be in
accordance with
generally accepted accounting principles.
The portfolio securities of the Fund will include
equity
securities which are listed on foreign exchanges.
Certain
foreign exchanges may be open on Saturdays and
customary United
States business holidays. As a consequence, the
portfolio
securities of the Fund may be traded, and the net asset
values of
shares of the Fund may be significantly affected, on
days on
which shares of the Fund may not be purchased or
redeemed.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the period
from
November 1, 1994 (commencement of operations) to
December 31,
1994 was 0%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 closing) 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 fairly to
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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, the Trust may
redeem
those accounts of shareholders who have maintained an
investment,
including sales charges paid, of less than $1,000 ($250
for
retirement plans) 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 sum
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 proceeds
thereof to
the shareholder. However, those shareholders who are
investing
pursuant to the Automatic Investment Method or Group
Systematic
Investment Program 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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, as of the close of business on the first
business day
after the last day of the calendar quarter in which 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: (i) 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 gains 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
gains distributions.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL. 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;
(b) derive
in each taxable year less than 30% of its gross income
from the
sale or other disposition of certain assets held less
than three
months, namely: (i) stock or securities; (ii) options,
futures,
or forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward
contracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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 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.
Certain 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 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
under 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 a fund that did
not engage
in such transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
and forward contracts.
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 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. If section 988 losses
exceed
other investment company taxable income during a
taxable year,
the Fund would not be able to make any ordinary
dividend
distributions, or distributions made before the losses
were
realized would be recharacterized as a return of
capital to
shareholders, rather than as an ordinary dividend,
reducing each
shareholder's basis in his Fund shares.
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. Under an 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. If this
election
were made, the special rules, discussed above, relating
to the
taxation of excess distributions, would not apply.
Alternatively, the Fund may be able to elect to mark to
market
its PFIC stock, resulting in the stock 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, and any
resulting loss would not be recognized. If the Fund
makes this
election, the special rules described above with
respect to
excess distributions would still apply. The Fund's
intention to
qualify annually as a regulated investment company may
limit its
elections with respect to PFIC shares.
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. In addition, if the Fund invests in
certain
high yield OID obligations issued by corporations, a
portion of
the OID accruing on such obligations may be eligible
for the
deduction for dividends received by corporations. In
such event,
dividends of investment company taxable income received
from the
Fund by its corporate shareholders, to the extent
attributable to
such portion of accrued OID, may be eligible for this
deduction
for dividends received by corporate shareholders if so
designated
by the Fund in a written notice to shareholders.
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 includible 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 as
long-term capital gains, whether paid in cash or in
shares,
regardless of how long the shareholder has held the
Fund's shares
and are not eligible for the dividends received
deduction. A
distribution of an amount in excess of the Fund's
current and
accumulated earnings and profits will be treated as a
return of
capital which is applied against and reduces a
shareholder's
basis in his or her shares. To the extent that the
amount of any
such distribution exceeds a 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
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 reinvestment date.
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. Investors
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 generally 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 generally 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 a 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 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 intends to
elect to
"pass-through" to the Fund's 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
pro rata share of the foreign income and similar taxes
paid by
the Fund, and will be entitled either to deduct his pro
rata
share of foreign income and similar taxes in computing
his
taxable income or to use it as a foreign tax credit
against his
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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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 (the "IRS") all
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 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.
OTHER. 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 its
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.
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this SAI, advertising or
sales
literature are calculated by standard methods
prescribed by the
SEC. The Fund's standardized average annual total
return
quotations may be accompanied by non-standardized total
return
quotations. Performance information is computed
separately for
the Fund's Class A and Class B shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
Standardized
average annual total return ("Standardized Return")
quotations
for a specific Class of shares of the Fund are computed
by
finding 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
specified 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 a designated
period (or
fractional portion thereof).
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 shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
The following table summarizes the calculation of
the
standardized and non-standardized return for the Class
A and
Class B Shares of the Fund for the periods indicated.
STANDARDIZED RETURN[1] NON-STANDARIZED
RETURN[2]
CLASS A CLASS B CLASS A
CLASS B
Inception* to
December 31,
1994[7]: (18.48%)[3] (17.92%)[4] (13.50%)[5]%
(13.60%)[6]
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 5.75%
The standardized figures for Class B shares
reflect the
deduction of the applicable contingent deferred
sales charge
imposed on a redemption of Class B shares held for
the
period.
[2] The Non-Standardized Return figures for Class A
shares do
not reflect the deduction of any initial or
contingent
deferred sales charge.
[3] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (20.07%).
[4] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (19.48%).
[5] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (15.15%).
[6] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (15.25%).
[7] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[*] The inception date for the Fund was November 1,
1994.
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
Fund 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 the Class A and Class B shares of the
Fund for
the periods indicated, assuming the maximum 5.75% sales
charge
has been assessed.
CUMULATIVE TOTAL RETURN FOR
PERIODS
ENDED DECEMBER 31, 1994
SINCE
NOVEMBER 1, 1994
Class A (18.48%)
Class B (17.92%)
The following table summarizes the calculation of
Total
Return for the Class A and Class B shares of the Fund
for the
periods indicated, assuming the maximum 5.75% sales
charge has
not been assessed.
CUMULATIVE TOTAL RETURN FOR
PERIODS
ENDED DECEMBER 31, 1994
SINCE
NOVEMBER 1, 1994
Class A (13.50%)
Class B (13.60%)
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return 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 Director 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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended
December 31,
1994, the Statement of Changes in Net Assets for the
fiscal year
ended December 31, 1994 and for the period from
November 1, 1994
(commencement of operations) to December 31, 1994,
Financial
Highlights, the Notes to Financial Statements, and the
Report of
Independent Accountants are included in the December
31, 1994
Annual Report to shareholders of the Fund, which is
incorporated
by reference into this SAI. Copies of these financial
statements
and this SAI may be obtained upon request and without
charge from
the Trust at the address and telephone number provided
on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY SHORT-TERM BOND FUND
a series of
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 18, 1995
(as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of the portfolios, Ivy Short-Term
Bond Fund
(the "Fund"). The other twelve portfolios of the
Company are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 18, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES
COMMERCIAL PAPER
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
REPURCHASE AGREEMENTS
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED
SECURITIES
U.S. GOVERNMENT SECURITIES
MORTGAGE-RELATED SECURITIES
ADJUSTABLE RATE MORTGAGE SECURITIES
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
CAPS AND FLOORS
LOANS OF PORTFOLIO SECURITIES
BORROWING
RESTRICTED AND ILLIQUID SECURITIES
WARRANTS
AMERICAN DEPOSITORY RECEIPTS (ADRS)
FOREIGN SECURITIES
INVESTING IN EMERGING MARKETS
FORWARD FOREIGN CURRENCY CONTRACTS
ADJUSTABLE RATE PREFERRED STOCKS
HIGH YIELD BONDS
ZERO COUPON BONDS
OPTIONS TRANSACTIONS, FUTURES CONTRACTS AND
OPTIONS ON
FUTURES CONTRACTS
OPTIONS TRANSACTIONS
GENERAL
WRITING CALL OPTIONS ON INDIVIDUAL
SECURITIES
RISKS OF OPTIONS TRANSACTIONS
FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS
GENERAL
INTEREST RATE FUTURES CONTRACTS
OPTIONS ON INTEREST RATE FUTURES
CONTRACTS
FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED OPTIONS
RISKS ASSOCIATED WITH FUTURES AND
RELATED
OPTIONS
COMBINED TRANSACTIONS
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
AUTOMATIC INVESTMENT METHOD
EXCHANGE OF SHARES
CLASS A
CLASS B
CLASS I
LETTER OF INTENT
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNTS
QUALIFIED PLANS
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS
REINVESTMENT PRIVILEGE
RIGHTS OF ACCUMULATION
SYSTEMATIC WITHDRAWAL PLAN
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES
DISTRIBUTION SERVICES
CUSTODIAN
FUND ACCOUNTING SERVICES
TRANSFER AGENT AND DIVIDEND PAYING AGENT
ADMINISTRATOR
AUDITORS
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
TAXATION
DISTRIBUTIONS
DISPOSITION OF SHARES
DEBT SECURITIES ACQUIRED AT A DISCOUNT
OPTIONS AND HEDGING TRANSACTIONS
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR
LOSSES
FOREIGN WITHHOLDING TAXES
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
BACKUP WITHHOLDING
PERFORMANCE INFORMATION
YIELD
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
CUMULATIVE TOTAL RETURN
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL PAPER
RATINGS
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
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, at the date of investment, is
rated A-1 by
Standard & Poor's Corporation ("S&P") or Prime-1 by
Moody's
Investors Service, Inc. ("Moody's") or, if not rated by
Moody's
or S&P, issued by companies having an outstanding debt
issue
rated AAA or AA by S&P or Aaa or Aa by Moody's.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable
certificates issued
against funds deposited in a commercial bank (or a
savings and
loan institution) for a definite period of time and
earning a
specified return. Time deposits are generally similar
to
certificates of deposits, but are uncertificated.
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 on
maturity. The Fund may invest in certificates of
deposit, time
deposits and bankers' acceptances subject to the
requirements set
forth in the Fund's Prospectus.
REPURCHASE AGREEMENTS
The Fund may enter into 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. The Fund may not enter into a
repurchase
agreement with more than seven days to maturity if, as
a result,
more than 10% of the Fund's net assets would be
invested in
illiquid securities, including such repurchase
agreements. Under
guidelines approved by the Trust's Board of Trustees,
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 Ivy
Management,
Inc., the Fund's investment adviser ("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 guidelines approved by the
Board of
Trustees. 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.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Fund may purchase securities on a firm
commitment or
when-issued basis. New issues of certain debt
securities are
often offered on a when-issued basis; that is, 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 transactions are entered into 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. The
Fund will
maintain in a segregated account with its custodian
cash, U.S.
Government securities, or other high-grade debt
securities equal
(on a daily marked-to-market basis) to the amount of
its
commitment to purchase the securities on a when-issued
or firm
commitment basis.
Securities purchased on a when-issued basis and
the
securities held in the Fund's portfolio are subject to
changes in
market value based upon various factors including
changes in the
level of market interest rates. Generally, the value
of such
securities will fluctuate inversely to changes in
interest rates,
I.E., they will appreciate in value when market
interest rates
decline and decrease in value when market interest
rates rise.
For this reason, placing securities rather than cash in
the
segregated account may have a leveraging effect on the
Fund's net
assets. That is, to the extent that the Fund remains
substantially fully invested in securities at the same
time that
it has committed to purchase securities on a
when-issued basis,
there will be greater fluctuations in its net assets
than if it
had set aside cash to satisfy its purchase commitment.
Upon the settlement date of the when-issued
securities, the
Fund ordinarily will meet its obligation to purchase
the
securities from available cash flow, use of the cash
(or
liquidation of securities) held in the segregated
account or sale
of other securities. Although it would not normally
expect to do
so, the Fund also may meet its obligation from the sale
of the
when-issued securities themselves (which may have a
current
market value greater or less than the Fund's payment
obligation).
The sale of securities to meet such obligations carries
with it a
greater potential for the realization of capital gains.
U.S. GOVERNMENT SECURITIES
The Fund may invest in 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, as described below). In these
securities, the
payment of principal and interest is unconditionally
guaranteed
by the U.S. government, and thus they are of the
highest possible
credit quality. Such securities are subject to
variations in
market value due to fluctuations in interest rates,
but, if held
to maturity, will be paid in full.
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 GNMA certificates typically will be
substantially less
because the mortgages will be subject to normal
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 GNMA certificates. Conversely,
when interest
rates are rising, the rate of prepayments tends to
decrease,
thereby lengthening the actual average life of the GNMA
certificates. Accordingly, it is not possible to
predict
accurately the average life of a particular pool.
Reinvestment
of prepayments 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, GNMA certificates can be less effective
than
typical bonds of similar maturities at "locking in"
yields during
periods of declining interest rates. GNMA certificates
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, Bank for
Cooperatives
(including Central Bank for Cooperatives), Federal
Intermediate
Credit Banks, Federal Home Loan Banks, Federal National
Mortgage
Association, Student Loan Marketing Association,
Tennessee Valley
Authority, Export-Import Bank of the United States,
Commodity
Credit Corporation, Federal Financing Bank, Federal
Home Loan
Mortgage Corporation, Small Business Administration and
National
Credit Union Administration.
MORTGAGE-RELATED SECURITIES
The Fund may invest in mortgage-related
securities. A
mortgage-related security is an interest in a pool of
mortgage
loans. Most mortgage-related securities are
pass-through
securities, which means that they provide investors
with payments
consisting of both principal and interest as mortgages
in the
underlying mortgage pool are paid off by the borrowers.
The
dominant issuers or guarantors of mortgage-related
securities
today are the Government National Mortgage Association
("GNMA"),
the Federal National Mortgage Association ("FNMA"), and
the
Federal Home Loan Mortgage Corporation ("FHLMC"). GNMA
creates
mortgage securities from pools of Government-guaranteed
or
insured (Federal Housing Authority or Veterans
Administration)
mortgages originated by mortgage bankers, commercial
banks, and
savings and loan associations. FNMA and FHLMC issue
mortgage
securities from pools of conventional and federal
insured and/or
guaranteed residential mortgages obtained from various
entities,
including savings and loan associations, savings banks,
commercial banks, credit unions and mortgage bankers.
The mortgage-related securities either issued or
guaranteed
by GNMA, FHLMC, or FNMA ("Certificates") are called
pass-through
Certificates because a pro rata share of both regular
interest
and principal payments (less GNMA's, FHLMC's or FNMA's
fees and
any applicable loan servicing fees), as well as
unscheduled early
prepayments on the underlying mortgage pool, are passed
through
monthly to the holder of the Certificate (i.e., the
Fund). The
principal and interest on GNMA securities are
guaranteed by GNMA
and backed by the full faith and credit of the U.S.
government.
FNMA guarantees full and timely payment of all interest
and
principal, while FHLMC guarantees timely payment of
interest and
ultimate collection of principal. Mortgage securities
from FNMA
and FHLMC are not backed by the full faith and credit
of the U.S.
government, but are supported by the discretionary
authority of
the U.S. government to purchase certain obligations of
the
particular agency. The yields provided by these
mortgage
securities have historically exceeded the yields on
other types
of U.S. government securities with comparable
maturities.
However, these securities generally have the potential
for
greater fluctuations in yield as their prices will not
generally
fluctuate as much as more traditional fixed-rate debt
securities.
Recently, the originators of mortgages have been
making
mortgage loans that carry an adjustable rate of
interest as well
as the older, more traditional fixed-rate loans. These
adjustable rate mortgages have become an increasingly
important
form of residential financing. Generally, adjustable
rate
mortgages are mortgages originated by thrift
institutions that
have a specified maturity date and which amortize
principal in
much the same way as a fixed-rate mortgage. As a
result, in
periods of declining interest rates there is a
reasonable
likelihood that ARMS will behave like fixed-rate
mortgage
securities in that current levels of prepayments of
principal on
the underlying mortgages could accelerate. However,
one
difference between ARMS and fixed rate mortgage
securities is
that for certain types of ARMS, the rate of
amortization of
principal, as well as interest payments, can and does
change in
accordance with movements in a particular,
pre-specified,
published interest rate index. The amount of interest
due to an
ARM security holder is calculated by adding a specified
additional amount, the "margin," to the index, subject
to
limitations or "caps" on the maximum and minimum
interest that is
charged to the mortgage during the life of the mortgage
or to
maximum and minimum changes to that interest rate
during a given
period. It is these special characteristics which are
unique to
adjustable rate mortgages that IMI believes make them
attractive
investments in seeking to accomplish the Fund's
objective.
ADJUSTABLE RATE MORTGAGE SECURITIES: ARMS are
pass-through
mortgage securities which are collateralized by
mortgages with
adjustable rather than fixed interest rates. The ARMS
in which
the Fund invests are issued primarily by GNMA, FNMA and
FHLMC and
are actively traded in the secondary market. The
underlying
mortgages which collateralize ARMS issued by GNMA are
fully
guaranteed by the Federal Housing Administration
("FHA") or the
Veterans Administration ("VA"), while those
collateralizing ARMS
issued by FHLMC or FNMA are typically conventional
residential
mortgages conforming to standard underwriting size and
maturity
constraints.
Unlike fixed-rate mortgages which generally
decline in value
during periods of rising interest rates, ARMS allow the
Fund to
participate in increases in interest rates through
periodic
adjustments in the coupons of the underlying mortgages,
resulting
in both higher current yields and lower price
fluctuations.
Furthermore, if prepayments of principal are made on
the
underlying mortgages during periods of rising interest
rates, the
Fund generally will be able to reinvest such amounts in
mortgage
securities with a higher current rate of return.
However, the
Fund will not benefit from increases in interest rates
to the
extent that interest rates rise to the point where they
cause the
current coupon of adjustable rate mortgages held as
investments
to exceed the maximum allowable annual or lifetime
reset limits
(or "cap rates") for a particular mortgage. Also, the
Fund's net
asset value could vary to the extent that current
yields on
mortgage securities are different than market yields
during
interim periods between coupon reset dates.
The adjustable interest rate feature of the
underlying
mortgages generally will act as a buffer to reduce
sharp changes
in the Fund's net asset value in response to normal
interest rate
fluctuations. As the interest rates on the mortgages
underlying
the Fund's investments are reset periodically, yields
of
portfolio securities will gradually align themselves to
reflect
changes in market rates and should cause the net asset
value of
the Fund to fluctuate less dramatically than it would
if the Fund
invested in more traditional long-term, fixed-rate debt
securities. However, during periods of rising interest
rates,
changes in the coupon rate lag behind changes in the
market rate
resulting in possibly a slightly lower net asset value
until the
coupon resets to market rates. Thus, investors could
suffer some
principal loss if they sold their shares of the Fund
before the
interest rates on the underlying mortgages are adjusted
to
reflect current market rates. During periods of
extreme
fluctuations in interest rates, the Fund's net asset
value will
fluctuate as well. Since most mortgage securities in
the Fund's
portfolio will generally have annual reset caps of 100
to 200
basis points, fluctuation in interest rates above these
levels
could cause such mortgage securities to "cap out" and
to behave
more like long-term fixed-rate debt securities.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): The
Fund may
also invest in CMOs, which generally are bonds issued
by single-
purpose, stand-alone finance subsidiaries or trusts of
financial
institutions, government agencies, investment bankers,
or other
similar institutions. CMOs purchased by the Fund may
be:
(1) collateralized by pools of mortgages in which
each
mortgage is guaranteed as to payment of principal and
interest by
an agency or instrumentality of the U.S. government;
(2) collateralized by pools of mortgages in which
payment
of principal and interest are guaranteed by the issuer
and the
guarantee is collateralized by U.S. government
securities; or
(3) securities in which the proceeds of the
issuance are
invested in mortgage securities and payment of the
principal and
interest are supported by the credit of an agency or
instrumentality of the U.S. government.
All CMOs purchased by the Fund will be either
issued by a
U.S. government agency or rated AAA by S&P or Aaa by
Moody's.
A decline in interest rates may lead to a faster
rate of
repayment of the mortgages underlying CMO's held by the
Fund, and
expose the Fund to a lower rate of return upon
reinvestment. To
the extent that CMO's are held by the Fund, the
prepayment right
of mortgagors may limit the increase in net asset value
of the
Fund because the value of the CMO's held by the Fund
may not
appreciate as rapidly as the price of non-callable debt
securities.
The interest rates paid on the ARMS and CMOs in
which the
Fund invests generally are readjusted at intervals of
one year or
less to an increment over some predetermined interest
rate index.
There are two main categories of indices; those based
on U.S.
Treasury securities and those derived from a calculated
measure
such as a cost of funds index or a moving average of
mortgages
rates. Commonly utilized indices include the one-year,
three-
year and five-year constant maturity Treasury rates,
the three-
month Treasury Bill rate, the 180-day Treasury Bill
rate, rates
on longer-term Treasury securities, the 11th District
Federal
Home Loan Bank Cost of Funds, the National Median Cost
of Funds,
the one-month, three-month, six-month or one-year
London
Interbank Offered Rate (LIBOR), the prime rate on a
specific
bank, or commercial paper rates. Some indices, such as
the one-
year constant maturity Treasury rate, closely mirror
changes in
market interest rate levels. Other, such as the 11th
District
Home Loan Bank Cost of Funds index, tend to lag behind
changes in
market rate levels and tend to be somewhat less
volatile.
CAPS AND FLOORS: The underlying mortgages that
collateralize the ARMS and CMOs in which the Fund
invests will
frequently have caps and floors that limit the maximum
amount by
which the loan rate to the residential borrower may
change up or
down (1) per reset or adjustment interval and (2) over
the life
of the loan. Some residential mortgage loans restrict
periodic
adjustments by limiting changes in the borrower's
monthly
principal and interest payments rather than limiting
interest
rate changes. These payment caps may result in
negative
amortization.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its investment securities to
brokers,
dealers and financial institutions for the purpose of
realizing
additional income. Loans of securities by the Fund
will be
collateralized by cash, letters of credit, or
securities issued
or guaranteed by the U.S Government or its agencies or
instrumentalities. The collateral will equal (on a
daily marked-
to-market basis) at least 100% of the current market
value of the
loaned securities. The aggregate market value of the
securities
loaned will not at any time exceed 30% of the total
assets of the
Fund. The risks in lending portfolio securities, as
with other
extensions of credit, consist of possible loss of
rights in the
collateral should the borrower fail financially. In
determining
whether to lend securities, IMI will consider all
relevant facts
and circumstances, including the creditworthiness of
the
borrower.
BORROWING
As a fundamental policy, the Fund may borrow from
banks as a
temporary measure for extraordinary or emergency
purposes. The
Fund may borrow in amounts up to 10% of its total
assets taken at
cost or market value, whichever is lower. All
borrowings will be
repaid before any additional investments are made. The
Fund may
not mortgage, pledge or in any other manner transfer
any of its
assets as security for any indebtedness. 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).
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, as amended (the "1933 Act"), and any other
illiquid
securities (including repurchase agreements of more
than seven
days duration and other securities which are not
readily
marketable) may not constitute, at the time of
purchase, more
than 10% of the value of the Fund's net assets.
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. Restricted
securities
may be sold only in privately negotiated transactions
or in a
public offering with respect to which a registration
statement is
in effect under the 1933 Act. Where a registration
statement is
required, the Fund may be required to bear all or part
of the
registration expenses. There may be a lapse of time
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. If, during such a period, adverse market
conditions
were to develop, the Fund might obtain a price less
favorable
than the price that prevailed when it decided to sell.
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, the Fund will carefully monitor each of its
investments in these securities, focusing on such
important
factors, among others, as valuation, liquidity and
availability
of information. This investment practice could have
the effect
of increasing the level of illiquidity in the Fund to
the extent
that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
might otherwise be entitled as the owner of sponsored
ADRs.
FOREIGN SECURITIES
The Fund may invest in debt securities of foreign
issuers,
including non-U.S. dollar-denominated debt securities,
Eurodollar
securities and debt securities issued, assumed or
guaranteed by
foreign governments or political subdivisions or the
instrumentalities thereof. Investors 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 domestic
investments.
Although the Fund intends to invest only in nations
that IMI
considers to have relatively stable and friendly
governments,
there is the possibility of expropriation,
nationalization or
confiscatory taxation, taxation of 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 in 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
in reports
about companies in the United States. For example,
ownership of
unsponsored ADRs may not entitle the owner to financial
or other
reports from the issuer to which it might otherwise be
entitled
as the owner of a sponsored ADR. 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
government
supervision and regulation of business and industry
practices,
stock exchanges, brokers and listed companies than in
the United
Sates. Foreign securities transactions may 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.
Further, the Fund may encounter difficulties or be
unable to
pursue legal remedies and obtain judgment in foreign
courts.
INVESTING IN EMERGING MARKETS
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below , that are not typically
associated with
investing in United States securities and that may
affect the
Fund's performance favorably or unfavorably. (See also
"Foreign
Securities" under the caption "Risk Factors and
Investment
Techniques" in the Prospectus.)
Foreign stock 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.
Fixed
commissions on some foreign securities exchanges are
generally
higher than negotiated commissions on U.S. exchanges,
although
IMI will endeavor to achieve the most favorable net
results on
the Fund's portfolio transactions. In addition, the
Fund may
encounter difficulties or be unable to pursue legal
remedies and
obtain judgment in foreign courts. It may be more
difficult for
the Fund's agents to keep currently informed about
corporate
actions such as stock dividends or other matters which
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.
Investments in companies domiciled in developing
countries
may be subject to potentially higher risks than
investments in
developed countries. These risks include (i) less
social,
political and economic stability; (ii) the small
current size of
the markets for such securities and the currently low
or
nonexistent volume of trading, which result in a lack
of
liquidity and in greater price volatility; (iii)
certain national
policies which 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.
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 Fund
Shareholders.
Certain Eastern European countries that do not
have market
economies 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"), to
act as
foreign custodians 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.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
exchange
contracts in order to protect against uncertainty in
the level of
future foreign exchange rates in the purchase and sale
of
securities, but not for speculative purposes. A
forward foreign
currency exchange contract involves an obligation to
purchase or
sell a specific currency at a future date, which may be
any fixed
number of days from the date of the contract agreed
upon by the
parties, at a price set at the time of the contract.
These
contracts may be bought or sold to protect the Fund
against a
possible loss resulting from an adverse change in the
relation-
ship between foreign currencies and the U.S. dollar.
Although
such 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 that might result
should
the value of such currencies increase.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contract would obligate the Fund to deliver an amount
of currency
in excess of the value of the Fund's portfolio
securities or
other assets denominated in that currency. Further,
the Fund
generally will not enter into a forward contract with a
term of
greater than one year.
The Fund will hold cash, U.S. Government
securities, or
other high-grade debt securities in a segregated
account with its
Custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
ADJUSTABLE RATE PREFERRED STOCKS
The Fund may invest in adjustable rate preferred
stocks.
Adjustable rate preferred stocks have a variable
dividend,
generally determined on a quarterly basis according to
a formula
based upon a specified premium or discount to the yield
on a
particular U.S. Treasury security rather than a
dividend which is
set for the life of the issue. Although the dividend
rates on
these stocks are adjusted quarterly and their market
value should
therefore be less sensitive to interest rate
fluctuations than
are other fixed income securities and preferred stocks,
the
market values of adjustable rate preferred stocks have
fluctuated
and can be expected to continue to do so in the future.
HIGH YIELD BONDS
The Fund may invest in corporate debt securities
rated Ba or
lower by Moody's or BB or lower by S&P. The Fund will
not,
however, invest in securities that, at the time of
investment,
are rated lower than C by either Moody's or S&P.
Securities
rated Ba or BB (and comparable unrated securities),
commonly
referred to as "high yield" or "junk" bonds, are
considered by
major credit-rating organizations to have predominantly
speculative elements 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. See Appendix A for a more
complete
description of the ratings assigned by Moody's and S&P
and their
respective characteristics.
While IMI may refer to ratings issued by
established credit
rating agencies, it is not IMI's policy to rely
exclusively on
such ratings, but rather to supplement such ratings
with its own
independent and ongoing review of credit quality. The
Fund's
achievement of its investment objective may, to the
extent of its
investment in high yield bonds, be more dependent upon
IMI's
credit analysis than would be the case if the Fund were
investing
in higher quality bonds. Should the rating of a
portfolio
security be downgraded, IMI will determine whether it
is in the
Fund's best interest to retain or dispose of the
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.
The secondary market on which high yield bonds are
traded
may be less liquid than the market for higher grade
bonds. Less
liquidity in the secondary trading market could
adversely affect
the price at which the Fund could sell a high yield
bond, and
could adversely affect 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 values and liquidity of high
yield
bonds, especially in a thinly traded market. When
secondary
markets for high yield securities are less liquid than
the
markets for higher grade securities, it may be more
difficult to
value the securities because such valuation may require
more
research, and elements of judgment may play a greater
role in the
valuation because there is less reliable, objective
data
available.
Furthermore, prices for high yield bonds may be
affected by
legislative and regulatory developments. For example,
federal
rules require savings and loan institutions to reduce
gradually
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 on
these securities and regulate corporate restructurings.
Such
legislation may significantly depress the prices of
outstanding
securities of this type.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in
accordance with
the Fund's credit quality standards. 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, however, 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 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 the Fund 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.
OPTIONS TRANSACTIONS, FUTURES CONTRACTS AND OPTIONS ON
FUTURES
CONTRACTS
The Fund can use various techniques to increase or
decrease
its exposure to changing security prices, interest
rates,
currency exchange rates, commodity prices, or other
factors that
affect security values. These techniques may involve
derivative
transactions such as selling call options and
purchasing put and
call options on U.S. government securities, interest
rate
futures, foreign currency futures and foreign
currencies that are
traded on an exchange or board of trade. IMI can use
these
practices to adjust the risk and return characteristics
of the
Fund's portfolio of investments. If IMI judges market
conditions
incorrectly or employs a strategy that does not
correlate well
with the Fund's investments, these techniques could
result in a
loss. These techniques may increase the volatility of
the Fund
and may involve a small investment of cash relative to
the
magnitude of the risk assumed. In addition, these
techniques
could result in a loss if the counterparty to the
transaction
does not perform as promised.
OPTIONS TRANSACTIONS
GENERAL. The Fund may sell (write)
exchange-listed call
options and purchase put and call options in accordance
with its
investment objectives and policies. 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 an option wishes to terminate the
obligation, he or she 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
cancelled 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. If any call or put
is not
exercised or sold, it will become worthless on its
expiration
date.
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 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 put which 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."
A gain (or a loss) will be realized by the Fund 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 capital gain or loss,
depending upon
the Fund's holding period for the option.
The Fund will not purchase put or call options if
the
aggregate premium paid for such options would exceed
10% of its
net assets at the time of purchase.
WRITING CALL OPTIONS ON INDIVIDUAL SECURITIES.
The Fund may
write (sell) covered call options as described in the
Prospectus.
Covered call options provide the Fund with additional
income on
its portfolio securities or partially protect against
declines in
the value of those securities. A "covered" call option
means
generally that so long as the Fund is obligated as the
writer of
a call option, the Fund will either own the underlying
securities
subject to the option, or hold a call at the same
exercise price,
for the same exercise period, and on the same
securities as the
call written. 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.
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 an 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 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, 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 is
purchased to hedge against price movements in a related
security,
the price of the put or call option may move more or
less than
the price of the related security. In this regard,
trading in
options on certain securities (such as U.S. Government
securities) is relatively new, so that it is impossible
to
predict to what extent liquid markets will develop or
continue.
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. 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.
The Fund may employ hedging strategies with
options on
currencies before the Fund purchases a foreign security
denominated in the hedged currency that the Fund
anticipates
acquiring, during the period the Fund holds the foreign
security,
or between the date the foreign security is purchased
or sold and
the date on which payment therefor is made or received.
Hedging
against a change in the value of a foreign currency in
the
foregoing manner does not eliminate fluctuations in the
prices of
portfolio securities or prevent losses if the prices of
such
securities decline. Furthermore, such hedging
transactions
reduce or preclude the opportunity for gain if the
value of the
hedged currency should change relative to the U.S.
dollar. With
respect to transactions in surrogate currencies, there
is a risk
of loss if there is not a correlation between the
currency in
which the hedge is desired and the surrogate currency.
A position on an option on foreign currencies may
be closed
out only on an exchange which provides a secondary
market for an
option of the same series. Although the Fund will
purchase only
exchange-traded options, there is no assurance that a
liquid
secondary market on an exchange will exist for any
particular
option, or at any particular time. In the event no
liquid
secondary market exists, it might not be possible to
effect
closing transactions in particular options. If the
Fund cannot
close out an exchange-traded option which it holds, it
would have
to exercise its option in order to realize any profit
and would
incur transactional costs on the sale of the underlying
assets.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The Fund may enter into futures
contracts and
options on futures contracts. 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 U.S. Government 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 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.
When purchasing a futures contract, the Fund will
maintain
with its Custodian (and mark-to-market on a daily
basis) cash,
U.S. Government securities, or other high grade debt
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 a futures contact, the Fund will
maintain with
its custodian (and mark-to-market on a daily basis)
liquid assets
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 (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other high
grade debt
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.
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, U.S. Government securities, or other high
grade debt
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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures and futures options.
INTEREST RATE FUTURES CONTRACTS. The Fund may
engage in
interest rate futures contracts transactions for
hedging purposes
only. An interest rate futures contract is an
agreement between
parties to buy or sell a specified debt security at a
set price
on a future date. The financial instruments that
underlie
interest rate futures contracts include long-term U.S.
Treasury
bonds, U.S. Treasury notes, GNMA certificates, and
three-month
U.S. Treasury bills. In the case of futures contracts
traded on
U.S. exchanges, the exchange itself or an affiliated
clearing
corporation assumes the opposite side of each
transaction (I.E.,
as buyer or seller). A futures contract may be
satisfied or
closed out by delivery or purchase, as the case may be,
in the
cash financial instrument or by payment of the change
in the cash
value of the index. Frequently, using futures to
effect a
particular strategy instead of using the underlying or
related
security will result in lower transaction costs being
incurred.
The Fund may sell interest rate futures contracts
in order
to hedge its portfolio securities whose value may be
sensitive to
changes in interest rates. In addition, the Fund could
purchase
and sell these futures contracts in order to hedge its
holdings
in certain common stocks (such as utilities, banks and
savings
and loans) whose value may be sensitive to changes in
interest
rates. The Fund could sell interest rate futures
contracts in
anticipation of or during a market decline to attempt
to offset
the decrease in market value of its securities that
might
otherwise result. When the Fund is not fully invested
in
securities, it could purchase interest rate futures in
order to
gain rapid market exposure that may in part or entirely
offset
increases in the cost of securities that it intends to
purchase.
As such purchases are made, an equivalent amount of
interest rate
futures contracts will be terminated by offsetting
sales. In a
substantial majority of these transactions, the Fund
would
purchase such securities upon termination of the
futures position
whether the futures position results from the purchase
of an
interest rate futures contract or the purchase of a
call option
on an interest rate futures contract, but under unusual
market
conditions, a futures position may be terminated
without the
corresponding purchase of securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. For
hedging
purposes, the Fund may also purchase and write put and
call
options on interest rate futures contracts which are
traded on a
U.S. exchange or board of trade and sell or purchase
such options
to terminate an existing position. Options on interest
rate
futures give the purchaser the right (but not the
obligation), in
return for the premium paid, to assume a position in an
interest
rate futures contract at a specified exercise price at
a time
during the period of the option.
Transactions in options on interest rate futures
would
enable the Fund to hedge against the possibility that
fluctuations in interest rates and other factors may
result in a
general decline in prices of debt securities owned by
the Fund.
Assuming that any decline in the securities being
hedged is
accomplished by a rise in interest rates, the purchase
of put
options and sale of call options on the futures
contracts may
generate gains which can partially offset any decline
in the
value of the Fund's portfolio securities which have
been hedged.
However, if after the Fund purchases or sells an option
on a
futures contract, the value of the securities being
hedged moves
in the opposite direction from that contemplated, the
Fund may
experience losses in the form of premiums on such
options which
would partially offset gains the Fund would have.
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
are several risks associated with the use of futures
contracts
and futures options as hedging techniques. A purchase
or sale of
a futures contract may result in losses in excess of
the amount
invested in the futures contract. 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 a 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.
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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
Prospectus under "Investment Objectives and Policies,"
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. Under
these
restrictions, the Fund may not:
(i) With respect to 75% of its total assets,
purchase
the securities of any one issuer, other
than
securities issued by the U.S. Government
or its
agencies or instrumentalities, if
immediately after
such purchase more than 5% of the value of
the total
assets of the Fund would be invested in
securities
of such issuer;
(ii) Invest in real estate, real estate
mortgage loans,
commodities, commodity futures contracts
or
interests in oil, gas and/or mineral
exploration or
development programs, although the Fund
may purchase
and sell (a) securities which are secured
by real
estate, (b) securities of issuers which
invest or
deal in real estate, and (c) futures
contracts as
described in the Fund's Prospectus;
(iii) Make investments in securities for the
purpose of
exercising control over or management of
the issuer;
(iv) 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 Manager for the sale or purchase of
portfolio
securities shall not be considered
participation in
a joint securities trading account;
(v) Purchase the securities of any one issuer
if,
immediately after such purchase, the Fund
would own
more than 10% of the outstanding voting
securities
of such issuer;
(vi) Purchase securities on margin, except such
short-
term credits as are necessary for the
clearance of
transactions;
(vii) Make loans, except this restriction shall
not
prohibit (a) the purchase and holding of a
portion
of an issue of publicly distributed debt
securities,
(b) entry into repurchase agreements with
banks or
broker-dealers, or (c) the lending of its
portfolio
securities in accordance with applicable
guidelines
established by the Securities and Exchange
Commission (the "SEC") and any guidelines
established by the Trust's Trustees;
(viii) 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;
(ix) Purchase the securities of issuers
conducting their
principal business activities in the same
industry
if immediately after such purchase the
value of the
Fund's investments in such industry would
exceed 25%
of the value of the total assets of the
Fund;
(x) Act as an underwriter of securities,
except to the
extent that, in connection with the sale
of
securities, it may be deemed to be an
underwriter
under applicable securities laws; or
(xi) Issue senior securities, except insofar as
the Fund
may be deemed to have issued a senior
security in
connection with any repurchase agreement
or any
permitted borrowing.
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) 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 of
companies (including predecessors) less
than three
years old;
(iv) purchase or retain securities of any
company if
officers and Trustees of the Trust and
officers and
directors of the Manager and the Manager
who
individually own more than 1/2 of 1% of
the
securities of that company, together own
beneficially more than 5% of such
securities; or
(v) purchase securities of any open-end
investment
company, or securities of closed-end
companies,
except by purchase in the open market
where no
commission or profit to a sponsor or
dealer results
from such purchases, or except when such
purchase is
part of a merger, consolidation,
reorganization or
sale of assets, and except that the Fund
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 or by any state in which shares
of the
Fund are registered.
In addition, the Fund may not make short sales of
securities
or maintain a short position. Moreover, so long as it
remains a
restriction of the Ohio Division of Securities, the
Fund will
treat securities eligible for resale under Rule 144A of
the
Securities Act of 1933 as subject to the Fund's
restriction on
investing in restricted securities (see "Restricted and
Illiquid
Securities" under "Investment Objectives and Policies,"
above).
Whenever an investment policy or investment
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 a relative change in values or from
a change
in the Fund's net assets or other circumstances will
not be
considered a violation.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this SAI. These funds are: Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Bond Fund and Ivy
Money
Market Fund, the twelve other series of Ivy Fund; and
Mackenzie
California Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund, Mackenzie Limited Term Municipal Fund,
Mackenzie
National Municipal Fund and Mackenzie New York
Municipal Fund,
the five series of Mackenzie Series Trust
(collectively, with the
Fund, the "Ivy Mackenzie Funds"). Investors should
obtain a
current prospectus before exercising any right or
privilege that
may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt by The Mackenzie Ivy Investor Services
Corp.
("MIISC") of telephone instructions or written notice
to MIISC
from the investor. See "Automatic Investment Method"
in the
Account Application.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie Fund into which the
exchange
is to be made.
CLASS A: Class A shareholders may exchange their
Class A
shares ("outstanding Class A shares") for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("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 outstanding
Class A
shares that have been invested for a period of 12
months or
longer.) Class A shareholders may also exchange their
Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund that
are subject
to a contingent deferred sales charge, as described in
that
Fund's prospectus, will continue to be subject to the
contingent
deferred sales charge schedule (and period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Bond Fund,
Mackenzie
California Municipal Fund, Mackenzie National Municipal
Fund and
Mackenzie New York Municipal Fund ("Table 1 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT
YEAR SINCE PURCHASE TO CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of the Fund, Mackenzie
Florida
Limited Term Municipal Fund and Mackenzie Limited Term
Municipal
Fund ("Table 2 Funds"):
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT
YEAR SINCE PURCHASE TO CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 1% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 2 1/2% contingent
deferred
sales charge that generally would apply to a redemption
of
outstanding Class B shares held for two years would not
be
deducted at the time of the exchange. If, three years
later, the
investor redeems the new Class B shares, a 2%
contingent deferred
sales charge will be assessed upon the redemption
because by
"tacking" the two year holding period of the
outstanding Class B
shares onto the three year holding period of the new
Class B
shares, the investor will be deemed to have held the
new Class B
shares for five years.
CLASS I: Class I shareholders may exchange their
Class I
shares for Class I shares of another Ivy or Mackenzie
Fund on the
basis of the relative net asset value per Class I
share.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000 ($5,000,000 in the case of Class I of the Fund).
No
exchange out of the Fund (other than by a complete
exchange of
all shares of the Fund) may be made if it would reduce
the
shareholder's interest in the Fund to less than $1,000.
Exchanges are available only in states where the
exchange can be
legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC. An
exchange from
the Fund into any other fund into which exchanges are
permitted
may be subject to a sales charge as described in its
Prospectus.
Exchanges, whether written or telephonic, must be
received by
MIISC by the close of regular trading on the New York
Stock
Exchange (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. This
exchange
privilege may be modified or terminated at any time,
upon at
least 60 days' notice when such notice is required by
SEC rules.
See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund will result in a taxable
gain or loss.
Generally, any such taxable gain or loss 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, any 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 Fund's
Prospectus.
Any investor may submit a Letter of Intent stating that
he or she
will invest, over a period of 13 months, at least
$1,000,000 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
the value (at the applicable offering price) of all
Class A
shares of the Fund, Ivy Canada Fund, Ivy Global Fund,
Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy Emerging Growth
Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Bond Fund, Mackenzie National Municipal Fund,
Mackenzie
Florida Limited Term Municipal Fund, Mackenzie Limited
Term
Municipal Fund, Mackenzie California Municipal Fund and
Mackenzie
New York Municipal Fund (and shares that have been
exchanged into
Ivy Money Market Fund from any of the other funds in
the Ivy
Mackenzie Funds) held of record by him or her as of the
date of
his or her Letter of Intent as an accumulation credit
toward the
completion of such Letter. 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 MIFDI an amount equal
to the
difference between the dollar amount of sales charge
which 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 thereof 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 MIFDI may be purchased in a single
application
establishing a single plan account, and shares held in
such an
account may be exchanged among the funds in the Ivy
Mackenzie
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 account
For shareholders whose retirement accounts are
diversified across
several funds of the Ivy Mackenzie 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 a funding medium for an Individual Retirement
Account
("IRA"). Eligible individuals may establish an IRA by
adopting a
model custodial account available from IMI, who may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a Fund
which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% of his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of one spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is no greater than a specified level
($40,000 for
married couples filing a joint return, $25,000 for
single
individuals, and $0 for a married individual filing a
separate
return). The deduction is phased out ratably for
active
participants with adjusted gross income between certain
levels
($40,000 and $50,000 for married individuals filing a
joint
return, $25,000 and $35,000 for single individuals, and
$0 and
$10,000 for married individuals filing separate
returns).
Individuals with income above the specified phase-out
level may
not deduct their IRA contributions. 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. 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.
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. Extremely large
distributions in any
one year from an IRA (or from an IRA and other
retirement plans)
may also result in a penalty tax.
QUALIFIED PLANS: For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from IMI.
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 account
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
taken into account under the plan 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 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. Sales charges for such
purchases are
the same as those set forth under "Purchase of Shares"
in the
Prospectus. The special application for a 403(b)(7)
Account is
available from IMI.
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; (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. 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.
REINVESTMENT PRIVILEGE
Investors 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 24 months from the date of
redemption.
There is no limit on the number of times this privilege
may be
exercised. The reinvestment will be made at the net
asset value
next determined after receipt by the Transfer Agent 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 $1,000,000 or more in Class A shares of the Fund.
See the
"Initial Sales Charge Alternative--Class A Shares" in
the
Prospectus for the Fund. 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). It is also applicable to current purchases
of all of
the funds in the Ivy Mackenzie Funds (except Ivy Money
Market
Fund) by any of the persons enumerated above, where the
aggregate
quantity of Class A shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Bond Fund,
Mackenzie
National Municipal Fund, Mackenzie California Municipal
Fund,
Mackenzie Florida Limited Term Municipal Fund,
Mackenzie Limited
Term Municipal Fund and Mackenzie New York Municipal
Fund (and
shares that have been exchanged into Ivy Money Market
Fund from
any of the other funds in the Ivy Mackenzie Funds) and
of any
other investment company distributed by MIFDI,
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 or
more for
Ivy Global Fund, Ivy Canada Fund, Ivy Growth Fund, Ivy
Growth
with Income Fund, Ivy Emerging Growth Fund, Ivy
International
Fund, Ivy Latin America Strategy Fund, Ivy New Century
Fund, and
Ivy China Region Fund; $100,000 or more for Ivy
International
Bond Fund, Ivy Bond Fund, Mackenzie National Municipal
Fund,
Mackenzie California Municipal Fund and Mackenzie New
York
Municipal Fund; $25,000 or more for Mackenzie Florida
Limited
Term Municipal Fund and Mackenzie Limited Term
Municipal Fund; or
$1,000,000 or more for the Fund.
At the time an investment takes places, MIISC 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
Fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A Class A shareholder may establish a Systematic
Withdrawal
Plan (a "Withdrawal Plan") by telephone instructions to
MIISC or
by delivery to MIISC of a written election to so
redeem,
accompanied by a surrender to MIISC of all share
certificates
then outstanding in the name of such shareholder,
properly
endorsed by him or her. To be eligible, a shareholder
must have
at least $5,000 in the shareholder's 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 use of principal and, to the extent that it
does,
depending on the amount withdrawn, the investor's
principal may
be depleted.
A redemption under the Withdrawal Plan is a
taxable event.
Investors contemplating participation in the Withdrawal
Plan
should consult their tax advisers.
Additional investments in Class A or Class B
shares of the
Fund 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 the
Withdrawal Plan is
in effect may be disadvantageous to the investor
because of
applicable initial or contingent deferred sales
charges.
An investor may terminate his or her participation
in the
Withdrawal Plan at any time by delivering written
notice to the
Transfer Agent. If all shares held by the investor are
liquidated at any time, participation in the Withdrawal
Plan will
terminate automatically. The Trust or MIISC may
terminate the
Withdrawal Plan at any time after reasonable notice to
shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by the Investment Adviser in
connection with the services it provides to the Fund or
the
Trust. IMI may consider sales of shares of the Fund as
a factor
in the selection of broker-dealers and may select
broker-dealers
who provide it with research services. IMI 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
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
During the fiscal years ended June 30, 1992, June
30, 1993
and June 30, 1994, the Fund paid no brokerage
commissions.
During the six-month period ended December 31, 1994 the
Fund paid
brokerage commissions of $2,063.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc.
(1983-Present); Age:
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age: 74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66* Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A, Class B
and Class I shares of the Fund.
PERSONAL INVESTMENTS BY EMPLOYEES OF THE ADVISER
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FUND UPON
PAID TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A -
0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A -
0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A -
0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A -
0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") currently provides
business
management and investment advisory services to the Fund
pursuant
to a Business Management and Investment Advisory
Agreement (the
"Agreement"). The Agreement was approved on September
29, 1994
by the Trust's Board of Trustees including a majority
of the
Trustees who neither are "interested persons" (as
defined in the
1940 Act) of the Trust nor have a direct or indirect
financial
interest in the operation of the distribution plan (see
"Distribution Services") or in any related agreement
(the
"Independent Trustees"). The Agreement was approved by
the sole
shareholder of the Fund on December 31, 1994. Until
December 31,
1994 Mackenzie Investment Management Inc. ("MIMI")
served as
investment adviser to the Fund, which until December
31, 1994 was
a series of The Mackenzie Funds Inc. (the "Company").
IMI is a
wholly owned subsidiary of MIMI. MIMI is a subsidiary
of 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 Toronto Stock Exchange. MFC
is
registered in Ontario as a mutual fund dealer and
advises Ivy
Canada Fund. On December 31, 1994, the Fund was
reorganized as a
series of the Trust. In connection with that
reorganization, IMI
succeeded to MIMI as investment adviser to the Fund.
IMI also
currently acts as manager and investment adviser to the
following
investment companies registered under the 1940 Act:
Ivy Emerging
Growth Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy
International Fund, Ivy Money Market Fund, Ivy China
Region Fund,
Ivy Latin America Strategy Fund, Ivy New Century Fund,
Ivy
International Bond Fund, Ivy Global Fund, Ivy Canada
Fund and Ivy
Bond Fund.
The Fund pays IMI a monthly fee for providing
business
management and investment advisory services at the
annual rate of
0.60% of the Fund's average daily net assets. During
the fiscal
years ended June 30, 1992, June 30, 1993 and June 30,
1994 and
during the six-month period ended December 31, 1994,
MIMI, as the
investment adviser to the Fund when it was a series of
the
Company, received fees of $150,945, $191,454, $171,829
and
$32,313, respectively, from the Fund.
Under the 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.
The Agreement obligates IMI to make investments
for the
accounts of the Fund in accordance with its best
judgement and
within the investment objectives and restrictions set
forth in
the Fund's prospectus, the 1940 Act and the provisions
of the
Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the Agreement, IMI also provides certain
business
management services. IMI is obligated to (1)
coordinate with the
Fund's Custodian and Transfer Agent and monitor the
services they
provide 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 which 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
Company 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 directors 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 Agreement provides that if the Fund's total
expenses in
any fiscal year (other than interest, taxes,
distribution
expenses, brokerage commissions and other portfolio
transaction
expenses, other expenditures which are capitalized in
accordance
with generally accepted accounting principles and any
extraor-
dinary expenses including, without limitation,
litigation and
indemnification expenses) exceed the permissible limits
appli-
cable to the Fund in any state in which its shares are
then
qualified for sale, IMI will bear the excess expenses.
At the
present time, the most restrictive state expense
limitation
provision limits the Fund's annual expenses to 2.5% of
the first
$30 million of its average daily net assets, 2.0% of
the next $70
million and 1.5% of its average daily net assets over
$100
million. In addition, IMI may voluntarily reimburse
the Fund's
expenses. Voluntary expense reimbursements for the
Fund for the
fiscal year ended June 30, 1994 and for the six months
ended
December 31, 1994 were $171,733 and $76,575,
respectively.
On December 31, 1994, the Trustees of the Trust,
including a
majority of the Independent Trustees, voted to approve
the
Agreement for the Fund. The 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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
(as
defined in the 1940 Act) of the Fund. See
"Capitalization and
Voting Rights."
The 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 of Trustees, 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 Agreement shall terminate automatically in
the event
of its assignment.
DISTRIBUTION SERVICES
MIFDI, a wholly owned subsidiary of MIMI, serves
as the
exclusive distributor of the Fund's shares pursuant to
a
Distribution Agreement with the Trust. MIFDI is not
obligated to
sell any specific amount of shares.
MIFDI 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 MIFDI.
MIFDI distributes shares of the Fund on a continuous
basis, but
reserves the right to suspend or discontinue
distribution on such
basis. MIFDI is not obligated to sell any specific
amount of
Fund shares. Pursuant to 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.
MIFDI may, from time to time, in certain
circumstances, re-
allow to individual selling dealers all or a portion of
the sales
charge with respect to Class A shares which it normally
retains.
For example, additional re-allowance may be made when
the selling
dealer commits to substantial marketing support such as
internal
wholesaling through dedicated personnel, internal
communications
and mass mailings. MIFDI may, from time to time, pay a
fee out
of its own resources to individual selling dealers for
sales of
Class I shares.
During the fiscal years ended June 30, 1992, and
June 30,
1993, and the three months ended September 30, 1993,
MIMI, which
at that time was the Fund's distributor, received from
sales of
Class A shares *[Shares of the Fund outstanding as of
June 27,
1993, were redesignated Class A shares of the Fund.] of
the Fund
$171,062, $50,027 and $3,139, respectively, in sales
commissions,
of which $40,540, $15,582 and $930, respectively, was
retained
after dealers' re-allowances. For the nine months
ended June 30,
1994 and for the six-month period ended December 31,
1994, MIFDI
received from sales of Class A Shares* of the Fund
$7,330 and
$3,398, respectively, in sales commissions, of which
$1,381 and
$892, respectively, was retained after dealer
re-allowances.
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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan;" collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Funds and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, service fee payments made out of or
charged
against the assets attributable to the Fund's Class A
shares or
Class B shares must be in reimbursement for services
rendered for
or on behalf of that class of the Fund. The expenses
not
reimbursed in any one given 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.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from resources
that may
include the management fees paid to IMI by the Fund.
MIFDI 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 Class A 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
MIFDI.
Under the Fund's Class B Plan, the Fund pays MIFDI
a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.50% of the average daily net assets
attributable to its
Class B shares in addition to the 0.25% service fee.
MIFDI may
re-allow all or a portion of the service and
distribution fees to
dealers as MIFDI may determine from time to time. The
distribution fee compensates MIFDI for expenses
incurred in
connection with activities primarily intended to result
in the
sale of Class B shares of the Fund, including the
printing of
prospectuses for persons other than shareholders and
the
preparation, printing and distribution of sales
literature and
advertising materials. Pursuant to the Class B Plan,
MIFDI may
include interest, carrying or other finance charges in
its
calculation of Class B distribution expenses, if not
prohibited
from doing so pursuant to an order of or a regulation
adopted by
the SEC. The SEC order permitting the imposition of a
contingent
deferred sales charge on Class B shares does not
currently permit
MIFDI to recover such charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
During the period from July 1, 1993 to September
30, 1993,
MIMI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $276; printing and mailing
of
prospectuses to persons other than current
shareholders, $212;
compensation to dealers, $9,510; compensation to sales
personnel,
$18,315; seminars and meetings, $2,378; travel and
entertainment,
$5,025; general and administrative, $5,712; telephone,
$487; and
occupancy and equipment rental, $1,866.
During the period from October 1, 1993 to June 30,
1994,
MIFDI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $1,472; printing and mailing
of
prospectuses to persons other than current
shareholders, $9,093;
compensation to dealers, $11,078; compensation to sales
personnel, $30,217; seminars and meetings, $2,769;
travel and
entertainment, $9,107; general and administrative,
$14,417;
telephone, $1,271; and occupancy and equipment rental,
$2,492.
During the period of from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
A shares
of the Fund: advertising, $437; printing and mailing
of
prospectuses to persons other than current shareholder,
$9,309;
compensation to dealers, $3,771; compensation to sales
personnel,
$7,500; seminars and meetings, $943; travel and
entertainment,
$2,198; general and administrative, $3,078; telephone,
$273; and
occupancy and equipment rental, $651.
During the period from July 1, 1994 to December
31, 1994,
MIFDI expended the following amounts in marketing Class
B shares
of the Fund: advertising, $43; printing and mailing of
prospectuses to persons other than current
shareholders, $912;
compensation to dealers, $370; compensation to sales
personnel,
$735; seminars and meetings, $92; travel and
entertainment, $215;
general and administrative, $302; telephone, $27; and
occupancy
and equipment rental, $64.
CUSTODIAN
Brown Brothers Harriman & Co., a private bank and
member of
the principal securities exchanges, located at 40 Water
Street,
Boston, Massachusetts 02109, (the "Custodian") has
been retained
to act as the Company's Custodian for assets of the
Fund held in
the United States. Its primary responsibility is to
maintain
custody of the cash and securities in the Fund's
portfolio.
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, Brown Brothers Harriman & Co. has entered into
subcustodial agreements for the holding of the Fund's
foreign
securities. As partial payment for its services, the
Custodian
may receive 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,
effective
November 1, 1994, 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:
$1,000
when net assets are $20 million and under; $1,500 when
net assets
are over $20 million to $75 million; $4,000 when net
assets are
over $75 million to $100 million; and $6,000 when net
assets are
over $100 million. For the two months ended December
31, 1994,
the Fund paid MIMI $2,130. Prior to November 1, 1994,
the Fund
utilized an unrelated entity for Fund accounting and
pricing
services.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Mackenzie Ivy Investor Services Corp. ("MIISC," or
the
"Transfer Agent") acts as the Trust's transfer agent
and dividend
paying agent pursuant to a Transfer Agency and
Shareholder
Services Agreement. For transfer agency and
shareholder
services, the Fund pays MIISC an annual fee of $20.75
per open
account of Class A and Class B shares, and $10.25 per
open
account of Class I shares, payable in equal monthly
installments.
In addition, the Fund pays MIISC a fee of $4.36 for
each account
that is closed, and reimburses MIISC monthly for
out-of-pocket
expenses.
ADMINISTRATOR
MIMI provides various administrative services to
the Trust
pursuant to an Administrative Services Agreement.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants,200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
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 and/or
review of the
Trust's tax returns.
CAPITALIZATION AND VOTING RIGHTS
The Fund results from a reorganization of
Mackenzie Short-
Term U.S. Government Securities Fund, which
reorganization was
approved by shareholders on December 30, 1994. 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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for this Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Growth Fund, Ivy Emerging Growth Fund, Ivy Growth
with Income
Fund, Ivy Money Market Fund, Ivy China Region Fund, Ivy
Latin
America Strategy Fund, Ivy New Century Fund, Ivy Canada
Fund, Ivy
Global Fund and Ivy International Fund, as well as
Class I for
this Fund, Ivy International Fund and Ivy Bond Fund.
In
addition, the Trustees have authorized an additional
class, Class
C, for Ivy Growth with Income Fund issued only to
shareholders of
Mackenzie Growth & Income Fund, a former series of The
Mackenzie
Funds Inc., in connection with the reorganization
between that
fund and Ivy Growth with Income Fund and not offered
for sale to
the public.
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. Shares of each class of the Fund
entitle their
holders to one vote per share (with proportionate
voting for
fractional shares). On matters affecting only the
Fund, only the
shareholders of the Fund are entitled to vote. All
classes of
shares of the Fund will vote together, except with
respect to the
distribution plan applicable to its Class A or Class B
shares or
when a class vote is required by the 1940 Act. On
matters
relating to all funds of the Trust, but affecting the
funds
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 determine that a matter does
not affect
the interests of the Fund, then the shareholders of the
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
"a
majority of the outstanding voting securities" of the
Fund means
the vote of the lesser of: (1) 67% of the shares of
the Fund
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.
The Company'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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
With respect to the submission to shareholder vote
of a
matter requiring separate voting by the Fund, the
matter shall
have been effectively acted upon with respect to the
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 Amended and Restated 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 as if Section 26(c) of
the Act were
applicable.
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
To the knowledge of the Trust, as of March 31,
1995, no
shareholder owned beneficially or of record 5% or more
of the
Fund's outstanding shares, except that of the
outstanding Class A
shares of the Fund, Prestige Bank FSB, 710 Old Clairton
Road,
Pittsburgh, PA 15236, owned of record 123,898.766
shares
(15.76%), First National Bank of Assumption, 141 North
Chestnut
Street, Assumption, Illinois 62510, owned of record
60,273.000
shares (7.66%) and Smith Barney Inc., 388 Greenwich
Street, New
York, New York 10013, owned of record 52,214.586 shares
(6.64%),
and except that of the outstanding Class B shares of
the Fund,
the Estate of H. Wettach, 27 Coach Street, Canadaigua,
New York
14424, owned of record 1,706.572 shares (64.10%), and
First Trust
Corp (custodian) FBO F. Fetkowitz, P.O. Box 173301,
Denver,
Colorado, 80217-3301, owned of record 955.978 shares
(35.90%).
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
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), every
Monday
through Friday (exclusive of national business
holidays). The
Trust's offices will be closed, and net asset value
will not be
calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
call or a
put option will be deducted form its assets and an
equal amount
will be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
The valuations of below investment-grade debt
securities may
be supplied by a pricing agent; if valuations are not
available
through a pricing agent, such valuations may be
supplied through
a broker or otherwise as determined in good faith by
the Board of
Trustees.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
The Fund's Portfolio turnover rate for the
six-month period
ended December 31, 1994 and for the fiscal years ended
June 30,
1994 and 1993 was 143%, 37% and 69%, respectively. A
Portfolio
turnover rate that exceeds 100% involves
correspondingly higher
brokerage commissions and other transaction costs,
which will be
borne directly by the Fund. In addition, short-term
gains
realized from portfolio transactions are taxable to
shareholders
as ordinary income.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 New York Stock 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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed in whole
or in part in securities of the Fund taken at current
values. If
any such redemption in kind is to be made, the Fund
intends to
make an election pursuant to Rule 18f-1 under the 1940
Act. This
will require the Fund to redeem with cash at a
shareholder's
election in any case where the redemption involves less
than
$250,000 (or 1% of the Fund's net asset value at the
beginning of
each 90-day period during which such redemptions are in
effect,
if that amount is less than $250,000). Should payment
be made in
securities, the redeeming shareholder may incur
brokerage costs
in converting such securities to cash.
Subject to state law restrictions, 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
the
applicable minimum will be redeemed simultaneously when
IMI 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 proceeds to the shareholder.
Such
redemptions will be taxable events. 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 Board
of Trustees may increase or decrease the minimum
shareholder
account balance which may be subject to redemption from
time to
time.
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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
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 advisor 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; (b) derive in
each
taxable year less than 30% of its gross income from the
sale or
other disposition of certain assets held less than
three months,
namely: (i) stock or securities; (ii) options,
futures, or
forward contracts (other than those on foreign
currencies); or
(iii) foreign currencies (or options, futures, or
forward con-
tracts on foreign currencies) that are not directly
related to
the Fund's principal business of investing in stock or
securities
(or options and futures with respect to stock or
securities) (the
"30% Limitation"); and (c) 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.
DISTRIBUTIONS
Distributions of investment company taxable income
are
taxable to a U.S. shareholder as ordinary income,
whether paid in
cash or shares. If the Fund receives dividends from
U.S.
corporations, a portion of the dividends paid by the
Fund to a
corporate shareholder may qualify for 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 as long-term capital gains, whether paid in
cash or in
shares, regardless of how long the shareholder has held
the
Fund's shares and 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. Investors
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 generally 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 a 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 regulated investment
company 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.
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. In addition,
if the Fund
invests in certain high yield OID obligations issued by
corporations, a portion of the OID accruing on such
obligations
may be eligible for the deduction for dividends
received by
corporations. In such event, dividends of investment
company
taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such
portion of
accrued OID, may be eligible for this deduction for
dividends
received by corporate shareholders if so designated by
the Fund
in a written notice to shareholders.
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 includible 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.
OPTIONS AND HEDGING TRANSACTIONS
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.
Certain options, futures contracts and forward
contracts in
which the Fund may invest are "section 1256 contracts."
Gains or
losses on section 1256 contracts generally are
considered 60%
long-term and 40% short-term capital gains or losses;
however,
foreign currency gains or losses (as discussed below)
arising
from certain section 1256 contracts may be treated as
ordinary
income or loss. Also, section 1256 contracts held by
the Fund at
the end of each taxable year (and, generally, for
purposes of the
4% excise tax, on October 31 of each year) are
"marked-to-market"
(that is, treated as sold at fair market value),
resulting in
unrealized gains or losses being treated as though they
were
realized.
Generally, the hedging transactions undertaken by
the Fund
may result in "straddles" for U.S. 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 the
losses are realized. Because only a few regulations
implementing
the straddle rules have been promulgated, the tax
consequences to
the Fund of engaging in hedging transactions are not
entirely
clear. Hedging transactions 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 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 may be distributed to shareholders, and which
will be taxed
to them as ordinary income or long-term capital gain,
may be
increased or decreased as compared to a fund that did
not engage
in such hedging transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
contracts and forward contracts.
CURRENCY FLUCTUATIONS - "SECTION 988" GAINS OR LOSSES
Under the Code, 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 debt
securities
denominated in a foreign currency and on disposition of
certain
futures contracts, forward contracts and options, gains
or losses
attributable to fluctuations in the value of 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 or losses, referred to under the
Code as
"section 988" gains or losses, may increase or decrease
the
amount of the Fund's investment company taxable income
to be
distributed to its shareholders as ordinary income.
FOREIGN WITHHOLDING TAXES
Income received by the Fund from sources within
foreign
countries may be subject to withholding and other taxes
imposed
by such countries.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund invests in stock of certain foreign
investment
companies either directly or through ADRs, the Fund may
be
subject to U.S. federal income taxation on a portion of
any
"excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be
determined by
allocating such distribution or gain ratably to each
day of the
Fund's holding period for the stock. The distribution
or gain so
allocated to any taxable year of the Fund, other than
the taxable
year of the excess distribution or disposition, would
be taxed to
the Fund at the highest ordinary income rate in effect
for such
year, and the tax would be further increased by an
interest
charge to reflect the value of the tax deferral deemed
to have
resulted from the ownership of the foreign company's
stock. Any
amount of distribution or gain allocated to the taxable
year of
the distribution or disposition would be included in
the Fund's
investment company taxable income and, accordingly,
would not be
taxable to the Fund to the extent distributed by the
Fund as a
dividend to its shareholders.
The Fund may be able to make an election, in lieu
of being
taxable in the manner described above, to include
annually in
income its pro rata share of the ordinary earnings and
net
capital gain of the foreign investment company,
regardless of
whether it actually received any distributions from the
foreign
company. These amounts would be included in the Fund's
investment company taxable income and net capital gain
which, to
the extent distributed by the Fund as ordinary or
capital gain
dividends, as the case may be, would not be taxable to
the Fund.
In order to make this election, the Fund would be
required to
obtain certain annual information from the foreign
investment
companies in which it invests, which in many cases may
be
difficult to obtain. Alternatively, the Fund may be
eligible for
another election that would involve marking to market
its PFIC
stock at the end of each taxable year, with any
resulting mark to
market gain being reported as ordinary income. No mark
to market
losses would be recognized. The effect of this
election would be
to treat excess distributions and gain on dispositions
as
ordinary income which is not subject to a fund-level
tax when
distributed to shareholders as a dividend.
BACKUP WITHHOLDING
The Fund will be required to report to the
Internal Revenue
Service ("IRS") all 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. In many states, Fund distributions which
are derived
from interest on certain U.S. government obligations
are exempt
from taxation. 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
Comparisons of the Fund's performance may be made
with
respect to various unmanaged indices (including the
Toronto Stock
Exchange 300, S&P 100, S&P 500, Dow Jones Industrial
Average and
Major Market Index) which assume reinvestment of
dividends, but
do not reflect deductions for administrative and
management
costs. The Fund also may be compared to Lipper's
Analytical
Reports, reports produced by a widely used independent
research
firm that ranks mutual funds by overall performance,
investment
objectives and assets, or to Wiesenberger Reports.
Lipper
Analytical Services does not include sales charges in
computing
performance. Performance information for the Fund may
be
compared, in advertisements, sales literature and
reports to
shareholders, to the Consumer Price Index (measure for
inflation)
to assess the real rate of return from an investment in
the Fund,
other groups of mutual funds tracked by Lipper
Analytical
Services, or tracked by other services, companies,
publications
or persons who rank mutual funds on overall performance
or other
criteria. Further information on comparisons is
contained in the
Prospectus for
the Fund. Performance rankings will be based on
historical
information and are not intended to indicate future
performance.
In addition, the Trust may, from time to time,
include the
yield and the average annual total return of shares of
the Fund
in advertisements, promotional literature or reports to
shareholders or prospective investors.
YIELD. Quotations of yield for a specific class
of shares
of the Fund will be based on all investment income
attributable
to that class earned during a particular 30-day (or one
month)
period (including dividends and interest), less
expenses
attributable to that class accrued during the period
("net
investment income"), and will be computed by dividing
the net
investment income per share of that class earned during
the
period by the maximum offering price per share (in the
case of
Class A and Class B shares) or the net asset value per
share (in
the case of Class I shares) on the last day of the
period,
according to the following formula:
YIELD = 2[({(a-b)/cd} + 1){superscript
6}-1]
Where: a = dividends and interest earned
during the
period attributable to a
specific class
of shares,
b = expenses accrued for the
period
attributable to that class
(net of
reimbursements),
c = the average daily number of
shares of
that class outstanding during
the period
that were entitled to receive
dividends,
and
d = the maximum offering price per
share (in
the case of Class A shares) or
the net
asset value per share (in the
case of
Class I shares) on the last
day of the
period.
The yield for Class A1 *[Shares of the Fund
outstanding as
of June 27, 1993, have been designated as "Class A"
shares of the
Fund.] shares of the Fund for the 30-day period ended
December
30, 1994 was 6.58%. There were no Class I shares of
the Fund
outstanding at December 30, 1994.
From commencement until September 20, 1994, this
Fund
(formerly Mackenzie Adjustable U.S. Government
Securities Trust)
had an investment objective of seeking a high level of
current
income, consistent with lower volatility of principal.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS.
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, the
maximum 1.00% sales charge is deducted from the initial
$1,000
payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
are determined to the nearest 1/100 of 1%.
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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
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"). Initial
sales charges are not taken into account in calculating
Non-
Standardized Return; a sales charge, if deducted, would
reduce
the return.
The following table summarizes the calculation of
Standardized and Non-Standardized Return for the Class
A and
Class I shares of the Fund for the periods
indicated.[#] The
inception date for Class B shares of the Fund is
January 1, 1995.
STANDARDIZED
RETURN[1]
CLASS A[3] CLASS B
CLASS I[4]
One year ended
December 31, 1994: (3.25)%[5] N/A
(5.62)%[7]
Five years ended
December 31, 1994: N/A N/A
N/A
Inception[*] to
December 31,
1994:[13] 2.69%[6] N/A
(2.04)%[8]
NON-STANDARDIZED
RETURN[2]
CLASS A[3] CLASS B
CLASS I[4]
One year ended
December 31, 1994: .26%[5] N/A
(.66%)[11]
Five years ended
December 31, 1994: N/A N/A
N/A
Inception[*] to
December 31,
1994:[13] 3.67%[10] N/A
.50%[12]
____________
[1] The Standardized Return figures for Class A shares
reflect
the deduction of the maximum initial sales charge
of 1.00%.
[2] The Non-Standardized Return figures for Class A
shares do
not reflect the deduction of any initial sales
charge.
[3] Shares of the Fund outstanding as of June 27, 1993
have been
redesignated as "Class A" shares of the Fund.
[4] Class I shares are not subject to an initial sales
charge;
therefore, the Non-Standardized Return figures
would be
identical to the Standardized Return figures.
[5] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (4.44)%.
[6] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been 1.86%.
[7] The Standardized Return figure reflects expense
reimbursement. Without expense reimbursement, the
Standardized Return would have been (6.79)%.
[8] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (2.99)%.
[9] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (.97)%.
[10] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been 2.84%.
[11] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (1.88)%.
[12] The Non-Standardized Return figure reflects
expense
reimbursement. Without expense reimbursement, the
Non-
Standardized Return would have been (.47)%.
[13] The total return for a period less than a full
year is
calculated on an aggregate basis and is not
annualized.
[#] Until December 31, 1994, Mackenzie Investment
Management
Inc. served as investment adviser to the Fund,
which until
that date was a series of The Mackenzie Funds Inc.
[*] The inception date for the Fund (and the Class A
shares of
the Fund) was April 18, 1991; the inception date
for the
Class I shares of the Fund was June 28, 1993.
From
commencement until September 20, 1994, the Fund
(formerly
Mackenzie Adjustable U.S. Government Securities
Trust) had
an investment objective of seeking a high level of
current
income, consistent with lower volatility of
principal.
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
Fund 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 the periods
indicated,
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
the
Cumulative Total Return for the Class A and Class I
shares of the
Fund for the periods indicated, assuming the maximum
1.00% sales
charge HAS been assessed. No data is available for
Class B
shares of the Fund, since the inception date of this
class was
January 1, 1995.
CUMULATIVE TOTAL RETURN FOR PERIOD ENDED DECEMBER
31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A (3.25)% N/A[*]
10.47%
Class B N/A{*] N/A[*]
N/A[*]
Class I (5.62)% N/A[*]
(3.24)%
The following table summarizes the calculation of
Cumulative
Total Return for the Class A, Class B and Class I
shares of the
Fund for the periods indicated, assuming the maximum
1.00% sales
charge HAS NOT been assessed.
CUMULATIVE TOTAL RETURN FOR PERIOD ENDED DECEMBER
31, 1994
SINCE
ONE YEAR FIVE YEAR
INCEPTION
Class A .26% N/A*
(.66)%
Class B N/A* N/A* N/A*
Class I (.66)% N/A* .80%
____________
[#] Until December 31, 1994, Mackenzie Investment
Management
Inc. served as investment adviser to the Fund,
which until
that date was a series of The Mackenzie Funds Inc.
[*] Cumulative total return quotations are not
presented because
no shares of the class were outstanding during the
time
periods indicated.
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
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
DIRECTOR
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 Portfolio of Investments as of December 31,
1994, the
Statement of Assets and Liabilities as of December 31,
1994, the
Statement of Operations for the fiscal year ended June
30, 1994
and for the six-month period ended December 31, 1994,
the
Statement of Changes in Net Assets for the six-month
period ended
December 31, 1994 and for the fiscal years ended June
30, 1994
and June 30, 1993, Financial Highlights, the Notes to
Financial
Statements, and Report of Independent Accountants are
included in
the Fund's December 31, 1994 Semi-Annual Report to
shareholders
and June 30, 1994 Annual Report to shareholders, which
are
incorporated by reference into this SAI. Copies of the
Fund's
December 31, 1994 Semi-Annual Report to Shareholders,
and this
SAI may be obtained upon request and without charge
from the Fund
or MIFDI at the addresses and telephone numbers
provided on the
cover of this SAI.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
IVY INTERNATIONAL BOND FUND
a series of
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Statement of Additional Information
April 30, 1995
(as supplemented on January 1, 1996)
Ivy Fund (the "Trust") is a diversified, open-end
management
investment company that currently consists of thirteen
fully
managed portfolios. This Statement of Additional
Information
("SAI") describes one of the portfolios, Ivy
International Bond
Fund (the "Fund"). The other twelve portfolios of the
Trust are
described in separate Statements of Additional
Information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated
April 30, 1995
(as supplemented on January 1, 1996) (the
"Prospectus"), which
may be obtained upon request and without charge from
the Trust at
the Distributor's address and telephone number listed
below.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Telephone (800) 456-5111
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES
AMERICAN DEPOSITORY RECEIPTS (ADRS)
FOREIGN SECURITIES
FOREIGN CURRENCIES
FORWARD FOREIGN CURRENCY CONTRACTS
HIGH YIELD BONDS
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT
AGREEMENTS
ZERO COUPON BONDS
RESTRICTED AND ILLIQUID SECURITIES
OPTIONS TRANSACTIONS
GENERAL
WRITING CALL OPTIONS ON INDIVIDUAL
SECURITIES
RISKS OF OPTIONS TRANSACTIONS
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL
INTEREST RATE FUTURES CONTRACTS
OPTIONS ON INTEREST RATE FUTURES CONTRACTS
FOREIGN CURRENCY FUTURES CONTRACTS AND
RELATED
OPTIONS
RISKS ASSOCIATED WITH FUTURES AND RELATED
OPTIONS
COMBINED TRANSACTIONS
INVESTMENT RESTRICTIONS
ADDITIONAL RESTRICTIONS
ADDITIONAL RIGHTS AND PRIVILEGES
AUTOMATIC INVESTMENT METHOD
EXCHANGE OF SHARES
INITIAL SALES CHARGE SHARES
CONTINGENT DEFERRED SALES CHARGE SHARES.
CLASS A
CLASS B
LETTER OF INTENT
RETIREMENT PLANS
INDIVIDUAL RETIREMENT ACCOUNTS
QUALIFIED PLANS
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT")
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS
REINVESTMENT PRIVILEGE
RIGHTS OF ACCUMULATION
SYSTEMATIC WITHDRAWAL PLAN
BROKERAGE ALLOCATION
TRUSTEES AND OFFICERS
PERSONAL INVESTMENTS BY EMPLOYEES OF
COMPENSATION TABLE
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
SERVICES
DISTRIBUTION SERVICES
CUSTODIAN
FUND ACCOUNTING SERVICES
TRANSFER AGENT AND DIVIDEND PAYING AGENT
ADMINISTRATOR
AUDITORS
CAPITALIZATION AND VOTING RIGHTS
NET ASSET VALUE
PORTFOLIO TURNOVER
REDEMPTIONS
CONVERSION OF CLASS B SHARES
TAXATION
GENERAL
DISTRIBUTIONS
DISPOSITION OF SHARES
HEDGING TRANSACTIONS
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR
LOSSES
DISCOUNT
FOREIGN WITHHOLDING TAXES
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
BACKUP WITHHOLDING
OTHER TAXATION
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION
FINANCIAL STATEMENTS
APPENDIX A DESCRIPTION OF STANDARD & POOR'S
CORPORATION
("S&P") AND MOODY'S INVESTORS SERVICE,
INC.
("MOODY'S") CORPORATE BOND AND
COMMERCIAL PAPER
RATINGS
INVESTMENT OBJECTIVES AND POLICIES
Ivy Fund (the "Trust") is organized as an open-end
management investment company with thirteen series of
shares.
One series of the Trust, Ivy International Bond Fund
(the
"Fund"), is described in this SAI.
The Fund's investment objectives and general
investment
policies are described in the Fund's Prospectus.
Additional
information concerning the characteristics of the
Fund's
investments is set forth below.
AMERICAN DEPOSITORY RECEIPTS (ADRS)
The Fund may purchase sponsored or unsponsored
American
Depository Receipts ("ADRs"). ADRs are
dollar-denominated
receipts issued generally by U.S. banks that represent
the
deposit with the bank of a foreign company's security.
ADRs are
publicly traded on exchanges or over-the-counter
("OTC") in the
United States. Ownership of unsponsored ADRs may not
entitle the
Fund to financial or other reports from the issuer to
which it
might otherwise be entitled as the owner of sponsored
ADRs.
FOREIGN SECURITIES
Investors should recognize that investing in
foreign
securities involves certain special considerations,
including
those set forth below and in the Fund's Prospectus
under
"Investing In International Bond Markets" and "Special
Risk
Considerations," which are not typically associated
with
investing in United States securities and which may
affect the
Fund's performance favorably or unfavorably.
Foreign stock 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. The
inability to dispose of portfolio securities due to
settlement
problems could result either in losses to the Fund due
to
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. Fixed commissions
on some
foreign securities exchanges are generally higher than
negotiated
commissions on U.S. exchanges, although IMI will
endeavor to
achieve the most favorable net results on each Fund's
portfolio
transactions. Further, the Fund may encounter
difficulties or be
unable to pursue legal remedies and obtain judgment in
foreign
courts. It may be more difficult for the Fund's agents
to keep
currently informed about corporate actions such as
stock
dividends or other matters which 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.
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,
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 the U.S.
markets. The
Fund's share price will reflect the movements of both
the
different stock and bond markets in which it is
invested and of
the currencies in which the investments are
denominated; 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.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency
exchange
contracts in order to protect against uncertainty in
the level of
future foreign exchange rates in the purchase and sale
of
securities, but not for speculative purposes. A
forward foreign
currency exchange contract involves an obligation to
purchase or
sell a specific currency at a future date, which may be
any fixed
number of days from the date of the contract agreed
upon by the
parties, at a price set at the time of the contract.
These
contracts may be bought or sold to protect the Fund
against a
possible loss resulting from an adverse change in the
relation-
ship between foreign currencies and the U.S. dollar.
Although
such 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 that might result
should
the value of such currencies increase.
The Fund will not enter into forward contracts or
maintain a
net exposure to such contracts where the consummation
of the
contract would obligate the Fund to deliver an amount
of currency
in excess of the value of the Fund's portfolio
securities or
other assets denominated in that currency. Further,
the Fund
generally will not enter into a forward contract with a
term of
greater than one year.
The Fund will hold cash, U.S. Government
Securities or other
high-grade debt securities in a segregated account
with its
custodian in an amount equal (on a daily
marked-to-market basis)
to the amount of the commitments under these contracts.
At the
maturity of a forward contract, the Fund may either
accept or
make delivery of the currency specified in the
contract, or,
prior to maturity, enter into a closing purchase
transaction
involving the purchase or sale of an offsetting
contract.
Closing purchase transactions with respect to forward
contracts
are usually effected with the currency trader who is a
party to
the original forward contract.
HIGH YIELD BONDS
The Fund may invest in corporate debt securities
rated Baa
or lower by Moody's Investors Service, Inc. ("Moody's")
or BBB or
lower by Standard & Poor's Corporation ("S&P). The
Fund will
not, however, invest in securities that, at the time of
investment, are rated lower than C by either Moody's or
S&P.
Securities rated Baa or BBB (and comparable unrated
securities)
are considered by major credit-rating organizations to
have
speculative elements as well as investment-grade
characteristics.
Securities rated lower than Baa or BBB (and comparable
unrated
securities) are commonly referred to as "high yield" or
"junk"
bonds and 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. See Appendix A for a more complete
description of
the ratings assigned by Moody's and S&P and their
respective
characteristics.
While IMI may refer to ratings issued by
established credit
rating agencies, it is not IMI's policy to rely
exclusively on
such ratings, but rather to supplement such ratings
with its own
independent and ongoing review of credit quality. The
Fund's
achievement of its investment objective may, to the
extent of its
investment in high yield bonds, be more dependent upon
IMI's
credit analysis than would be the case if the Fund were
investing
in higher quality bonds. Should the rating of a
portfolio
security be downgraded, IMI will determine whether it
is in the
Fund's best interest to retain or dispose of the
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.
The secondary market on which high yield bonds are
traded
may be less liquid than the market for higher grade
bonds. Less
liquidity in the secondary trading market could
adversely affect
the price at which the Fund could sell a high yield
bond, and
could adversely affect 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 values and liquidity of high
yield
bonds, especially in a thinly traded market. When
secondary
markets for high yield securities are less liquid than
the
markets for higher grade securities, it may be more
difficult to
value the securities because such valuation may require
more
research, and elements of judgment may play a greater
role in the
valuation because there is less reliable, objective
data
available.
Furthermore, prices for high yield bonds may be
affected by
legislative and regulatory developments. For example,
federal
rules require savings and loan institutions to reduce
gradually
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 on
these securities and regulate corporate restructurings.
Such
legislation may significantly depress the prices of
outstanding
securities of this type.
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT AGREEMENTS
When the Fund purchases new issues of securities
on a when-
issued basis, the Fund's custodian will establish a
segregated
account for the Fund consisting of cash, U.S.
Government
Securities or other high-grade debt securities equal to
the
amount of the commitment. If the value of securities
in the
account should decline, additional cash or securities
will be
placed in the account so that the market value of the
account
will equal the amount of such commitments by the Fund
on a daily
basis.
Securities purchased on a when-issued basis and
the
securities held in the Fund's portfolio are subject to
changes in
market value based upon various factors including
changes in the
level of market interest rates. Generally, the value
of such
securities will fluctuate inversely to changes in
interest rates,
i.e., they will appreciate in value when market
interest rates
decline and decrease in value when market interest
rates rise.
For this reason, placing securities rather than cash in
the
segregated account may have a leveraging effect on the
Fund's net
assets. That is, to the extent that the Fund remains
substantially fully invested in securities at the same
time that
it has committed to purchase securities on a
when-issued basis,
there will be greater fluctuations in its net assets
than if it
had set aside cash to satisfy its purchase commitment.
Upon the settlement date of the when-issued
securities, the
Fund ordinarily will meet its obligation to purchase
the
securities from available cash flow, use of the cash
(or
liquidation of securities) held in the segregated
account or sale
of other securities. Although it would not normally
expect to do
so, the Fund also may meet its obligation from the sale
of the
when-issued securities themselves (which may have a
current
market value greater or less than the Fund's payment
obligation).
The sale of securities to meet such obligations carries
with it a
greater potential for the realization of capital gains.
The Fund may also enter into firm commitment
agreements for
the purchase of securities at an agreed-upon price on a
specified
future date. During the time that the Fund is
obligated to
purchase such securities, it will maintain in a
segregated
account with its custodian cash, U.S. Government
Securities or
other high-grade debt securities of an aggregate value
sufficient
to make payment for the securities.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds in
accordance with
its credit quality standards. 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. The Fund, if
it holds
zero coupon bonds in its portfolio, however, 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 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 the Fund 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.
RESTRICTED AND ILLIQUID SECURITIES
It is the Fund's policy that restricted
securities,
including restricted securities offered and sold to
"qualified
institutional buyers" under Rule 144A under the
Securities Act of
1933, and any other illiquid securities (including
repurchase
agreements of more than seven days duration and other
securities
which are not readily marketable) may not constitute,
at the time
of purchase, more than 10% of the value of the Fund's
net assets.
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.
Restricted securities may be sold only in privately
negotiated
transactions or in a public offering with respect to
which a
registration statement is in effect under the
Securities Act of
1933. Where a registration statement is required, the
Fund may
be required to bear all or part of the registration
expenses.
There may be a lapse of time 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. If, during
such a
period, adverse market conditions were to develop, the
Fund might
obtain a price less favorable than the price that
prevailed when
it decided to sell. 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, the Fund
will
carefully monitor each of its investments in these
securities,
focusing on such important factors, among others, as
valuation,
liquidity and availability of information. This
investment
practice could have the effect of increasing the level
of
illiquidity of the Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing
these restricted securities.
OPTIONS TRANSACTIONS
GENERAL. The Fund may sell (write)
exchange-listed call
options and purchase put and call options in accordance
with its
investment objectives and policies. 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 an option wishes to terminate the
obligation, he or she 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
cancelled 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. If any call or put
is not
exercised or sold, it will become worthless on its
expiration
date.
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 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 put which 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."
A gain (or a loss) will be realized by the Fund 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 capital gain or loss,
depending upon
the Fund's holding period for the option.
The Fund will not purchase put or call options if
the
aggregate premium paid for such options would exceed
10% of its
net assets at the time of purchase.
WRITING CALL OPTIONS ON INDIVIDUAL SECURITIES.
The Fund may
write (sell) covered call options as described in the
Prospectus.
Covered call options provide the Fund with additional
income on
its portfolio securities or partially protect against
declines in
the value of those securities. A "covered" call option
means
generally that so long as the Fund is obligated as the
writer of
a call option, the Fund will either own the underlying
securities
subject to the option, or hold a call at the same
exercise price,
for the same exercise period, and on the same
securities as the
call written. 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.
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 an 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 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, 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 is
purchased to hedge against price movements in a related
security,
the price of the put or call option may move more or
less than
the price of the related security. In this regard,
trading in
options on certain securities (such as U.S. Government
securities) is relatively new, so that it is impossible
to
predict to what extent liquid markets will develop or
continue.
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. 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.
The Fund may employ hedging strategies with
options on
currencies before the Fund purchases a foreign security
denominated in the hedged currency that the Fund
anticipates
acquiring, during the period the Fund holds the foreign
security,
or between the date the foreign security is purchased
or sold and
the date on which payment therefor is made or received.
Hedging
against a change in the value of a foreign currency in
the
foregoing manner does not eliminate fluctuations in the
prices of
portfolio securities or prevent losses if the prices of
such
securities decline. Furthermore, such hedging
transactions
reduce or preclude the opportunity for gain if the
value of the
hedged currency should change relative to the U.S.
dollar. With
respect to transactions in surrogate currencies, there
is a risk
of loss if there is not a correlation between the
currency in
which the hedge is desired and the surrogate currency.
A position on an option on foreign currencies may
be closed
out only on an exchange which provides a secondary
market for an
option of the same series. Although the Fund will
purchase only
exchange-traded options, there is no assurance that a
liquid
secondary market on an exchange will exist for any
particular
option, or at any particular time. In the event no
liquid
secondary market exists, it might not be possible to
effect
closing transactions in particular options. If the
Fund cannot
close out an exchange-traded option which it holds, it
would have
to exercise its option in order to realize any profit
and would
incur transactional costs on the sale of the underlying
assets.
The Fund's options activities also may have an
impact upon
the level of its portfolio turnover and brokerage
commissions.
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
markets as well as the securities markets and on IMI's
ability to
select the proper type, time and duration of options.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The Fund may enter into futures
contracts and
options on futures contracts. 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 U.S. Government 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,
U.S. Government securities, or other highly liquid debt
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 by held by the Fund.
When selling a futures contact, the Fund will
maintain with
its custodian (and mark-to-market on a daily basis)
liquid assets
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 (and mark-to-market on
a daily
basis) cash, U.S. Government securities, or other
highly liquid
debt 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.
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, U.S. Government securities, or other
highly liquid
debt 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures and options on futures.
INTEREST RATE FUTURES CONTRACTS. An interest rate
futures
contract is an agreement between parties to buy or sell
a
specified debt security at a set price on a future
date. The
financial instruments that underlie interest rate
futures
contracts include, for example, long-term U.S. Treasury
bonds,
U.S. Treasury notes, GNMA certificates, three-month
U.S. Treasury
bills, and Eurodollar instruments. In the case of
futures
contracts traded on U.S. exchanges, the exchange itself
or an
affiliated clearing corporation assumes the opposite
side of each
transaction (i.e., as buyer or seller). A futures
contract may
be satisfied or closed out by delivery or purchase, as
the case
may be in the cash financial instrument or by payment
of the
change in the cash value of the index. Frequently,
using futures
to effect a particular strategy instead of using the
underlying
or related security will result in lower transaction
costs being
incurred.
The Fund may sell interest rate futures contracts
in order
to hedge its portfolio securities whose value may be
sensitive to
changes in interest rates. In addition, the Fund could
purchase
and sell these futures contracts in order to hedge its
holdings
in certain common stocks (such as utilities, banks and
savings
and loans) whose value may be sensitive to changes in
interest
rates. The Fund could sell interest rate futures
contracts in
anticipation of or during a market decline to attempt
to offset
the decrease in market value of its securities that
might
otherwise result. When the Fund is not fully invested
in
securities, it could purchase interest rate futures in
order to
gain rapid market exposure that may in part or entirely
offset
increases in the cost of securities that it intends to
purchase.
As such purchases are made, an equivalent amount of
interest rate
futures contracts will be terminated by offsetting
sales. In a
substantial majority of these transactions, the Fund
would
purchase such securities upon termination of the
futures position
whether the futures position results from the purchase
of an
interest rate futures contract or the purchase of a
call option
on an interest rate futures contract, but under unusual
market
conditions, a futures position may be terminated
without the
corresponding purchase of securities.
OPTIONS ON INTEREST RATE FUTURES CONTRACTS. The
Fund may
also purchase and write put and call options on
interest rate
futures contracts which are traded on a U.S. exchange
or board of
trade and sell or purchase such options to terminate an
existing
position. Options on interest rate futures give the
purchaser
the right (but not the obligation), in return for the
premium
paid, to assume a position in an interest rate futures
contract
at a specified exercise price at a time during the
period of the
option.
Transactions in options on interest rate futures
may enable
the Fund to hedge against the possibility that
fluctuations in
interest rates and other factors may result in a
general decline
in prices of debt securities owned by the Fund.
Assuming that
any decline in the securities being hedged is
accomplished by a
rise in interest rates, the purchase of put options and
sale of
call options on the futures contracts may generate
gains which
can partially offset any decline in the value of the
Fund's
portfolio securities which have been hedged. However,
if after
the Fund purchases or sells an option on a futures
contract, the
value of the securities being hedged moves in the
opposite
direction from that contemplated, the Fund may
experience losses
in the form of premiums on such options which would
partially
offset gains the Fund would have.
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS. 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 options
on futures contracts 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.
The Fund
may engage in futures and related options transactions
for
hedging purposes or to seek to enhance potential gain.
There are
several risks associated with the use of futures
contracts and
options on futures contracts as hedging techniques. A
purchase
or sale of a futures contract may result in losses in
excess of
the amount invested in the futures contract. 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
related
options on securities, including technical influences
in futures
trading and options on futures, 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
related
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 a
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 a 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.
COMBINED TRANSACTIONS. The Fund may enter into
multiple
transactions, including multiple options transactions,
multiple
futures transactions, multiple currency transactions
(including
forward currency contracts) and multiple interest rate
transactions and any combination of futures, options,
currency
and interest rate 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 a 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.
The requirements for qualification as a regulated
investment
company also may limit the extent to which the Fund may
enter
into futures, options or forward contracts. See
"Taxation."
INVESTMENT RESTRICTIONS
The Fund's investment objectives as set forth in
the
Prospectus under "Investment Objectives and Policies,"
together
with the investment restrictions set forth below, are
fundamental
policies of the Fund and may not be changed with
respect to the
Fund without the approval of a majority of the
outstanding voting
shares of the Fund. Under these restrictions, the Fund
may not:
(i) Invest in real estate, real estate mortgage
loans,
commodities, commodity futures contracts or
interests
in oil, gas and/or mineral exploration or
development
programs, although the Fund may purchase
and sell
(a) securities which are secured by real
estate,
(b) securities of issuers which invest or
deal in
real estate, and (c) futures contracts and
related
options;
(ii) Make investments in securities for the
purpose of
exercising control over or management of
the issuer;
(iii) Participate on a joint or a joint and
several basis
in any trading account in securities. The
"bunching"
of orders of the Fund--or of the Fund and
of other
accounts under the investment management of
the
persons rendering investment advice to the
Fund--for
the sale or purchase of portfolio
securities shall
not be considered participation in a joint
securities
trading account;
(iv) Purchase securities on margin, except such
short-term
credits as are necessary for the clearance
of
transactions; the deposit or payment by a
Fund of
initial or variation margin in connection
with
futures contracts or related options
transactions is
not considered the purchase of a security
on margin;
(v) Make loans, except that this restriction
shall not
prohibit (a) the purchase and holding of a
portion of
an issue of publicly distributed debt
securities,
(b) the lending of portfolio securities
(provided
that the loan is secured continuously by
collateral
consisting of U.S. Government securities or
cash or
cash equivalents maintained on daily
marked-to-market
basis in an amount at least equal to the
current
market value of the securities loaned), or
(c) entry
into repurchase agreements with banks or
broker-
dealers;
(vi) Borrow money, except as a temporary measure
for
extraordinary or emergency purposes or
except in
connection with reverse repurchase
agreements
provided that the Fund maintains net asset
coverage
of at least 300% for all borrowings;
(vii) Mortgage, pledge, hypothecate or in any
manner
transfer, as security for indebtedness, any
securities owned or held by the Fund
(except as may
be necessary in connection with permitted
borrowings
and then not in excess of 20% of the Fund's
total
assets); provided, however, this does not
prohibit
escrow, collateral or margin arrangements
in
connection with its use of options, short
sales,
futures contracts and options on future
contracts;
(viii) Purchase the securities of issuers
conducting their
principal business activities in the same
industry if
immediately after such purchase the value
of the
Fund's investments in such industry would
exceed 25%
of the value of the total assets of the
Fund;
(ix) Act as an underwriter of securities;
(x) Make short sales of securities or maintain
a short
position; or
(xii) Issue senior securities, except insofar as
the Fund
may be deemed to have issued a senior
security in
connection with any repurchase agreement or
any
permitted borrowing.
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 and
mineral
leases (other than securities of companies
that
invest in or sponsor such programs);
(iii) purchase or retain securities of any
company if, to
the knowledge of the Trust, officers and
Trustees of
the Trust and officers and directors of the
Manager,
Mackenzie Investment Management Inc.
("MIMI") or
Mackenzie Financial Corporation ("MFC") who
individually own more than 1/2 of 1% of the
securities of that company together own
beneficially
more than 5% of such securities;
(iv) 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 of
companies
(including predecessors) less than three
years old;
(v) invest more than 10% of its net assets
taken at
market value at the time of the investment
in
"illiquid securities" and the Fund may not
invest
more than 5% of its total assets in
restricted
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 Manager'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, to the
Fund's
compliance with certain conditions intended
to
provide liquidity, or to other factors, is
liquid;
(vi) purchase securities of other investment
companies,
except in connection with a merger,
consolidation or
sale of assets, and except that the Fund
may purchase
shares of other investment companies
subject to such
restrictions as may be imposed by the
Investment
Company Act of 1940 (the "1940 Act") and
rules
thereunder or by any state in which shares
of the
Fund are registered;
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.
ADDITIONAL RIGHTS AND PRIVILEGES
The Trust offers to investors, and (except as
noted below)
bears the cost of providing, the following rights and
privileges.
The Trust reserves the right to amend or terminate any
one or
more of such rights and privileges. Notice of
amendments to or
terminations of rights and privileges will be provided
to
shareholders in accordance with applicable law.
Certain of the rights and privileges described
below
reference other funds distributed by MIFDI, which funds
are not
described in this Statement of Additional Information.
These
funds are: Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy
Emerging Growth Fund, Ivy International Fund, Ivy China
Region
Fund, Ivy Latin America Strategy Fund, Ivy New Century
Fund, Ivy
Canada Fund, Ivy Global Fund, Ivy Bond Fund, Ivy
Short-Term Bond
Fund, and Ivy Money Market Fund, the other twelve
series of Ivy
Fund; Mackenzie California Municipal Fund, Mackenzie
Florida
Limited Term Municipal Fund, Mackenzie Limited Term
Municipal
Fund, Mackenzie National Municipal Fund and Mackenzie
New York
Municipal Fund, the five series of Mackenzie Series
Trust
(collectively, with the Fund, the "Ivy Mackenzie
Funds").
Investors should obtain a current prospectus before
exercising
any right or privilege that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method is available for
Class A and
Class B shareholders of the Fund. The minimum initial
and
subsequent investment pursuant to this plan 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.
The Automatic Investment Method may be discontinued at
any time
upon receipt by the Mackenzie Ivy Investor Services
Corp.
("MIISC") of telephone instructions or written notice
to MIISC
from the investor. See "Automatic Investment Method"
in the
Account Application in the Fund's Prospectus.
EXCHANGE OF SHARES
As described in the Fund's Prospectus,
shareholders of the
Fund have an exchange privilege with certain other Ivy
and
Mackenzie Funds. Before effecting an exchange,
shareholders of
the Fund should obtain and read the currently effective
prospectus for the Ivy or Mackenzie 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 Ivy or Mackenzie Fund (or for
shares of
another Ivy or Mackenzie Fund that currently offers
only a single
class of shares) ("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
outstanding
Class A shares that have been invested for a period of
12 months
or longer.) Class A shareholders may also exchange
their Class A
shares for Class A shares of Ivy Money Market Fund (no
initial
sales charge will be assessed at the time of such an
exchange).
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, as described in
the
Prospectus, ("outstanding Class A shares"), for Class A
shares of
another Ivy or Mackenzie Fund (or for shares of another
Ivy or
Mackenzie Fund that currently offers only a single
class of
shares) ("new Class A shares") on the basis of the
relative net
asset value per Class A share, without the payment of
any
contingent deferred sales charge 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 contingent
deferred sales
charge schedule (or period) following an exchange if
such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period), if any,
applicable to
the new Class A shares.
Class A shares of the Fund acquired through an
exchange of
Class A shares of another Ivy or Mackenzie Fund subject
to a
contingent deferred sales charge will be subject to the
Fund's
contingent deferred sales charge schedule (or period)
if such
schedule is higher (or such period is longer) than the
contingent
deferred sales charge schedule (or period) applicable
to the Ivy
or Mackenzie Fund from which the exchange was made.
For purposes of computing the contingent deferred
sales
charge 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 Ivy or Mackenzie Fund ("new Class B shares") on
the basis
of the relative net asset value per Class B share,
without the
payment of any contingent deferred sales charge 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
contingent
deferred sales charge schedule (or period) following an
exchange
if such schedule is higher (or such period is longer)
than the
contingent deferred sales charge 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 Ivy or Mackenzie Fund will be
subject
to the Fund's contingent deferred sales charge schedule
(or
period) if such schedule is higher (or such period is
longer)
than the contingent deferred sales charge schedule (or
period)
applicable to the Ivy or Mackenzie Fund from which the
exchange
was made.
For purposes of both the conversion feature and
computing
the contingent deferred sales charge 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 contingent deferred sales charge
table ("Table
1") applies to Class B shares of the Fund, Ivy Growth
Fund, Ivy
Growth with Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund, Ivy China Region Fund, Ivy Latin
America
Strategy Fund, Ivy New Century Fund, Mackenzie
California
Municipal Fund, Mackenzie National Municipal Fund,
Mackenzie New
York Municipal Fund, Ivy Canada Fund, Ivy Bond Fund and
Ivy
Global Fund ("Table 1 Funds"):
CONTINGENT DEFERRED
SALES
CHARGE AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
SUBJECT TO
CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
The following contingent deferred sales charge
table ("Table
2") applies to Class B shares of Mackenzie Florida
Limited Term
Municipal Fund, Ivy Short-Term Bond Fund and Mackenzie
Limited
Term Municipal Fund ("Table 2 Funds"):
CONTINGENT DEFERRED
SALES
CHARGE AS A
PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT
SUBJECT TO
CHARGE
First 3%
Second 2 1/2%
Third 2%
Fourth 1 1/2%
Fifth 1%
Sixth and thereafter 0%
The contingent deferred sales charge schedule for
Table 1
Funds is higher (and the period is longer) than the
contingent
deferred sales charge schedule (and period) for Table 2
Funds.
If a shareholder exchanges Class B shares of a
Table 1 Fund
for Class B shares of a Table 2 Fund, Table 1 will
continue to
apply to the Class B shares following the exchange.
For example,
an investor may decide to exchange Class B shares of a
Table 1
Fund ("outstanding Class B shares") for Class B shares
of a Table
2 Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 4% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
If a shareholder exchanges Class B shares of a
Table 2 Fund
for Class B shares of a Table 1 Fund, Table 1 will
apply to the
Class B shares following the exchange. For example, an
investor
may decide to exchange Class B shares of a Table 2 Fund
("outstanding Class B shares") for Class B shares of a
Table 1
Fund ("new Class B shares") after having held the
outstanding
Class B shares for two years. The 3% contingent
deferred sales
charge that generally would apply to a redemption of
outstanding
Class B shares held for two years would not be deducted
at the
time of the exchange. If, three years later, the
investor
redeems the new Class B shares, a 2% contingent
deferred sales
charge will be assessed upon the redemption because by
"tacking"
the two year holding period of the outstanding Class B
shares
onto the three year holding period of the new Class B
shares, the
investor will be deemed to have held the new Class B
shares for
five years.
The minimum amount which may be exchanged into a
fund of the
Ivy Mackenzie Funds in which shares are not already
held is
$1,000. No exchange out of the Fund (other than by a
complete
exchange of all shares of the Fund) may be made if it
would
reduce the shareholder's interest in the Fund to less
than
$1,000. Exchanges are available only in states where
the
exchange can be legally made.
Each exchange will be made on the basis of the
relative net
asset values per share of each fund of the Ivy
Mackenzie Funds
next computed following receipt of telephone
instructions by
MIISC or a properly executed request by MIISC.
Exchanges,
whether written or telephonic, must be received by
MIISC by the
close of regular trading on the New York Stock Exchange
(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. This exchange privilege may be
modified
or terminated at any time, upon at least 60 days'
notice when
such notice is required by Securities and Exchange
Commission
("SEC") rules. See "Redemptions."
An exchange of shares in any fund of the Ivy
Mackenzie Funds
for shares in another fund will result in a taxable
gain or loss.
Generally, any such taxable gain or loss 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 Fund's
Prospectus.
Any investor may submit a Letter of Intent stating that
he or she
will invest, over a period of 13 months, at least
$100,000 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
the value (at the applicable offering price) of all
Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy Canada Fund, Ivy Bond Fund, Ivy Short-Term
Bond Fund,
Ivy Global Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie Florida Limited
Term
Municipal Fund, Mackenzie Limited Term Municipal Fund
and
Mackenzie New York Municipal Fund (and shares that have
been
exchanged into Ivy Money Market Fund from any of the
other funds
in the Ivy Mackenzie Funds), held of record by him or
her as of
the date of his or her Letter of Intent as an
accumulation credit
toward the completion of such Letter. During the term
of the
Letter of Intent, the Fund's 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
MIFDI an amount equal to the difference between the
dollar amount
of sales charge which 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 thereof 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 MIFDI may be purchased in a single
application
establishing a single plan account, and shares held in
such an
account may be exchanged among the funds in the Ivy
Mackenzie
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
account
For shareholders whose retirement accounts are
diversified across
several funds of the Ivy Mackenzie Funds, the annual
maintenance
fee will be limited to not more than $20.
The following discussion describes in general
terms 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
Trust 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 MIISC, which may
impose a
charge for establishing the account. Individuals may
wish to
consult their tax advisers before investing IRA assets
in a fund
which 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. However, if one spouse has (or elects to be
treated as
having) no earned income for IRA purposes for a year,
the other
spouse may contribute to an IRA on his or her behalf.
In such a
case, the working spouse may contribute up to the
lesser of
$2,250 or 100% or his or her compensation or earned
income for
the year to IRAs for both spouses, provided that no
more than
$2,000 is contributed to the IRA of one spouse.
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 government
plan. If
he or she (or his or her spouse) is an active
participant, a full
deduction is only available if he or she has adjusted
gross
income that is less than a specified level ($40,000 for
married
couples filing a joint return, $25,000 for single
individuals,
and $0 for a married individual filing a separate
return). The
deduction is phased out ratably for active participants
with
adjusted gross income between certain levels ($40,000
and $50,000
for married individuals filing a joint return, $25,000
and
$35,000 for single individuals, and $0 and $10,000 for
married
individuals filing separate returns). Individuals with
income
above the specified phase-out level may not deduct
their IRA
contributions. 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. 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.
Extremely large distributions in any one year from an
IRA (or
from an IRA and other retirement plans) may also result
in a
penalty tax.
QUALIFIED PLANS: For those self-employed
individuals who
wish to purchase shares of one or more of the funds in
the Ivy
Mackenzie Funds through a qualified retirement plan, a
Custodial
Agreement and a Retirement Plan are available from
MIISC. 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
taken into account under the plan 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 Fund's transfer agent will furnish custodial
services to
the employer and the employees, if any are included as
participants.
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. Sales charges for such
purchases are
the same as those set forth under "Initial Sales Charge
Alternative -- Class A Shares" in the Prospectus. The
special
application for a 403(b)(7) Account is available from
MIISC.
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 has
(1) reached
age 55 and separated from service; (2) died or become
disabled;
(3) used the withdrawal to pay tax-deductible medical
expenses;
(4) taken 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) rolled over the distribution. There is no set-up
fee for
403(b)(7) Accounts and the annual maintenance fee is
$20.00.
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.
REINVESTMENT PRIVILEGE
Investors 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
MIISC 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 $100,000 or more in Class A shares of the Fund. See
"Initial
Sales Charge Alternative -- Class A Shares" in the
Prospectus for
the Fund. 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). It
is also
applicable to current purchases of all of the funds in
the Ivy
Mackenzie Funds (except Ivy Money Market Fund) by any
of the
persons enumerated above, where the aggregate quantity
of Class A
shares of the Fund, Ivy Growth Fund, Ivy Growth with
Income Fund,
Ivy Emerging Growth Fund, Ivy International Fund, Ivy
China
Region Fund, Ivy Latin America Strategy Fund, Ivy New
Century
Fund, Ivy Short-Term Bond Fund, Ivy Canada Fund, Ivy
Bond Fund,
Ivy Global Fund, Mackenzie National Municipal Fund,
Mackenzie
California Municipal Fund, Mackenzie New York Municipal
Fund,
Mackenzie Florida Limited Term Municipal Fund and
Mackenzie
Limited Term Municipal Fund (and shares that have been
exchanged
into Ivy Money Market Fund from any of the other funds
in the Ivy
Mackenzie Funds) and of any other investment company
distributed
by MIFDI, 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 or more for the Fund, Ivy Growth Fund, Ivy
Growth with
Income Fund, Ivy Emerging Growth Fund, Ivy
International Fund,
Ivy China Region Fund, Ivy Latin America Strategy Fund,
Ivy New
Century Fund, Ivy Canada Fund and Ivy Global Fund;
$100,000 or
more for the Ivy Bond Fund, Mackenzie National
Municipal Fund,
Mackenzie California Municipal Fund and Mackenzie New
York
Municipal Fund; $25,000 or more for Mackenzie Florida
Limited
Term Municipal Fund and Mackenzie Limited Term
Municipal Fund; or
$1,000,000 or more for Ivy Short-Term Bond Fund.
At the time an investment takes place, MIISC must
be
notified by the investor or his or her dealer that the
investment
qualifies for the reduced charge on the basis of
previous
investments. The reduced charge is subject to
confirmation of
the investor's holdings through a check of the Fund's
records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic
Withdrawal Plan (a
"Withdrawal Plan") by telephone instructions to MIISC
or by
delivery to MIISC of a written election to so redeem,
accompanied
by a surrender to MIISC of all share certificates then
outstanding in the name of such shareholder, properly
endorsed by
him or her. To be eligible, a shareholder must have at
least
$5000 in the shareholder's 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
use of principal and, to the extent that it does,
depending on
the amount withdrawn, the investor's principal may be
depleted.
A redemption under a Withdrawal Plan is a taxable
event.
Investors contemplating participation 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 or contingent
deferred
sales charges.
An investor may terminate his or her participation
in a
Withdrawal Plan at any time by delivering written
notice to
MIISC. If all shares held by the investor are
liquidated at any
time, the Withdrawal Plan will terminate automatically.
The
Trust or MIISC may terminate the Withdrawal Plan option
at any
time after reasonable notice to shareholders.
BROKERAGE ALLOCATION
Subject to the overall supervision of the
President and the
Board of Trustees of the Trust, IMI 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 attempts to deal directly with the
principal
market makers, except in those circumstances where it
believes
that better prices and execution are available
elsewhere.
IMI 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 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 effect securities transactions
may be used
by IMI in servicing all of its accounts. In addition,
not all of
these services may be used by IMI in connection with
the services
it provides to the Fund or the Trust. IMI may consider
sales of
shares of the Fund as a factor in the selection of
broker-dealers
and may select broker-dealers who provide it with
research
services. IMI will not, however, execute brokerage
transactions
other than at the best price and execution.
As of January 1, 1996, the Fund has not commenced
operations
and thus has not paid any brokerage commissions.
The Fund may, under some circumstances, accept
securities in
lieu of cash as payment for Fund shares. The Fund will
consider
accepting securities only to increase its holdings in a
portfolio
security or to take a new portfolio position in a
security that
IMI 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 Fund shares with securities and may
discontinue
accepting securities as payment for 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 Fund shares will be sold
for net
asset value determined at the same time the accepted
securities
are valued. The Trust will accept only securities
which are
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 applicable laws of
certain states.
TRUSTEES AND OFFICERS
The Trustees and Executive Officers of the Trust,
their
business addresses and principal occupations during the
past five
years are:
POSITION
WITH THE BUSINESS
AFFILIATIONS
NAME, ADDRESS, AGE TRUST AND PRINCIPAL
OCCUPATIONS
John S. Anderegg, Jr. Trustee Chairman,
Dynamics
60 Concord Street Research Corp.
instruments
Wilmington, MA 01887 and controls);
Director,
Age: 71 Burr-Brown Corp.
(operational
amplifiers);
Director,
Metritage
Incorporated
(level
measuring
instruments);
Trustee of
Mackenzie Series
Trust
(1992-present).
Paul H. Broyhill Trustee Chairman, BMC
Fund, Inc.
800 Hickory Blvd. (1983-present);
Chairman,
Golfview Park Broyhill Family
Foundation,
Lenoir, NC 28645 Inc. (1983-
Present);
Age: 71 Chairman and
President,
Broyhill
Investments, Inc.
(1983-present);
Chairman,
Broyhill Timber
Resources
(1983-present);
Management
of a personal
portfolio of
fixed-income and
equity
investments
(1983-present);
Trustee of
Mackenzie Series
Trust
(1988-present);
Director of The
Mackenzie
Funds Inc.
(1988-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager
and Vice
322 Seventh Street President,
Massengill-
Bristol, TN 37620-2218 DeFriece
Foundation
Age:74 (charitable
organization)
(1950-present);
Trustee and
Second Vice
Chairman, East
Tennessee Public
Communications
Corp. (WSJK-
TV)
(1984-present); Trustee
of Mackenzie
Series Trust
(1985-present);
Director of
The Mackenzie
Funds Inc.
(1987-1995).
Michael G. Landry Trustee President,
Chairman and
700 South Federal Hwy. and Director of
Mackenzie
Suite 300 President Investment
Management Inc.
Boca Raton, FL 33432 (1987-present);
President
Age: 49* President and
Director of
[Deemed to be an Ivy Management,
Inc. (1992-
"interested person" present);
Chairman and
of the Trust, as Director of
Mackenzie Ivy
defined under the Investor Services
Corp.
1940 Act.] (1993-present);
Director
and President of
Mackenzie
Ivy Funds
Distribution,
Inc. (1993-1994);
Chairman
and Director of
Mackenzie
Ivy Funds
Distribution,
Inc.
(1994-present);
Director and
President of
The Mackenzie
Funds Inc.
(1987-1995);
Trustee and
President of
Mackenzie
Series Trust
(1987-
present).
Michael R. Peers Trustee Chairman of the
Board,
c/o Brattle, Inc. and Ivy Management,
Inc.
176 Federal Street, Chairman (1984-1991);
Chairman
5th Floor of the of the Board, Ivy
Fund
Boston, MA 02110 Board (1974-present);
Private
Age: 66 Investor.
[Deemed to be an
"interested person"
of the Trust, as
defined under the
1940 Act.]
Joseph G. Rosenthal Trustee Chartered
Accountant
110 Jardin Drive (1958-present);
Trustee
Unit #12 of Mackenzie
Series
Concord, Ontario Canada Trust
(1985-present);
L4K 2T7 Director of The
Mackenzie
Age: 61 Funds Inc.
(1987-1995).
Richard N. Silverman Trustee Formerly
President,
18 Bonnybrook Road Hy-Sil
Manufacturing
Waban, MA 02168 Company, a
division of
Age: 71 Van Leer, U.S.A.,
Inc.
(gift packaging
materials
and metalized
film
products);
Formerly
Director, Waters
Manufacturing Co.
(manufacturer of
electronic
parts); Director,
Panorama
Television
Network.
J. Brendan Swan Trustee President,
Airspray
4701 North Federal Hwy. International,
Inc.;
Suite 465 Joint Managing
Director,
Pompano Beach, FL 33064 Airspray
International
Age: 65 B.V. (an
environmentally
sensitive
packaging
company);
Director, The
Mackenzie Funds
Inc. (1992-
1995); Trustee of
Mackenzie
Series Trust
(1992-
present).
Keith J. Carlson Vice Senior Vice
President
700 South Federal Hwy. President and Director of
Mackenzie
Suite 300 Investment
Management,
Boca Raton, FL 33432 Inc.
(1994-present);
Age: 39 Senior Vice
President,
Secretary and
Treasurer of
Mackenzie
Investment
Management Inc.
(1985-
1994); Senior
Vice
President and
Director of
Ivy Management,
Inc. (1994-
present); Senior
Vice
President,
Treasurer and
Director of Ivy
Management,
Inc. (1992-1994);
Vice
President of The
Mackenzie
Funds Inc.
(1987-1995);
President and
Director of
Mackenzie Ivy
Investor
Services Corp.
(1993-
present); Vice
President of
Mackenzie Series
Trust
(1994-present);
Treasurer
of Mackenzie
Series Trust
(1985-1994);
President and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1994-present);
Executive
Vice President
and Director
of Mackenzie Ivy
Funds
Distribution,
Inc. (1993-
1994).
C. William Ferris Secretary/ Senior Vice
President,
700 South Federal Hwy. Treasurer
Secretary/Treasurer
Suite 300 and Director of
Boca Raton, FL 33432 Mackenzie
Investment
Age: 51 Management Inc.
(1994-
present); Senior
Vice
President,
Finance and
Administration/Compliance
Officer of
Mackenzie
Investment
Management Inc.
(1989-1994);
Senior Vice
President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc.
(1994-present); Senior
Vice President,
Finance and
Administration/Compliance
Officer of Ivy
Management,
Inc. (1992-1994);
Senior
Vice President,
Secretary/Treasurer and
Clerk of Ivy
Management,
Inc. (1989-1994);
Senior
Vice President,
Secretary/Treasurer of
Mackenzie Ivy
Funds
Distribution,
Inc. (1994-
present);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Funds
Distribution, Inc.
(1993-1994);
Secretary/Treasurer and
Director of
Mackenzie Ivy
Investor Services
Corp.
(1993-present);
Secretary/Treasurer of The
Mackenzie Funds
Inc. (1993-
1995);
Secretary/Treasurer
of Mackenzie
Series Trust
(1994-present).
As of March 31, 1995, the Officers and Trustees of
the Trust
as a group owned less than 1% of the outstanding Class
A, Class B
and Class I shares of the Fund.
PERSONNEL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal
securities
transactions, subject to requirements and restrictions
set forth
in IMI's Code of Ethics. The Code of Ethics contains
provisions
and requirements 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, 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.
Additional restrictions apply to portfolio managers,
traders,
research analysts and others involved in the investment
advisory
process. Exceptions to these and other provisions of
the Code of
Ethics may be granted in particular circumstances after
review by
appropriate personnel.
COMPENSATION TABLE
(FISCAL YEAR ENDED DECEMBER 31, 1995)
PENSION OR
RETIREMENT
TOTAL
BENEFITS ESTIMATED
COMPENSA-
AGGREGATE ACCRUED AS ANNUAL
TION FROM
COMPENSA- PART OF BENEFITS
TRUST
NAME, TION FROM FUND UPON
PAID TO
POSITION TRUST EXPENSES RETIREMENT
TRUSTEES
John S. 7,112 N/A N/A
7,112
Anderegg, Jr.
(Trustee)
Paul H. 7,112 N/A N/A
7,112
Broyhill
(Trustee)
Frank W. 7,112 N/A N/A
7,112
DeFriece, Jr.
(Trustee)
Michael G. - 0 - N/A N/A
- 0 -
Landry
(Trustee and
President)
Michael R. - 0 - N/A N/A
- 0 -
Peers
(Trustee and
Chairman of
the Board)
Joseph G. 7,112 N/A N/A
7,112
Rosenthal
(Trustee)
Richard N. 8,000 N/A N/A
8,000
Silverman
(Trustee)
J. Brendan 7,112 N/A N/A
7,112
Swan
(Trustee)
Keith J. - 0 - N/A N/A
- 0 -
Carlson
(Vice President)
C. William - 0 - N/A N/A
- 0 -
Ferris
(Secretary/Treasurer)
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
Ivy Management, Inc. ("IMI") provides business
management
and investment advisory services to the Fund pursuant
to a
Business Management and Investment Advisory Agreement
with the
Trust (the "Agreement"), which was approved on
September 17,
1994, with respect to the Fund by the Board of
Trustees,
including a majority of the Trustees who are neither
"interested
persons" (as defined in the 1940 Act) of the Trust nor
have any
direct or indirect financial interest in the operation
of the
distribution plan (see "Distribution Services") or in
any related
agreement (the "Independent Trustees"). IMI also acts
as manager
and investment advisor to the following investment
companies
registered under the 1940 Act: Ivy Emerging Growth
Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy Bond
Fund, Ivy
International Fund, Ivy Short-Term Bond Fund, Ivy
Canada Fund,
Ivy Global Fund, Ivy New Century Fund, Ivy Latin
America Strategy
Fund, Ivy China Region Fund and Ivy Money Market Fund.
IMI is a
wholly owned subsidiary of MIMI. MIMI currently acts
as manager
and investment adviser to the following investment
companies
registered under the 1940 Act: Mackenzie National
Municipal
Fund, Mackenzie New York Municipal Fund, Mackenzie
California
Municipal Fund, Mackenzie Limited Term Municipal Fund
and
Mackenzie Florida Limited Term Municipal Fund. MIMI is
a
subsidiary of 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 Toronto
Stock
Exchange. MFC is registered in Ontario as a mutual
fund dealer
and advises Ivy Canada Fund.
The 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 Fund's current Prospectus, the 1940 Act and the
provisions of
the Code relating to regulated investment companies,
subject to
policy decisions adopted by the Trust's Board of
Trustees. IMI
also determines the securities to be purchased or sold
by the
Fund and places orders with brokers or dealers who deal
in such
securities.
Under the 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 Funds
with the
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 which 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
arrangement 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.
For business management and investment advisory
services,
the Fund pays IMI a monthly fee at an annual rate of
0.75% of the
Fund's average daily net assets. As of January 1,
1996, the Fund
has not commenced operations and thus has not paid IMI
any
management fees.
Under the 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.
The Agreement provides that if the Fund's total
expenses in
any fiscal year exceed the permissible limit applicable
to the
Fund in any state in which its shares are then
qualified for
sale, IMI will bear the excess expenses. At the
present time,
the most restrictive state expense limitation provision
limits
the Fund's annual expenses (excluding interest, taxes,
distribution expenses, brokerage commissions and
extraordinary
expenses, and other expenses subject to approval by
state
securities administrators) to 2.5% of the first $30
million of
its average daily net assets, 2.0% of the next $70
million and
1.5% of its average daily net assets over $100 million.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses,
and other
extraordinary expenses) to an annual rate of 1.50% of
the Fund's
average daily net assets. As long as the Fund's
expense
limitation continues, it may lower the Fund's expenses
and
increase its yield. The Fund's expense limitation may
be
terminated or revised at any time, at which time the
Fund's
expenses may increase and its yield may be reduced,
depending on
the total assets of the Fund.
The initial term of the Agreement between IMI and
the Fund
commenced on September 17, 1994 and will run for a
period of two
years from that date. The Agreement will continue in
effect with
respect to the Fund for more than the initial period
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 of Trustees. If
the
question of continuance of the Agreement (or adoption
of any new
agreement) is presented to shareholders, continuance
(or
adoption) shall be effected only if approved by the
affirmative
vote of a majority of the outstanding voting securities
of the
Fund. See "Capitalization and Voting Rights."
The Agreement may be terminated with respect to
the Fund at
any time, without payment of any penalty, by a vote of
a majority
of the Board of Trustees, 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 Agreement shall terminate automatically in the
event of its
assignment.
DISTRIBUTION SERVICES
MIFDI serves as the exclusive distributor of the
Class A and
Class B shares of the Fund under an Amended and
Restated
Distribution Agreement with the Trust dated October 23,
1993 (the
"Distribution Agreement"). MIFDI 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 MIFDI. MIFDI distributes shares
of the
Fund on a continuous basis, but reserves the right to
suspend or
discontinue distribution on such basis. MIFDI is not
obligated
to sell any specific amount of Fund shares. Pursuant
to 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.
Pursuant to the Distribution Agreement, MIFDI 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 such
commission,
MIFDI may allow to dealers such concession as MIFDI may
determine
from time to time. Furthermore, MIFDI is entitled to
deduct a
contingent deferred sales charge on the redemption of
Class A
shares sold without an initial sales charge and Class B
shares,
in accordance with, and in the manner set forth in, the
Fund's
Prospectus. MIFDI may re-allow all or a portion of the
contingent deferred sales charge to dealers as MIFDI
may
determine from time to time. As of January 1, 1996,
the Fund has
not commenced operations and thus MIFDI has received no
sales
commissions from sales of Class A shares of the Fund,
and no
contingent deferred sales charges on redemptions of
Class B
shares of the Fund.
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 of Trustees 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 MIFDI on 60 days' written notice to
the Trust
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 MIFDI. 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 whose shares are registered on Form
N-1A 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. At a
meeting held on
December 1-2, 1995, the Board of Trustees of the Trust
adopted a
multi-class plan (the "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 Ivy or Mackenzie
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 Fund has
adopted
pursuant to Rule 12b-1 under the 1940 Act separate
distribution
plans pertaining to its Class A and Class B shares (the
"Class A
Plan" and the "Class B Plan," collectively, the
"Plans"). The
Trustees of the Trust believe that the Plans will
benefit the
Fund and its shareholders and that the Plans should
result in
greater sales and/or fewer redemptions of Trust shares,
although
it is impossible to know for certain the level of sales
and
redemptions of Trust shares in the absence of a Plan or
under an
alternative distribution arrangement.
Under the Fund's Class A Plan and Class B Plan,
the Fund
pays MIFDI 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 shares or Class B shares,
as the case
may be. The services for which service fees may be
paid include,
among other services, 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
the Fund's Plans, payments made out of or charged
against the
assets attributable to the Fund's Class A or Class B
shares must
be in reimbursement for services rendered for or on
behalf of
that Class of the Fund. The expenses not reimbursed in
any one
given 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 Plan, the Fund also pays
MIFDI a
distribution fee, accrued daily and paid quarterly, at
the annual
rate of 0.75% of the average daily net assets
attributable to its
Class B shares. MIFDI may re-allow all or a portion of
the
service and distribution fees to dealers as MIFDI may
determine
from time to time. The distribution fee compensates
MIFDI for
expenses incurred in connection with activities
primarily
intended to result in the sale of Class B shares of the
Fund,
including the printing of prospectuses for persons
other than
shareholders and the preparation, printing and
distribution of
sales literature and advertising materials. Pursuant
to the
Class B Plan, MIFDI may include interest, carrying or
other
finance charges in its calculation of Class B
distribution
expenses, if not prohibited from doing so pursuant to
an order of
or a regulation adopted by the SEC. The SEC order
permitting the
imposition of a contingent deferred sales charge on
Class B
shares does not currently permit MIFDI to recover such
charges.
Among other things, each Plan provides that (1)
MIFDI will
submit to the Board of Trustees of the Trust at least
quarterly,
and the Trustees will review, reports regarding all
amounts
expended under the Plan and the purposes for which such
expenditures were made; (2) the 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 Trust's Board of Trustees, including
the
Independent Trustees, cast in person at a meeting
called for that
purpose; (3) payments by the Fund under the 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 the Plan is in effect, the selection and
nomination
of Trustees who are not "interested persons" (as
defined in the
1940 Act) of the Trust shall be committed to the
discretion of
the Trustees who are not "interested persons" of the
Trust.
MIFDI may make payments for distribution
assistance and for
administrative and accounting services from its own
resources,
which may include the management fees paid by the Fund.
MIFDI
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 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 MIFDI.
A report of the amount expended pursuant to either
Plan, and
the purposes for which such expenditures were incurred,
must be
made to the Board of Trustees for its review at least
quarterly.
As of January 1, 1996, the Fund has not commenced
operations, and
thus MIFDI has not received nor expended any amounts
pursuant to
the Class A or Class B plans.
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 with
respect to the
Class of shares of the Fund to which the Plan relates
at any
time, 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 the Distribution
Plans are
terminated (or not renewed) with respect to one or more
funds (or
Class of shares thereof) of the Trust, they may
continue in
effect with respect to any fund (or Class of shares
thereof) as
to which they have not been terminated (or have been
renewed).
CUSTODIAN
Brown Brothers Harriman & Co. ("Brown Brothers"),
a private
bank and member of the principal securities exchanges,
located at
40 Water Street, Boston, Massachusetts 02109, (the
"Custodian")
has been retained to act as custodian of the Trust's
investments.
Its primary responsibility is to maintain custody of
the cash and
securities in the Fund's portfolio. 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, Brown Brothers
Harriman &
Co. has entered into subcustodial agreements for the
holding of
the Fund's foreign securities. Brown Brothers may
receive, as
partial payment for its services, 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.
TRANSFER AGENT AND DEVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder
Service
Agreement, MIISC, a wholly owned subsidiary of MIMI, is
the
transfer agent. The Fund pays a monthly fee at an
annual rate of
$20.75 per open account. In addition, the Fund pays a
monthly
fee at an annual rate of $4.36 per account that is
closed plus
certain out-of-pocket expenses. As of January 1, 1996,
the Fund
has not commenced operations and has thus paid MIMI no
fees
pursuant to the agreement.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement,
MIMI
provides certain administrative services to the Fund.
As
compensation for these services, the Fund pays MIMI a
monthly fee
at the annual rate of .10% of its average daily net
assets. As
of January 1, 1996, the Fund had not commenced
operations, and
thus has paid no fees pursuant to the agreement.
AUDITORS
Coopers & Lybrand L.L.P., independent certified
public
accountants, 200 East Las Olas Boulevard, Suite 1700,
Ft.
Lauderdale, Florida 33301, has been selected as
auditors for the
Trust. The audit services performed by Coopers &
Lybrand L.L.P.
include audits of the annual financial statements of
each of the
funds of the Trust. Other services provided primarily
relate to
filings with the SEC and the preparation and review of
the
Trust's tax returns.
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 Amended and Restated 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 thirteen series, each of which
represents a fund.
The Trustees have further authorized the issuance of
Classes A
and B for the Fund, Ivy Bond Fund, Ivy International
Bond Fund,
Ivy Canada Fund, Ivy Global Fund, Ivy Short-Term Bond
Fund, Ivy
Growth Fund, Ivy Emerging Growth Fund, Ivy Growth with
Income
Fund, Ivy China Region Fund, Ivy Latin America Strategy
Fund, Ivy
Money Market Fund, Ivy New Century Fund and Ivy
International
Fund, as well as Class I for Ivy Short-Term Bond Fund,
Ivy Bond
Fund and Ivy International Fund. In addition, the
Trustees have
authorized an additional class, Class C, for Ivy Growth
with
Income Fund issued only to shareholders of Mackenzie
Growth &
Income Fund, a former series of The Mackenzie Funds
Inc., in
connection with the reorganization between that fund
and Ivy
Growth with Income Fund and not offered for sale to the
public.
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).
On matters affecting only the Fund, only the
shareholders of the
Fund are entitled to vote. All Classes of shares of
the Fund
will vote together, except with respect to the
distribution plan
applicable to its Class A or Class B shares or when a
Class vote
is required by the 1940 Act. On matters relating to
all funds of
the Trust, but affecting the funds 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
determine that a matter does not affect the interests
of the
Fund, then the shareholders of the Fund will not be
entitled to
vote on that matter. Matters which 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 Statement of Additional
Information 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 the Fund, the
matter shall
have been effectively acted upon with respect to the
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 Amended and Restated 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 as if Section 26(c) of
the Act were
applicable.
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 of Trustees, in
which case
the holders of the remaining shares would not be able
to elect
any Trustees.
As of January 1, 1996 no shares of the Fund have
been
issued.
Under Massachusetts law, the Trust's shareholders
could,
under certain circumstances, be held personally liable
for the
obligations of the Trust. However, the Amended and
Restated
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 Amended and Restated Declaration
of Trust
provides for indemnification out of Fund property for
all loss
and expense of any shareholder of a Fund held
personally liable
for the obligations of that 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.
NET ASSET VALUE
The share price, or value, for the separate
Classes of
shares of the Fund is called the net asset value per
share. The
net asset value per share of the Fund is computed by
dividing the
value of the assets of the Fund, less its liabilities,
by the
number of shares of the Fund outstanding. For the
purposes of
determining the aggregate net assets of the Fund, cash
and
receivables will be valued at their realizable amounts.
A
security listed or traded on a recognized stock
exchange or
NASDAQ is valued at its last sale price on the
principal exchange
on which the security is traded. 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. If no
sale is reported at that time, the average between the
current
bid and asked price is used. All other securities for
which OTC
market quotations are readily available are valued at
the average
between the current bid and asked price. Interest will
be
recorded as accrued. Securities and other assets for
which
market prices are not readily available are valued at
fair value
as determined by IMI and approved in good faith by the
Board of
Trustees. Money market instruments of the Fund are
valued at
market value, except that instruments maturing within
60 days of
the valuation date are valued at amortized cost.
The Fund's liabilities are allocated between its
Classes.
The total of such liabilities allocated to a Class plus
that
Class's distribution fee and any other expenses
specially
allocated to that Class are then deducted from the
Class's
proportionate interest in the Fund's assets, and the
resulting
amount for each Class is divided by the number of
shares of that
Class outstanding to produce the net asset value per
share.
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), every
Monday
through Friday (exclusive of national business
holidays). The
Trust's offices will be closed, and net asset value
will not be
calculated, on the following national business
holidays: New
Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Veterans Day, Thanksgiving
Day and
Christmas Day. On those days when either or both of
the Fund's
Custodian or the New York Stock Exchange close early as
a result
of such day being a partial holiday or otherwise, the
right is
reserved to advance the time on that day by which
purchase and
redemption requests must be received.
When the Fund writes an option, an amount equal to
the
premium received by the Fund is included in the Fund's
Statement
of Assets and Liabilities as an asset and as an
equivalent
liability. The amount of the liability will be
subsequently
marked-to-market daily to reflect the current market
value of the
option written. The current market value of a written
option is
the last sale on the principal exchange on which such
option is
traded or, in the absence of a sale, the last offering
price.
The premium paid by the Fund for the purchase of a
call or a
put option will be deducted from its assets and an
equal amount
will be included in the asset section of the Fund's
Statement of
Assets and Liabilities as an investment and
subsequently adjusted
to the current market value of the option. For
example, if the
current market value of the option exceeds the premium
paid, the
excess would be unrealized appreciation and,
conversely, if the
premium exceeds the current market value, such excess
would be
unrealized depreciation. The current market value of a
purchased
option will be the last sale price on the principal
exchange on
which the option is traded or, in the absence of a
sale, the last
bid price. If the Fund exercises a call option which
it has
purchased, the cost of the security which the Fund
purchased upon
exercise will be increased by the premium originally
paid.
Valuations of below investment-grade debt
securities may be
supplied by a pricing agent; if valuations are not
available
through a pricing agent, such valuations may be
supplied through
a broker or otherwise as determined in good faith by
the Board of
Trustees.
The sale of shares of the Fund 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 of Trustees whenever in its judgment it is in
the best
interest of the Fund to do so.
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. The annual
Portfolio
turnover rates for the Fund are provided in the Fund's
Prospectus
under "Financial Highlights."
The Fund's Portfolio turnover rate is calculated
by dividing
the lesser of purchases or sales of portfolio
securities for the
fiscal year by the monthly average of the value of the
portfolio
securities owned by the Fund during the fiscal year.
For
purposes of determining such portfolio turnover, all
securities
whose maturities at the time of acquisition were one
year or less
are excluded.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset
value
next determined after a proper redemption request has
been
received by MIISC, less any applicable contingent
deferred sales
charge.
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 New York Stock Exchange is closed
(other than
customary weekend and holiday closing) 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
fairly to 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.
Under unusual circumstances, when the Board of
Trustees
deems it in the best interest of the Fund's
shareholders, the
Fund may make payment for shares repurchased or
redeemed, in
whole or in part, in securities of the Fund taken at
current
values. If any such redemption in kind is to be made,
the Fund
intends to make an election pursuant to Rule 18f-1
under the 1940
Act. This will require the Fund to redeem with cash at
a
shareholder's election in any case where the redemption
involves
less than $250,000 (or 1% of the Fund's net asset value
at the
beginning of each 90-day period during which such
redemptions are
in effect, if that amount is less than $250,000).
Should payment
be made in securities, the redeeming shareholder may
incur
brokerage costs in converting such securities to cash.
Subject to state law restrictions, 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 sum 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
procedures, the
Fund may be liable for any losses due to unauthorized
or
fraudulent telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Fund's 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: (i) 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.
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 advisor about the tax consequences to
them of
investing in the Fund.
GENERAL
The Fund intends to qualify annually and elect to
be treated
as a regulated investment company under Subchapter M of
the Code.
In order to qualify, 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
securities loans,
gains from the sale or other disposition of stock,
securities, or
foreign currencies, or other income (including but not
limited to
gains from options, futures, and forward contracts)
derived with
respect to its business of investing in such stock,
securities or
currencies; (b) derive in each taxable year less than
30% of its
gross income from the sale or other disposition of
certain assets
(namely, (i) stock or securities, (ii) options,
futures, and
forward contracts (other than those on foreign
currencies), and
(iii) foreign currencies (including options, futures,
and forward
contracts on such currencies) not directly related to
the Fund's
principal business of investing in stocks or securities
(or
options and futures with respect to stocks and
securities)) held
less than three months (the "30% Limitation"); and (c)
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 of any one issuer limited for purposes
of this
calculation to an amount not greater than 5% of the
Fund's 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 securities of any other 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
investment
company taxable income (which includes, among other
items,
dividends, interest and net short-term capital gains in
excess of
net long-term capital losses) and net capital gains
(net long-
term capital gains in excess of net short-term capital
losses)
that it distributes to shareholders, if at least 90% of
its
investment company taxable income for the taxable year
is
distributed. The Fund intends to distribute 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. To avoid that tax, the
Fund must
distribute during each calendar year an amount equal to
(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 the twelve-month
period 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. 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 that year to
shareholders of record at some date in such a month and
paid by
the Fund during January of the following calendar year.
Such
distributions will be taken into account by
shareholders in the
calendar year the distributions are declared, rather
than the
calendar year in which the distributions are received.
DISTRIBUTORS
Distributions of investment company taxable income
are
taxable to a U.S. shareholder as ordinary income,
whether paid in
cash or shares. Because it is not anticipated that any
portion
of the Fund's gross income will consist of dividends
from
domestic corporations, no portion of the dividends paid
by the
Fund to its corporate shareholders is expected to
qualify for the
dividends received deduction. Distributions of net
capital
gains, if any, which are designated as capital gain
dividends are
taxable as long-term capital gains, whether paid in
cash or in
shares, regardless of how long the shareholder has held
the
Fund's shares, and are not eligible for the dividends
received
deduction. The tax treatment of distributions from the
Fund is
the same whether the dividends are received in cash or
in
additional shares. 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 reinvestment 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 will be taxable even though it
represents a
return of invested capital. Investors 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 will nevertheless 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 will be long-term or
short-term,
generally, 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 as a long-term capital loss to the extent of
any
distributions of net capital gains 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
sales charges into account for purposes of determining
the amount
of gain or loss realized on the disposition of their
stock. This
prohibition generally applies where (1) the shareholder
incurs a
sales charge in acquiring the stock of the Fund, (2)
the stock is
disposed of before the 91st day after the date on which
it was
acquired, and (3) the shareholder subsequently acquires
the stock
of the same or another fund and the otherwise
applicable sales
charge is reduced under a "reinvestment right" received
upon the
initial purchase of regulated investment company
shares. The
term "reinvestment right" means any right to acquire
stock of one
or more funds without the payment of a sales charge 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 stock acquired under the reinvestment right. This
provision
may be applied to successive acquisitions of Fund
shares.
HEDGING TRANSACTIONS
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.
Certain options, futures and forward contracts in
which the
Fund may invest may be "section 1256 contracts." Gains
or losses
on section 1256 contracts are generally considered 60%
long-term
and 40% short-term capital gains or losses; however,
foreign
currency gains or losses arising from certain section
1256
contracts may be treated as ordinary income or loss.
Also,
section 1256 contracts held by the Fund at the end of
each
taxable year (and generally for purposes of the 4%
excise tax, on
October 31 of each year) are "marked-to-market" with
the result
that unrealized gains or losses are treated as though
they were
realized.
Generally, hedging transactions, if any,
undertaken by the
Fund may result in "straddles" for U.S. 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 tax
consequences of hedging transactions to the Fund are
not entirely
clear. The hedging transactions 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,
and which will be taxed to shareholders as ordinary
income or
long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage
in such
hedging transactions.
The 30% Limitation and the diversification
requirements
applicable to the Fund's assets may limit the extent to
which the
Fund will be able to engage in transactions in options,
futures
or forward contracts.
CURRENCY FLUCTUATIONS --SECTION 988" GAINS OR LOSSES
Under the Code, 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
and loss.
Similarly, on disposition of debt securities
denominated in a
foreign currency and on disposition of certain futures,
forward
contracts and options, 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 or losses, referred to under the Code as "Section
988"
gains or losses, may increase or decrease the amount of
the
Fund's investment company taxable income to be
distributed to its
shareholders as ordinary income.
DISCOUNT
Certain of the bonds purchased by the Fund may be
treated as
bonds that were originally issued at a discount.
Original issue
discount represents interest for Federal income tax
purposes and
can generally be defined as the difference between the
price at
which a security was issued and its stated redemption
price at
maturity. Original issue discount is treated for
Federal income
tax purposes as income earned by the Fund even though
the Fund
doesn't actually receive any cash, and therefore is
subject to
the distribution requirements of the Code. The amount
of income
earned by the Fund generally is determined on the basis
of a
constant yield to maturity which takes into account the
semi-
annual compounding of accrued interest.
If the Fund invests in certain high yield original
issue
discount obligations issued by corporations, a portion
of the
original issue discount accruing on the obligation may
be
eligible for the deduction for dividends received by
corporations. In such event, dividends of investment
company
taxable income received from the Fund by its corporate
shareholders, to the extent attributable to such
portion of
accrued original issue discount, may be eligible for
this
deduction for dividends received by corporations if so
designated
by the Fund in a written notice to shareholders.
In addition, some of the bonds may be purchased by
the Fund
at a discount which exceeds the original issue discount
on such
bonds, if any. This additional discount represents
market
discount for Federal income tax purposes. The gain
realized on
the disposition of any bond having market discount will
be
treated as ordinary income to the extent it does not
exceed the
accrued market discount on such bond (unless the Fund
elects for
all its debt securities acquired after the first day of
the first
taxable year to which the election applies having a
fixed
maturity date of more than one year from the date of
issue to
include market discount in income in tax years to which
it is
attributable). Generally, market discount accrues on a
daily
basis for each day the bond is held by the Fund at a
constant
rate over the time remaining to the bond's maturity.
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 intends to
elect to
"pass-through" to the Fund's 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 taxable income or to use it as a foreign
tax credit
against his 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, a credit for foreign taxes is subject
to the
limitation that it may not exceed the shareholder's
U.S. tax
attributable to his total foreign source taxable
income. For
this purpose, if the Fund makes the election described
in the
preceding paragraph, the source of a 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.
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.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund invests in stock of certain foreign
investment
companies either directly or through ADRs, the Fund may
be
subject to U.S. federal income taxation on a portion of
any
"excess distribution" with respect to, or gain from the
disposition of, such stock. The tax would be
determined by
allocating such distribution or gain ratably to each
day of the
Fund's holding period for the stock. The distribution
or gain so
allocated to any taxable year of the Fund, other than
the taxable
year of the excess distribution or disposition, would
be taxed to
the Fund at the highest ordinary income rate in effect
for such
year, and the tax would be further increased by an
interest
charge to reflect the value of the tax deferral deemed
to have
resulted from the ownership of the foreign company's
stock. Any
amount of distribution or gain allocated to the taxable
year of
the distribution or disposition would be included in
the Fund's
investment company taxable income and, accordingly,
would not be
taxable to the Fund to the extent distributed by the
Fund as a
dividend to its shareholders.
The Fund may be able to make an election, in lieu
of being
taxable in the manner described above, to include
annually in
income its pro rata share of the ordinary earnings and
net
capital gain of the foreign investment company,
regardless of
whether it actually received any distributions from the
foreign
company. These amounts would be included in the Fund's
investment company taxable income and net capital gain
which, to
the extent distributed by the Fund as ordinary or
capital gain
dividends, as the case may be, would not be taxable to
the Fund.
In order to make this election, the Fund would be
required to
obtain certain annual information from the foreign
investment
companies in which it invests, which in many cases may
be
difficult to obtain. Alternatively, the Fund may be
eligible for
another election that would involve marking to market
its PFIC
stock at the end of each taxable year, with any
resulting mark to
market gain being reported as ordinary income. No mark
to market
losses would be recognized. The effect of this
election would be
to treat excess distributions and gain on dispositions
as
ordinary income which is not subject to a fund-level
tax when
distributed to shareholders as a dividend.
BACKUP WITHHOLDING
The Fund will be required to report to the
Internal Revenue
Service (the "IRS") all 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.
OTHER TAXATION
The foregoing discussion relates only to U.S.
Federal income
tax law as applicable to U.S. persons (i.e., U.S.
citizens and
residents and domestic corporations, partnerships,
trusts and
estates). Distributions by the Fund also may be
subject to state
and local taxes, and their treatment under state and
local income
tax laws may differ from the U.S. Federal income tax
treatment.
Shareholders should consult their tax advisers with
respect to
particular questions of U.S. Federal, state and local
taxation.
Shareholders who are not U.S. persons should consult
their tax
advisers regarding U.S. and foreign tax consequences of
ownership
of shares of the Fund, including the likelihood that
distributions to them would be subject to withholding
of U.S.
Federal income tax at a rate of 30% (or at a lower rate
under a
tax treaty).
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
The Fund's average annual total return quotations
as they
may appear in the Prospectus, this Statement of
Additional
Information, advertising or sales literature are
calculated by
standard methods prescribed by the SEC. The Fund's
standardized
average annual total return quotations may be
accompanied by non-
standardized total return quotations. Performance
information is
computed separately for the Fund's Class A and Class B
shares.
AVERAGE ANNUAL TOTAL RETURN QUOTATIONS
Standardized average annual total return
("Standardized
Return") quotations for a specific Class of shares of
the Fund
are computed by finding 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 specified
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 a
designated period (or fractional
portion
thereof).
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 4.75% sales charge is deducted from the
initial
$1,000 payment and, for Class B shares, the applicable
contingent
deferred sales charge imposed upon redemption of Class
B 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
figures for
Class B shares for periods over eight years will
reflect
conversion of the Class B shares to Class A shares at
the end of
the eighth year. Each Standardized Return quotation is
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 contingent deferred sales charges are taken
into
account in calculating Non-Standardized Return; a sales
charge,
if deducted, would reduce the return.
In determining the average annual total return for
the
Class A and Class B 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
above computation is assumed to be the fee that would
be charged
to the mean account size of the Fund.
As of January 1, 1996 the Fund has not commenced
operations,
and therefore no historical return information exists
for the
Fund.
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.
The average annual total return for the Class A
and Class B
shares of 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 returns
should be
considered when comparing performance information
regarding the
Fund's Class A and Class B shares with information
published for
other investment companies and other investment
vehicles. Return
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, return quotations may be higher or lower than
past return
quotations and there can be no assurance that any
historical
return 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 DIRECTOR 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
As of January 1, 1996 the Fund has not commenced
operations,
and therefore has not issued historical financial
statements.
After the Fund commences operations, it will issue an
Annual
Report to shareholders for each fiscal year ended
December 31 and
a Semi-Annual Report to shareholders for each period
June 30.
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION
("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
Investor Service, New York, 1994), and "Standard &
Poor's
Municipal Ratings Handbook," October 1994 Issue (McGraw
Hill, New
York, 1994).]
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.
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 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.
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 by S&P is considered by S&P to be
the highest
grade obligation. 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.
(b) COMMERCIAL PAPER. An S&P commercial paper
rating is a
current assessment of the likelihood of timely payment
of debt
having an original maturity of no more than 365 days.
Commercial paper rated A by S&P has the following
characteristics: (i) liquidity ratios are adequate to
meet cash
requirements; (ii) long-term senior debt rating should
be A or
better, although in some cases BBB credits may be
allowed if
other factors outweigh the BBB; (iii) the issuer should
have
access to at least one additional channel of borrowing;
(iv)
basic earnings and cash flow should have an upward
trend with
allowances made for unusual circumstances; and (v)
typically the
issuer's industry should be well established and the
issuer
should have a strong position within its industry and
the
reliability and quality of management should be
unquestioned.
Issues rated A are further referred to by use of
numbers 1, 2 and
3 to denote relative strength within this highest
classification.
For example, the A-1 designation indicates that the
degree of
safety regarding timely payment of debt is strong.
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.
1/3/95
IVY INTERNATIONAL BOND FUND
Class A and B Shares
Prospectus
April 30, 1995 (as supplemented on January 1, 1996)
_________________________________________________________________
Ivy Fund (the "Trust") is a registered investment
company
currently consisting of thirteen separate portfolios.
One
portfolio of the Trust, Ivy International Bond Fund
(the "Fund"),
is described in this Prospectus.
This Prospectus sets forth concisely the information
about the
Fund that a prospective investor should know before
investing and
should be read carefully and retained for future
reference.
Additional information about the Fund is contained in
the
Statement of Additional Information ("SAI") for the
Fund. The
SAI, dated April 30, 1995 (as supplemented on January
1, 1996),
has been filed with the Securities and Exchange
Commission
("SEC") and is available upon request and without
charge from the
Trust at the Distributor's address and telephone number
provided
below. The SAI is incorporated by reference into this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A
CRIMINAL OFFENSE.
IVY FUND
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
Telephone: (800) 777-6472
DISTRIBUTOR:
Mackenzie Ivy Funds Distribution, Inc.
("MIFDI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
Telephone: (800) 456-5111
MANAGER:
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, FL 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
Schedule of Fees
Expense Data Table
Investment Objectives and Policies
Investing in International Bond Markets
Risk Factors and Investment Techniques
Additional Information About Policies and Investments
Risks
Bonds
Non-diversified Investment Companies
Repurchase Agreements
Zero Coupon Securities
Options, Futures Contracts and Forward Contracts
Lending
Organization of the Fund
Investment Manager
Portfolio Management
Investment Management Expenses
Administrator
Fund Accounting
Custodian
Transfer Agent
Portfolio Transactions
Alternative Purchase Agreements
Class A Shares
Class B Shares
Factors to Consider in Choosing an Alternative
Dividends and Taxes
Taxation
Performance Data
How to Buy Shares
Opening an Account
Buying Additional Class A and Class B Shares
How Your Purchase Price is Determined
How the Fund Values Its Shares
Initial Sales Charge Alternative--Class A Shares
Contingent Deferred Sales Charge--Class A Shares
Waiver of Contingent Deferred Sales Charge
Qualifying for a Reduced Sales Charge
Rights of Accumulation (ROA)
Letter of Intent (LOI)
Purchases of Class A Shares At Net Asset Value
Contingent Deferred Sales Charge Alternative--Class B
Shares
Conversion of Class B Shares
Waiver of Contingent Deferred Sales Charge
How to Redeem Shares
Minimum Account Balance Requirements
Signature Guarantees
Choosing a Distribution Option
Tax Identification Number
Certificates
Exchange Privilege
Exchanges By Telephone
Exchanges In Writing
Reinvestment Privilege
Systematic Withdrawal Plan (SWP)
Automatic Investment Method (AIM)
Consolidated Account Statements
Retirement Plans
SCHEDULE OF FEES
SHAREHOLDER TRANSACTION EXPENSES
CLASS A
CLASS B
Maximum sales load imposed on purchases 4.75%(*)
None
(as a percentage of offering price
at time of purchase)
Maximum contingent deferred sales charge None(**)
5%(***)
(as a percentage of original purchase
price)
(The Fund has no sales load on reinvested
dividends, no redemption fees and no
exchange fees.)
(*) Class A shares of the Fund may be purchased
under a
variety of plans that provide for reduced
sales
charges.
(**) A contingent deferred sales charge may apply
to the
redemption of Class A shares that are
purchased without
an initial sales charge. See "Purchases of
Class A
Shares at Net Asset Value" and "Contingent
Deferred
Sales Charge--Investments of $500,00 or More
in Class A
Shares."
(***) The maximum contingent deferred sales charge
on Class B
shares applies to redemptions during the
first year
after purchase. The charge declines to 4%
during the
second year; 3% during the third and fourth
years; 2%
during the fifth year; 1% during the sixth
year; and 0%
in the seventh year and thereafter.
EXPENSE DATA TABLE
CLASS A*
CLASS B*
Annual Fund Operating Expenses (estimated
as a percentage of average daily net
assets):
Management Fees After Expense
Reimbursement 0.75%
0.75%
12b-1 Service/Distribution Fees 0.25%
1.00%(4)
Other Expenses 0.50%(2)
0.50%(2)
Total Fund Operating Expenses After
Expense Reimbursement 1.50%(1)
2.25%(1)(3)
[*] As of April 30, 1995, the date of this Prospectus,
no shares
of the Fund have been issued.
[1] Ivy Management, Inc. ("IMI"), the Fund's
investment manager,
currently intends to limit the Fund's Total Fund
Operating
Expenses (excluding taxes, 12b-1 fees, brokerage
commissions, interest, litigation and
indemnification
expenses and other extraordinary expenses) to an
annual rate
of 1.50% of the Fund's average daily net assets,
as
described in this Prospectus under "Organization
of the
Fund."
[2] The "Other Expenses" of the Fund are based on
estimated
amounts for the current fiscal year.
[3] Total Fund Operating Expenses for Class B shares
of the Fund
are higher than such expenses for other mutual
funds with
similar investment objectives.
[4] Long-term investors may, as a result of the Fund's
12b-1
Fees, pay more than the economic equivalent of the
maximum
front-end sales charge permitted by the Rules of
Fair
Practice of the National Association of Securities
Dealers,
Inc.
EXAMPLE
CLASS A SHARES
You would pay the following expenses on a $1,000
investment in
the Fund, assuming (1) 5% annual return and (2)
redemption at the
end of each time period:
1 YEAR(1) 3 YEARS
$62[*] $92[*]
[*] These figures assume that the current expense
limitation is
in place for each of the time periods indicated.
IMI, as
investment adviser, has reserved the right to
terminate or
revise this expense limitation at any time, which
may affect
the results in years one and three in the
preceding Example.
[1] Assumes deduction of the maximum 4.75% initial
sales charge
at the time of purchase and no deduction of a
contingent
deferred sales charge at the time of redemption.
EXAMPLE (1 OF 2)
CLASS B SHARES
You would pay the following expenses on a $1,000
investment
in the Fund, assuming (1) 5% annual return and (2)
redemption at
the end of each time period:
1 YEAR[1] 3 YEARS[2]
$73[**] $100[**]
Example (2 of 2)
Class B Shares
You would pay the following expenses on a $1,000
investment in
the Fund, assuming (1) 5% annual return and (2) no
redemption:
1 YEAR[1] 3 YEARS
$23[**] $70[**]
[**] These figures assume that the current expense
limitation is
in place for each of the time periods indicated.
IMI, as
investment adviser, has reserved the right to
terminate or
revise this expense limitation at any time, which
may affect
the results in years one and three in the
preceding
Examples.
[1] Assumes deduction of a 5% contingent deferred
sales charge
at the time of redemption.
[2] Assumes deduction of a 3% contingent deferred
sales charge
at the time of redemption.
The purpose of the foregoing tables is to provide an
investor
with an understanding of the various costs and expenses
that an
investor in the Fund will bear, directly or indirectly.
The
Examples assume reinvestment of all dividends and
distributions
and that the percentage amounts under "Total Fund
Operating
Expenses After Expense Reimbursement" remain the same
each year.
As noted above in the Expense Data Table, the
percentage amounts
under "Total Fund Operating Expenses After Expense
Reimbursement"
reflect expense reimbursements. The assumed annual
return of 5%
is required by applicable law to be applied by all
investment
companies and is used for illustrative purposes only.
This
assumption is not a projection of future performance.
The actual
expenses for the Fund may be higher or lower than the
estimates
given.
The percentages expressing annual fund operating
expenses are
based on estimated expenses of the Fund during the
current fiscal
year, except as otherwise noted in the Expense Data
Table. For a
more detailed discussion of the Fund's fees and
expenses, see the
following sections of the Prospectus: "Organization and
Management of the Fund," "Initial Sales Charge
Alternative--Class
A Shares," "Contingent Deferred Sales Charge
Alternative--Class B
Shares," and "How to Buy Shares," and the following
section of
the SAI: "Investment Advisory and Other Services."
INVESTMENT OBJECTIVES AND POLICIES
The Fund is a non-diversified company which has a
principal
investment objective of current income primarily by
investing in
high-grade non-U.S. dollar-denominated bonds
(international
bonds). Protection, and possible enhancement, of
principal value
through active management of currency, bond market and
maturity
exposure and through security selection is a secondary
objective.
The Fund's investment objectives are fundamental and
may not be
changed without the approval of a majority of the
outstanding
voting shares of the Fund. The Trustees may make
non-material
changes in the Fund's objectives without shareholder
approval.
Except for the Fund's investment objectives and those
investment
restrictions specifically identified as fundamental,
all
investment policies and practices described in this
Prospectus
and in the SAI are non-fundamental and, therefore, may
be changed
by the Trustees without shareholder approval. There
can be no
assurance that the Fund's objectives will be met.
INVESTING IN INTERNATIONAL BOND MARKETS
The U.S. dollar-denominated bond market now represents
less than
one half of the world's developed bond markets. As a
result,
opportunities for investment in international bond
markets have
become more significant. The liquidity of
international bond
markets has improved as the number of investors
participating in
these markets has increased. Additionally, many
international
bond markets have become more attractive for foreign
investors
due to the reduction of barriers of entry to foreign
investors by
deregulation and by reduction of withholding taxes.
Concurrent with the opening of foreign markets,
restrictions on
international capital flows have been reduced or
eliminated,
thereby enabling investment funds to seek the highest
expected
returns. As a result, the market conditions of one
nation
influence the market conditions of other countries
through the
flow of international capital. The Fund is a
convenient vehicle
for investing in international bond markets, some of
which may,
during certain time periods, outperform the U.S.
dollar-
denominated bond markets.
History has shown that returns from international bond
markets
often differ from those generated by U.S. bond markets.
The
variations in returns are, in part, the result of
fluctuating
foreign currency exchange rates and changes in foreign
interest
rates as compared with U.S. interest rates. Although
the Fund is
non-diversified under the Investment Company Act of
1940, as
amended (the "1940 Act"), investing in the Fund can
provide an
investor's existing portfolio of U.S.
dollar-denominated bonds
(U.S. bonds) with international diversification.
At times, higher investment returns may be provided by
international bonds than from U.S. bonds. For example,
international bonds may provide higher current income
and/or
greater capital appreciation than U.S. bonds due to
fluctuation
in foreign currencies relative to the U.S. dollar. Of
course, at
any time, the opposite may also be true.
Individual and small institutional investors often find
it
difficult to participate in international bond markets.
This is
due in part to the lack of current information
available about
foreign entities as well as difficulties in purchasing
and
selling foreign securities, holding foreign securities
in
safekeeping, and converting foreign currencies into
U.S. dollars.
The Fund is a convenient and relatively low cost way
for
individuals and small institutions to invest in these
markets.
The Fund can provide its shareholders with potential
capital
appreciation and protection, as well as income, as is
associated
with a professionally managed portfolio of high-grade
international bonds. IMI has significant experience
investing in
international markets as well as in global trading,
custody and
currency transactions.
In addition, the Fund offers investors the opportunity
to enjoy
the benefits of all of the Ivy Mackenzie Funds. IMI,
together
with its affiliate, Mackenzie Investment Management
Inc.
("MIMI"), manages a diverse family of funds and
provides a wide
range of services to help investors meet their
investment needs.
RISK FACTORS AND INVESTMENT TECHNIQUES
The Fund is intended for long-term investors who can
accept the
risks associated with investing in international bonds.
Total
return from investment in the Fund will consist of
income after
expenses, bond price gains (or losses) in the local
currency and
currency gains or losses. For federal income tax
purposes,
currency gains and losses generally are regarded as
ordinary
income and loss and, therefore, may increase or reduce
the amount
of the Fund's distributions.
The value of the Fund's portfolio will vary in response
to a
number of economic factors, the most important being
fluctuations
in foreign currency exchange rates, in market interest
rates and
in an issuer's creditworthiness. Since the Fund's
investments
are denominated primarily in foreign currencies,
changes in
foreign currency values can significantly affect the
Fund's share
price. Investors should be aware that exchange rate
movements
can be significant and endure for long periods of time.
In
addition, because the market value of a debt security
generally
varies inversely with changes in prevailing interest
rates, the
longer the maturity of a debt security, the more
volatile it will
be in terms of changes in value. There also exists the
risk that
the issuer of a debt security may not be able to meet
its
obligation on interest or principal payments at the
time called
for by the security.
IMI attempts to control exchange rate and interest rate
risks
through active portfolio management, including such
techniques as
management of currency, bond market and maturity
exposure and
selection of securities based on available yields and
IMI's
foreign interest rate and currency exchange rate
projections.
Longer maturity bonds tend to fluctuate more in price
than
shorter-term instruments in which the Fund
invests--providing
potential for both gain and loss.
Investors should not rely on an investment in the Fund
for their
short-term financial needs or use the Fund as a vehicle
for
playing short-term swings in the international bond and
foreign
exchange markets. The Fund should not be regarded as a
total
investment program. Also, investors should be aware
that
investing in international bonds may involve a higher
degree of
risk than investing in U.S. bonds.
Investing in foreign securities involves special risks
and
considerations not typically associated with investing
in U.S.
securities. These include differences in accounting,
auditing
and financial reporting standards, generally higher
commission
rates on foreign portfolio transactions, often less
publicly
available information about issuers, the possibility of
expropriation or confiscatory taxation, adverse changes
in
investment or exchange control regulations, political
instability
which could affect U.S. investment in foreign
countries, and
potential restrictions on the flow of international
capital.
Additionally, dividends or interest payable on foreign
securities
may be subject to foreign taxes withheld prior to
distribution
and other foreign taxes might apply. Transactions in
foreign
securities may involve greater time from the trade date
until
settlement than is involved for domestic securities
transactions
and may involve the risk of possible losses to the Fund
due to
subsequent declines in the value of the portfolio
securities.
Foreign securities often trade with less frequency and
volume
than domestic securities and therefore may exhibit
greater price
volatility. Because foreign securities often are
purchased with
and pay in currencies of foreign countries, the value
of these
assets as measured in U.S. dollars may be affected
favorably or
unfavorably by changes in currency rates and exchange
control
regulations. The Fund may incur currency exchange
costs when it
changes investments from one country to another.
Further, the
Fund may encounter difficulties or be unable to pursue
legal
remedies and obtain judgment in foreign courts.
The Fund seeks to achieve its objective by investing
primarily in
a managed portfolio of high grade bonds denominated in
foreign
currencies, including European currencies and the
European
Currency Unit (ECU). At least 65% of the Fund's total
assets
will normally be invested in bonds denominated in
foreign
currencies. In selecting bonds for the Fund's
portfolio, IMI
will consider various factors, including yields, credit
quality
and the fundamental outlook for currency and interest
rate trends
in different parts of the world. IMI may also take
into account
the ability to hedge currency and local bond price
risk.
To be considered a high grade bond in which the Fund
primarily
invests, a bond must be rated at least A or better by
Standard
and Poor's Corporation ("S&P") or by Moody's Investors
Services,
Inc. ("Moody's") or, if the bond is unrated, it must be
considered by IMI to be of comparable quality in local
currency
terms.
The Fund may invest less than 35% of its net assets in
debt
securities rated Baa or below by Moody's and/or BBB or
below by
S&P or, if unrated, considered by IMI to be of
comparable
quality. The Fund will not invest in debt securities
that, at
the time of investment, are rated less than C by either
Moody's
or S&P.
The Fund's investments may include: debt securities
issued or
guaranteed by a foreign national government, its
agencies,
instrumentalities or political subdivisions; debt
securities
issued or guaranteed by supranational organizations
(e.g.,
European Investment Bank, Inter-American Development
Bank or the
World Bank); corporate debt securities; bank or bank
holding
company debt securities; and other debt securities,
including
those convertible into common stock. The Fund may also
invest in
zero coupon securities which do not provide for the
periodic
payment of interest and are sold at significant
discount from
face value.
The Fund may also purchase securities which are not
publicly
offered and may be subject to regulations applicable to
restricted securities.
The Fund intends to diversify among several countries
and market
sectors, and to have represented, in substantial
proportions,
business activities in not less than three different
countries
other than the United States. Under normal
circumstances, the
Fund will invest no more than 35% of the value of its
total
assets in U.S. debt securities. The Fund may engage in
options,
futures, forward foreign currency contact and other
derivatives
transactions, as described below, for hedging purposes
or to seek
to enhance potential gain. The Fund may invest without
limit in
U.S. debt securities, including short-term money market
securities, for temporary defensive or emergency
purposes. It is
not possible to predict the extent to which the Fund
might employ
such optional strategies.
ADDITIONAL INFORMATION ABOUT POLICIES AND INVESTMENTS
The Fund may not make loans except through the lending
or
purchase of portfolio securities or through repurchase
agreements, and may not borrow money except as a
temporary
measure for extraordinary or emergency purposes.
In addition, as a matter of non-fundamental policy, the
Fund may
not invest more than 10% of its net assets in
securities which
are not readily marketable, repurchase agreements
maturing in
more than seven days, and restricted securities; in no
event may
the Fund invest more than 5% of its assets in
restricted
securities. These instruments may be difficult to sell
promptly
at an acceptable price, and the sale of certain of
these
instruments may be subject to legal restrictions.
Difficulty in
selling these instruments may result in a loss or may
be costly
to the Fund. A description of these and other policies
and
restrictions is contained under "Investment
Restrictions" in the
Fund's SAI.
To protect against adverse movements of interest rates
and for
purposes of liquidity, the Fund may also purchase
short-term
obligations denominated in U.S. and foreign currencies
such as,
but not limited to, bank deposits, bankers'
acceptances,
certificates of deposit, commercial paper, short-term
government,
government agency, supranational agency and corporate
obligations, and repurchase agreements.
The Fund can use various techniques to increase or
decrease its
exposure to changing security prices, interest rates,
currency
exchange rates, commodity prices, or other factors that
affect
security values. These techniques may involve
derivative
transactions such as buying and selling options and
futures
contracts, entering into currency exchange contracts,
and
purchasing indexed securities.
IMI can use these practices to adjust the risk and
return
characteristics of the Fund's portfolio of investments.
If IMI
judges market conditions incorrectly or employs a
strategy that
does not correlate well with the Fund's investments,
these
techniques could result in a loss, regardless of
whether the
intent was to reduce risk or increase return. These
techniques
may increase the volatility of the Fund and may involve
a small
investment of cash relative to the magnitude of the
risk assumed.
In addition, these techniques could result in a loss if
the
counterparty to the transaction does not perform as
promised.
The Fund may enter into repurchase agreements with
selected banks
and broker/dealers. Under a repurchase agreement, the
Fund
acquires securities, subject to the seller's agreement
to
repurchase at a specified time and price.
The Fund may purchase securities on a when-issued or
forward
delivery basis, for payment and delivery at a later
date. The
price and yield generally are fixed on the date of
commitment to
purchase. From the time of purchase until settlement,
no
interest accrues to the Fund. At the time of
settlement, the
market value of the security may differ from the
purchase price.
The higher yields and high income sought by the Fund
may be
obtainable from high yield, higher risk securities in
the lower
rating categories of the established rating services.
These
securities are rated Baa or lower by Moody's or BBB or
lower by
S&P. The Fund may invest in securities rated as low as
C by
Moody's or S&P, which may indicate that the obligations
are
speculative to a high degree and often in default.
Securities
rated lower than Baa or BBB (and comparable unrated
securities)
are commonly referred to as "high yield" or "junk"
bonds and are
considered to be predominantly speculative with respect
to the
issuer's continuing ability to meet principal and
interest
payments. Should the rating of a portfolio security be
downgraded, IMI will determine whether it is in the
Fund's best
interest to retain or dispose of the 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. See Appendix A to the SAI
for a more
complete description of the ratings assigned by Moody's
and S&P
and their respective characteristics.
RISKS
The different types of securities and investment
techniques used
by IMI all have attendant risks of varying degrees.
The Fund's
investments, and consequently its net asset value, will
be
subject to the market fluctuations and risks inherent
in all
securities. The following are descriptions of certain
risks
related to the investments and techniques that IMI may
use from
time to time.
Bonds. The Fund may invest less than 35% of its net
assets in
debt securities rated below BBB or Baa, but no lower
than C, by
S&P or Moody's. Debt obligations rated in the lower
ratings
categories, or which are unrated, involve greater
volatility of
price and risk of loss of principal and income than the
price and
liquidity of higher rated securities. In addition,
lower ratings
reflect a greater possibility of an adverse change in
financial
condition affecting the ability of the issuer to make
payments of
interest and principal. The market price and liquidity
of lower
rated fixed income securities generally respond to
short-term
corporate and market developments to a greater extent
than the
price and liquidity of higher rated securities, because
these
developments are perceived to have a more direct
relationship
with the ability of an issuer of lower rated securities
to meet
its ongoing debt obligations.
Reduced volume and liquidity in the high yield, high
risk bond
market or the reduced availability of market quotations
may make
it more difficult to dispose of the bonds and to value
accurately
the Fund's assets. The reduced availability of
reliable,
objective data may increase the Fund's reliance on
IMI's judgment
in valuing high yield, high risk bonds. In addition,
the Fund's
investments in high yield, high risk securities may be
susceptible to adverse publicity and investor
perceptions,
whether or not justified by fundamental factors.
Non-diversified investment companies. As a
"non-diversified"
investment company, the Fund may invest a greater
portion of its
assets in the securities of fewer issuers, thereby
exposing the
Fund to greater market and credit risk than a more
broadly
diversified investment company.
REPURCHASE AGREEMENTS. If the seller of securities
under a
repurchase agreement becomes insolvent, the Fund's
right to
dispose of the securities may be restricted. In the
event of the
commencement of bankruptcy or insolvency proceedings of
the
seller before repurchase of the securities under a
repurchase
agreement, the Fund may experience delays in selling
the
securities and might incur losses if the value of the
securities
should decline, as well as costs in disposing of the
securities.
ZERO COUPON SECURITIES. Zero coupon securities are
subject to
greater market value fluctuations from changing
interest rates
than debt obligations of comparable maturities which
make current
cash interest payments. If the Fund holds zero coupon
securities
in its portfolio, it generally will recognize income
currently
for federal income tax purposes in the amount of the
unpaid,
accrued interest and generally will be required to
distribute
dividends representing such income to shareholders
currently,
even though funds representing this income will not
have been
received by the Fund. Cash to pay dividends
representing unpaid,
accrued interest may be obtained from sales proceeds of
portfolio
securities and from loan proceeds.
OPTIONS, FUTURES CONTRACTS AND FORWARD CONTRACTS.
Successful use
of option contracts, forward foreign currency
contracts, futures
contracts and options on futures contracts is subject
to special
risk considerations. The risk of loss from the use of
futures is
potentially unlimited. A liquid secondary market for
any futures
or related options contract may not be available when a
futures
or options position is sought to be closed and the Fund
would
remain obligated to meet margin requirements until the
position
is closed. In addition, there may be an imperfect
correlation
between price movements in the securities or currency
on which
the futures or options contract is based and in the
Fund's
portfolio securities being hedged. Successful use of
futures or
related options contracts is further dependent on IMI's
ability
to predict correctly price movements in the securities
or
currency being hedged, and no assurance can be given
that its
judgment will be correct. 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
action
affecting trading in, or the prices of, foreign
securities.
Successful use of options on securities or currencies
or forward
foreign currency contracts is subject to similar risk
considerations. For further information regarding the
Fund's
options and futures transactions and their risks, see
the SAI.
LENDING. Lending securities to broker-dealers is a
means of
earning income. This practice could result in a loss
or a delay
in recovering, or even a loss of rights in, the Fund's
securities.
ORGANIZATION OF THE FUND
The Fund is a separate, non-diversified portfolio of
the Trust,
an open-end management investment company organized as
a
Massachusetts business trust on December 21, 1983. The
business
and affairs of the Fund are managed under the direction
of the
Trustees. Information about the Trustees, as well as
the Trust's
executive officers, may be found in the SAI. The Trust
has an
unlimited number of authorized shares of beneficial
interest, and
currently has thirteen series of shares. The Trustees
of the
Trust also have the authority, without shareholder
approval, to
classify and reclassify the shares of the Fund into one
or more
classes. Pursuant to this authority, the Trustees have
authorized the issuance of two classes of shares of the
Fund,
designated as Class A and Class B. Shares of the Fund
entitle
their holders to one vote per share (with proportionate
voting
for fractional shares). The shares of each class
represent an
interest in the same portfolio of investments of the
Fund. Each
class of shares has a different distribution policy and
bears
different distribution fees. Shares of each class have
equal
rights as to voting, redemption, dividends and
liquidation but
have exclusive voting rights with respect to their Rule
12b-1
distribution plans.
INVESTMENT MANAGER. The Trust employs IMI to provide
business
management and investment advisory services; MIMI, of
which IMI
is a wholly owned subsidiary, to provide administrative
services;
and Mackenzie Ivy Funds Distribution, Inc. ("MIFDI," or
the
"Distributor") to distribute the Fund's shares. The
Fund is
managed by a team, with each team member having
specific
responsibilities.
INVESTMENT MANAGEMENT EXPENSES. For management of
investment and
business affairs, the Fund pays IMI a monthly fee
calculated on
the basis on the Fund's average daily net assets during
the
preceding month at an annual rate of 0.75%. The fees
paid by the
Fund are higher than the average fees paid by most
funds.
Under the Fund's management agreement, IMI pays all
expenses
incurred by it in rendering management services to the
Fund. The
Fund bears its cost of operations. See the SAI. If,
however,
the Fund's total expenses in any fiscal year exceed the
permissible limit applicable to the Fund in any state
in which
the shares are then qualified for sale, IMI will bear
the excess
expenses.
IMI currently limits the Fund's total operating
expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation and indemnification expenses)
to an
annual rate of 1.50% of the Fund's average daily net
assets. As
long as the Fund's expense limitation continues, it may
lower the
Fund's expenses and increase its yield. The Fund's
expense
limitation may be terminated or revised at any time, at
which
time the Fund's expenses may increase and its yield may
be
reduced, depending on the total assets of the Fund.
Thereafter,
IMI will comply with any applicable state regulations
that may
require IMI to make reimbursements to the Fund in the
event that
the Fund's aggregate operating expenses, including
advisory fees,
administrative services fees and transfer agency and
shareholder
services fees, but generally excluding interest, taxes,
brokerage
commissions and extraordinary expenses, are in excess
of specific
applicable limitations. The strictest rule currently
applicable
to the Fund is 2.5% of the first $30,000,000 of net
assets, 2.0%
of the next $70,000,000 of net assets and 1.5% of the
remainder.
The assets received by each class of the Fund for the
issue or
sale of its shares and all income, earnings, profits,
losses and
proceeds therefrom, subject only to the rights of the
creditors,
are allocated to and constitute the underlying assets
of each
class of the Fund which are segregated and are charged
with the
expenses with respect to that class of the Fund and
with a share
of the general expenses of the Trust. General expenses
of the
Trust (such as the costs of maintaining the Trust's
existence,
legal fees, proxy and shareholders' meeting costs,
etc.) that are
not readily identifiable as belonging to a particular
fund or to
a particular class of a fund will be allocated among
and charged
to the assets of each fund on a fair and equitable
basis, which
may be based on the relative net assets of each fund or
the
nature of the services performed and relative
applicability to
each fund. Expenses that relate exclusively to the
Fund, such as
certain registration fees, brokerage commissions and
other
portfolio expenses, will be borne directly by the Fund.
ADMINISTRATOR. The Trust has entered into an
Administrative
Services Agreement with MIMI pursuant to which MIMI
provides
various administrative services for the Fund including
maintenance of registration or qualification of Fund
shares under
state "Blue Sky" laws, assisting in the preparation of
Federal,
state and local income tax returns and preparing
financial and
other information for prospectuses, statements of
additional
information, and periodic reports to shareholders. In
addition,
MIMI will assist the Trust's legal counsel with SEC
registration
statements, proxies and other required filings. Under
the
agreement, the Fund's net assets are subject to a
monthly fee at
the annual rate of 0.10%.
FUND ACCOUNTING. The Trust has entered into a Fund
Accounting
Services Agreement with MIMI pursuant to which MIMI
provides
certain accounting and pricing services for the Fund.
For fund
accounting services, the Fund pays MIMI out-of-pocket
expenses as
incurred and a monthly fee based upon the Fund's net
assets at
the end of the preceding month 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 the
net assets
are over $40 million to $75 million; and $6,500 when
net assets
are over $75 million.
CUSTODIAN. Brown Brothers Harriman & Co. ("Brown
Brothers"), a
private bank and a member of the principal securities
exchanges,
located at 40 Water Street, Boston, Massachusetts
02109, serves
as Custodian for the Fund. Subject to the supervision
of the
Trustees, the Custodian has entered into subcustodial
agreements
for the holding of the Fund's foreign securities.
TRANSFER AGENT. Mackenzie Ivy Investor Services Corp.
("MIISC"),
a wholly owned subsidiary of MIMI, is the transfer
agent and
dividend paying agent for the Fund and provides certain
shareholder and shareholder-related services as
required by the
Fund. For transfer agency and shareholder services,
the Fund
pays MIISC an annual fee or $20.75 per open account.
In
addition, the Fund pays MIISC a fee of $4.36 for each
account
that is closed and reimburses MIISC monthly for
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 MIISC if the individual
accounts that
comprise the omnibus account were opened by their
beneficial
owners directly. As compensation for these services,
MIISC pays
the broker-dealer a similar open account fee for each
account
within the omnibus account or a fixed rate (e.g., .10%)
based on
the average daily net asset value of the omnibus
account (or a
combination thereof).
PORTFOLIO TRANSACTIONS
Subject to the overall supervision of the Trust's
President and
the Board of Trustees, IMI places all orders for the
purchase and
sale of portfolio securities for the Fund. All
portfolio
transactions are executed at the best price and
execution
obtainable. Purchases and sales of debt securities are
usually
principal transactions and, therefore, brokerage
commissions are
generally not required to be paid by the Fund for such
purchases
and sales, although the price paid usually 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. Subject to the requirement of
best price
and execution, IMI may select broker-dealers that
provide it with
research services and may consider the sales of shares
of the
Fund as a factor in the selection of broker-dealers.
During the
Fund's current fiscal year, the portfolio turnover rate
is
estimated not to exceed 75%.
ALTERNATIVE PURCHASE AGREEMENTS
You can purchase shares of the Fund at a price equal to
their net
asset value per share, plus a sales charge. At your
election,
this charge may be imposed either at the time of the
purchase
(see "Initial Sales Charge Alternative -Class A
shares") or on a
contingent deferred basis (see "Contingent Deferred
Sales Charge
- Class B shares"). If you do not specify on your
account
application which class of shares you are purchasing,
it will be
assumed that you are investing in Class A shares. The
Fund
reserves the right to reject for any reason any
purchase order of
exchange (see "Exchange Privilege" below).
CLASS A SHARES. If you elect to purchase Class A
shares, you
will incur an initial sales charge unless the amount
you purchase
is $500,000 or more. If you purchase $500,000 or more
of Class A
shares, you will not be subject to an initial sales
charge, but
you will incur a contingent deferred sales charge
("CDSC") if you
redeem your shares within 24 months of purchase. See
"Contingent
Deferred Sales Charge - Class A Shares." Class A
shares are
subject to ongoing service fees at an annual rate of up
to 0.25%
of the Fund's average daily net assets attributable to
the Class
A shares. Certain purchases of Class A shares qualify
for
reduced initial sales charges. See "Share Price -
Qualifying for
a Reduced Sales Charge."
CLASS B SHARES. You will not incur a sales charge when
you
purchase Class B shares, but the shares are subject to
a CDSC if
you redeem them within six years of purchase. Class B
shares are
subject to ongoing distribution and service fees at a
combined
annual rate of up to 1.00% of the Fund's average daily
net assets
attributable to the Class B shares. The higher ongoing
distribution fee will cause these shares to have a
higher expense
ratio than that of Class A shares. To the extent that
any
dividends are paid by the Fund, these higher expenses
will also
result in lower dividends than those paid on Class A
shares.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to
choose the
most beneficial way to buy shares given the amount of
your
purchase, the length of time you expect to hold your
shares and
other circumstances. You should consider whether,
during the
anticipated life of your Fund investment, the
accumulated fees on
Class B shares would be less than the initial sales
charge and
accumulated fees on Class A shares purchased at the
same time,
and to what extent this differential would be offset by
the Class
A shares' lower expenses. To help you make this
determination,
the table under the caption "Expense Information" on
the inside
cover page of this Prospectus gives examples of the
charges
applicable to each class of shares. Class A shares
will normally
be more beneficial if you qualify for a reduced sales
charge.
See "Share Price - Qualifying for a Reduced Sales
Charge."
Class A shares are subject to lower distribution and
service
fees, and accordingly, pay correspondingly higher
dividends per
share, to the extent that any dividends are paid.
However,
because initial sales charges are deducted at the time
of
purchase, you would not have all of your funds invested
initially
and, therefore, would own fewer shares. If you do not
qualify
for reduced initial sales charges and expect to
maintain your
investment for an extended period of time, you might
consider
purchasing Class A shares because the accumulated
distribution
and service changes on Class B shares may exceed the
initial
sales charge and accumulated distribution and service
charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it would be
more
advantageous to purchase Class B shares in order to
have all of
your funds invested initially, although remaining
subject to a
contingent deferred sales charge and a higher
distribution fee
over a period of eight years.
In the case of Class A shares, the distribution
expenses that
MIFDI incurs in connection with the sale of the shares
will be
paid from the proceeds of the initial sales charge and
the
ongoing distribution and service fees. In the case of
Class B
shares, the expenses will be paid from the proceeds of
ongoing
distribution and service fees, as well as the CDSC
incurred upon
redemption within six years of purchase. The purpose
and
function of the Class B shares' CDSC and ongoing
distribution
fees are the same as those of the Class A shares'
initial sales
charge and ongoing distribution and service fees.
MIFDI is the
principal underwriter of the Fund's shares. Sales
personnel
distributing the Fund's shares may receive different
compensation
for selling each class of shares.
DIVIDENDS AND TAXES
Dividends and capital gain distributions received from
the Fund
are reinvested in additional shares of your class
unless you
elect the option to receive them in cash. If you elect
the cash
option and the U.S. Postal Service cannot deliver your
checks,
your election will be converted to the reinvestment
option.
Because of the higher expenses associated with Class B
shares,
any dividend on these shares will be lower than on the
Class A
shares. See "Share Price."
In order to provide steady cash flow to the Fund's
shareholders,
the Board of Trustees intends normally to make monthly
distributions from the Fund's net investment income to
the Fund's
Class A and Class B shares based on their relative net
asset
value. The Fund intends to make a final distribution
for each
fiscal year of any undistributed net investment income
and net
realized short-term capital gains, as well as
undistributed net
long-term capital gains, realized during the year. An
additional
distribution may be made of net investment income, net
realized
short-term capital gains and net realized long-term
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").
If, for any year, the total distributions from the Fund
exceed
net investment income and net realized capital gains
for the
Fund, the excess, distributed from the assets of the
Fund, will
generally be treated as a return of capital. The
amount treated
as a return of capital will reduce a shareholder's
adjusted basis
in his or her shares (thereby increasing his or her
potential
gain or reducing his or her potential loss on the sale
of his or
her shares) and, to the extent that the amount exceeds
this
basis, will be treated as a taxable gain. However, if
the Fund
has current or accumulated earnings and profits, so as
to
characterize all or a portion of such excess as a
dividend for
federal income tax purposes, the distributions, to that
extent,
would normally be taxable as ordinary income (or, if a
capital
gain dividend, as long-term capital gain).
If the Fund distributes amounts in excess of its net
investment
income and net realized capital gains, such
distributions will
decrease the Fund's total assets and, therefore, have
the likely
effect of increasing the Fund's expense ratio. In
addition, in
order to make such distributions, the Fund may have to
sell a
portion of its investment portfolio at a time when
independent
investment judgment might not dictate such action.
Such sales
could also adversely affect the Fund's status as a
regulated
investment company. See "Taxation" in the SAI.
TAXATION. The following discussion is intended for
general
information only. An investor should consult with his
or her own
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.
The Fund intends to qualify annually and elect to be
treated as a
regulated investment company under the Code. To
qualify, the
Fund must meet certain income, distribution and
diversification
requirements. In any year in which the Fund qualifies
as a
regulated investment company and timely distributes all
of its
taxable income, the Fund generally will not pay any
U.S. federal
income or excise tax.
Dividends paid out of the Fund's investment company
taxable
income (including dividends, interest and net
short-term capital
gains) will be taxable to a shareholder as ordinary
income.
Because no portion of the Fund's income is expected to
consist of
dividends paid by U.S. corporations, no portion of the
dividends
paid by the Fund is expected to 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, designated as capital gain
dividends are
taxable as long-term capital gains, regardless of how
long the
shareholder has held the Fund's shares. Dividends are
taxable to
shareholders in the same manner whether received in
cash or
reinvested in additional Fund shares.
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 with a record date in such a month
and paid
by the Fund during January of the following calendar
year. Such
distributions will be taxable to shareholders in the
calendar
year in which the distributions are declared, rather
than the
calendar year in which the distributions are received.
Each year the Fund will notify shareholders of the tax
status of
dividends and distributions.
Investments in securities that are issued at a discount
will
result in income to the Fund each year equal to a
portion of the
excess of the face value of the securities over their
issue
price, even though the Fund receives no cash interest
payments
from the securities.
Income and gains received by the Fund from sources
within foreign
countries may be subject to foreign withholding and
other taxes.
Unless the Fund is eligible to and elects to "pass
through" to
its shareholders the amount of foreign income and
similar taxes
paid by the Fund, these taxes will reduce the Fund's
investment
company taxable income, and distributions of investment
company
taxable income received from the Fund will be treated
as U.S.
source income.
Any gain or loss realized by a shareholder upon the
sale or other
disposition of shares of the Fund, or upon receipt of a
distribution in complete liquidation of the Fund,
generally will
be a capital gain or loss which will be long-term or
short-term,
generally depending upon the shareholder's holding
period for the
shares.
The Fund may be required to withhold U.S. federal
income tax at
the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their
correct
taxpayer identification number or to make required
certifications, or who have been notified by the IRS
that they
are subject to backup withholding. Backup withholding
is not an
additional tax. Any amounts withheld may be credited
against the
shareholder's U.S. federal income tax liability.
Further information relating to tax consequences is
contained in
the SAI.
Fund distributions also may be subject to state, local
and
foreign taxes. Distributions of the Fund that are
derived from
interest on obligations of the U.S. Government and
certain of its
agencies and instrumentalities may be exempt from state
and local
taxes in certain states. Shareholders should consult
their own
tax advisers regarding the particular tax consequences
of an
investment in the Fund.
PERFORMANCE DATA
Performance information for the classes of shares of
the Fund may
be compared, in reports and promotional literature, to:
(i) 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
persons who
rank mutual funds on overall performance or other
criteria; (ii)
the Consumer Price Index (measure for inflation) to
assess the
real rate of return from an investment in the Fund; and
(iii)
unmanaged indices so that investors may compare the
Fund's
results with those of a group of securities widely
regarded by
investors as representative of the securities markets
in general.
Unmanaged indices may assume the reinvestment of
dividends, but
generally do not reflect deductions for administrative
and
management costs and expenses. Performance rankings
are based on
historical information and are not intended to indicate
future
performance.
In addition, advertisements, sales literature and
communications
to shareholders may contain various measures of the
Fund's
performance including current yield, various
expressions of total
return and current distribution rate. Such materials
may
occasionally cite statistics to reflect the Fund's
volatility or
risk. Performance information is computed separately
for the
Fund's Class A and Class B shares in accordance with
the formulas
described below. Because Class B shares bear the
expense of the
deferred sales charge alternative, it is expected that
the level
of performance of the Fund's Class B shares will be
lower than
that of the Fund's Class A shares.
Average annual total return figures as prescribed by
the SEC
represent the average annual percentage change in value
of $1000
invested at the maximum public offering price (offering
price
includes applicable sales charge) for one-, five- and
ten-year
periods, or any portion thereof, to the extent
applicable,
through the end of the most recent calendar quarter,
assuming
reinvestment of all distributions. The Fund may also
furnish
total return quotations for other periods, or based on
investments at various sales charge levels or at net
asset value.
For such purposes total return equals the total of all
income and
capital gains paid to shareholders, assuming
reinvestment of all
distributions, plus (or minus) the change in the value
of the
original investment expressed as a percentage of the
purchase
price.
Current yield reflects the income per share earned by
the Fund's
portfolio investments; it is calculated by dividing the
Fund's
net investment income per share during a recent 30-day
period by
the maximum public offering price on the last day of
that period
and then annualizing the result.
Yield, which is calculated according to a formula
prescribed by
the SEC (see the SAI), is not indicative of the
dividends or
distributions that were or will be paid to the Fund's
shareholders. Dividends or distributions paid to
shareholders
are reflected in the current distribution rate, which
may be
quoted to shareholders. The current distribution rate
is
computed by dividing the total amount of dividends per
share paid
by a Fund during the 12 months by a current maximum
offering
price (offering price includes sales charge). Under
certain
circumstances, such as when there has been a change in
the amount
of dividend payout, or a fundamental change in
investment
policies, it might be appropriate to annualize the
dividends paid
during the period when such policies would be in
effect, rather
than using the dividends during the past 12 months.
The
distribution rate will differ from the current yield
computation
because it may include distributions to shareholders
from sources
other than dividends and interest, short term capital
gain and
net equalization credits and will be calculated over a
different
period of time.
Performance figures are based upon past performance and
will
reflect all recurring charges against Fund income. In
the case
of Class A shares, performance figures may assume the
payment of
the maximum sales charge on the purchase of shares.
Such charges
would reduce a performance figure. In the case of
Class B
shares, performance figures may assume the deduction of
any
applicable contingent deferred sales charge imposed on
redemption
of shares held for the period. The investment results
of the
Fund, like all others, will fluctuate over time; thus,
performance figures should not be considered to
represent what an
investment may earn in the future or what the Fund's
yield,
distribution rate or total return may be in any future
period.
HOW TO BUY SHARES
The minimum initial investment is $1000. All purchases
must be
made in U.S. dollars. Complete the Account Application
attached
to this Prospectus. Indicate whether you are
purchasing Class A
or Class B shares. If you do not specify which class
of shares
you are purchasing, MIISC will assume you are investing
in Class
A shares.
OPENING AN ACCOUNT
BY CHECK
1. Make your check payable to "Ivy International Bond
Fund."
2. Deliver the completed application and check to
your
registered representative or Selling Broker, or
mail it
directly to MIISC.
3. Our address is:
Mackenzie Ivy Investor Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
4. Our courier address is:
Mackenzie Ivy Investor Services Corp.
PO Box 3022
Boca Raton, FL 33431-0922
BY WIRE
1. Deliver a completed fund application to your
registered
representative or selling broker, or mail it
directly to
MIISC. Before wiring any funds, please contact
MIISC at 1-
800-777-6472 to verify your account number.
2. Instruct your bank to wire funds to:
Barnett Bank of Palm Beach County
ABA # 067008582
For deposit to The Ivy Mackenzie Funds
a/c #1455031505
Name of your account
Your Ivy or Mackenzie account number
The Ivy or Mackenzie Fund you are buying
Your bank may charge a fee for wiring funds.
THROUGH YOUR SECURITIES DEALER
You may also place an order to purchase shares through
your
Registered Securities Dealer.
BUYING ADDITIONAL CLASS A AND CLASS B SHARES
BY CHECK
1. Complete the investment stub attached to your
statement or
include a note with your investment listing the
name of the
Fund, the class of shares to purchase, your
account number
and the name(s) in which the account is
registered.
2. Make your check payable to the Ivy or Mackenzie
Fund to
which the investment will be made.
3. Mail the account information and check to:
Mackenzie Ivy Investor Services Corp.
PO Box 3022
Boca Raton, FL 33432
Our courier address is:
Mackenzie Ivy Investor Services Corp.
700 South Federal Highway, Suite 300
Boca Raton, FL 33432
or deliver it to your registered representative or
selling
broker.
BY WIRE
Instruct your bank to wire funds to:
Barnett Bank of Palm Beach County
ABA # 067008582
For deposit to
The Ivy Mackenzie Funds
a/c # 1455031505
Name of your account
Your Ivy or Mackenzie account number
The Ivy or Mackenzie Fund you are buying
Your bank may charge a fee for wiring funds.
THROUGH A REGISTERED SECURITIES DEALER
You may also place an order to purchase shares
through your Registered Securities Dealer.
BY AUTOMATIC INVESTMENT ("AIM")
1. Complete the "Automatic Investment Method" and
"Wire/EFT
Information" sections on the Account Application
designating
a bank account from which funds may be drawn.
Please note
that in order to invest using this method, your
bank must be
a member of the Automated Clearing House system
(ACH).
Please remember to attach a voided check to your
account
application.
2. At pre-specified intervals, your bank account will
be
debited and the proceeds will be credited to your
Ivy or
Mackenzie Fund account.
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Class A shares of the Fund is
the net
asset value per share plus a sales charge, which may be
reduced
or eliminated in certain circumstances. The purchase
price per
share is known as the public offering price. Your
purchase price
for Class B shares of the Fund is the net asset value
per share.
Your purchase of shares will be made at the price next
determined
after the purchase order is received. The price is
effective for
orders received by MIISC or by your registered
securities dealer
prior to the time of the determination of the net asset
value.
Any orders received after the time of the determination
of the
net asset value will be entered at the next calculated
price.
Orders placed with a securities dealer prior to the
time of
determination of the net asset value and transmitted
through the
facilities of the National Securities Clearing
Corporation by
7:00 PM EST on the same day are confirmed at that day's
price.
Any loss resulting from the dealer's failure to submit
an order
by the deadline will be borne by that dealer.
You will receive an account statement of your account
after any
purchase, exchange or full liquidations. Statements
related to
reinvestment of dividends, capital gains, systematic
investment
plans ("SIP" - See the SAI for further explanation)
and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The net asset value ("NAV") per share is the value of
one share.
The NAV per share is determined in the following
manner: the
total of all liabilities, including accrued expenses
and taxes
and any necessary reserves, is deducted from the
aggregate gross
value of all assets, and the difference is divided by
the number
of shares outstanding at the time, adjusted to the
nearest cent.
The NAV per share is determined once every business day
(each day
the New York Stock Exchange is open). Trading of
foreign
securities may not occur on every business day, and may
occur on
days when the New York Stock Exchange is closed.
The Fund offers two classes of shares in this
Prospectus: Class
A shares, which are subject to an initial sales charge;
and Class
B shares, which are subject to a contingent deferred
sales
charge. If you do not specify a particular class of
shares, it
will be assumed that you are purchasing Class A shares
and an
initial sales charge will be assessed.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
Shares are purchased at a public offering price equal
to their
NAV per share plus a sales charge, as set forth below.
TABLE OF SALES CHARGES FOR CLASS A SHARES
SALES CHARGE
AS A PERCENTAGE
OF PUBLIC
OFFERING PRICE
Amount Invested
Less than $100,000 4.75%
$100,000 but less than $250,000 3.75
$250,000 but less than $500,000 2.50%
$500,000 and over* 0.00%
SALES CHARGE
AS A PERCENTAGE
OF NET
AMOUNT INVESTED
Amount Invested
Less than $100,000 4.99%
$100,000 but less than $250,000 3.90%
$250,000 but less than $500,000 2.56%
$500,000 and over* 0.00%
PORTION OF
PUBLIC OFFERING
PRICE RETAINED
BY DEALER
Amount Invested
Less than $100,000 4.00%
$100,000 but less than $250,000 3.00%
$250,000 but less than $500,000 2.00%
$500,000 and over* 0.00%
[*] A contingent deferred sales charge may apply to
the
redemption of Class A shares that are purchased.
See
"Contingent Deferred Sales Charge--Class A
Shares."
Sales charges ARE NOT APPLIED to any dividends which
are
reinvested in additional shares of the Fund.
MIFDI may, at the time of any purchase of Class A Fund
shares,
pay out of MIFDI's own resources commissions to dealers
which
provided distribution assistance in connection with the
purchase.
For purchases over $500,000, the commission would be
computed at
1.00% of the first $3,000,000 invested, 0.50% of the
next
$2,000,000 invested, and 0.25% of the amount invested
in excess
of $5,000,000. Dealers who receive 90% or more of the
sales
charge may be deemed to be underwriters as that term is
defined
in the Securities Act of 1933.
An investor may be charged a transaction fee for Class
A shares
purchased or redeemed at net asset value through a
broker or
agent other than MIFDI.
MIFDI compensates participating brokers who sell Class
A shares
through the initial sales charge. MIFDI retains that
portion of
the initial sales charge that is not reallowed to the
dealers,
which it may use to distribute the Fund's Class A
shares.
Pursuant to separate distribution plans for the Fund's
Class A
and Class B shares, MIFDI bears various promotional and
sales
related expenses, including the cost of printing and
mailing
prospectuses to persons other than shareholders.
Pursuant to the
Fund's distribution plans applicable to its Class A and
Class B
shares, MIFDI currently pays a continuing service fee
to
qualified dealers at an annual rate of 0.25% of
qualified
investments.
MIFDI may from time to time pay a bonus or other
incentive to
dealers (other than MIFDI) which employ a registered
representative who sells a minimum dollar amount of the
shares of
the Fund and/or other funds distributed by MIFDI during
a
specified period of time. This bonus or other
incentive may take
the form of payment for travel expenses, including
lodging,
incurred in connection with trips taken by qualifying
registered
representatives and members of their families to places
within or
without the United States or other bonuses such as gift
certificates or the cash equivalent of such bonus or
incentive.
CONTINGENT DEFERRED SALES CHARGE--CLASS A SHARES
Purchases of $500,000 or more of Class A shares will be
made at
net asset value with no initial sales charge, but if
the shares
are redeemed within 24 months after the end of the
calendar month
in which the purchase was made (the contingent deferred
sales
charge period), a contingent deferred sales charge of
1.00% will
be imposed.
Purchases made under the NAV Transfers Program in Class
A shares
of the Fund are subject to a contingent deferred sales
charge of
0.40% for certain redemptions within one year after the
date of
purchase.
The charge will be assessed on an amount equal to the
lesser of
the current market value or the original purchase cost
of the
Class A shares redeemed. Accordingly, no CDSC will be
imposed on
increases in account value above the initial purchase
price,
including any dividends which have been reinvested in
additional
Class A shares.
In determining whether a CDSC applies to a redemption,
the
calculation will be determined in a manner that results
in the
lowest possible rate being charged. Therefore, it will
be
assumed that the redemption is first made from any
shares in your
account not subject to the CDSC. The CDSC is waived in
certain
circumstances. See the discussion below under the
caption
"Waiver of Contingent Deferred Sales Charges."
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The
contingent
deferred sales charge is waived for (i) redemptions in
connection
with distributions not exceeding 12% annually of the
initial
account balance (i.e., the value of the shareholder's
Class A
Fund account at the time of the initial distribution)
(a)
following retirement under a tax qualified retirement
plan or (b)
in the case of an individual retirement account
("IRA"), a
custodial account pursuant to section 403(b)(7) of the
Code, or a
Keogh Plan; (ii) redemption resulting from tax-free
return of an
excess contribution to an IRA; or (iii) any partial or
complete
redemption following the death or disability (as
defined in
Section 72(m)(7) of the Code) of a shareholder from an
account in
which the deceased or disabled is named, provided that
the
redemption is requested within one year of death or
disability.
The distributor may require documentation prior to
waiver of the
contingent deferred sales charge.
Class A shareholders may exchange their Class A shares
subject to
a contingent deferred sales charge ("outstanding Class
A shares")
for Class A shares of another Ivy or Mackenzie Fund
("new Class A
shares") on the basis of the relative net asset value
per Class A
share, without the payment of any contingent deferred
sales
charge that would be due upon the redemption of the
outstanding
Class A shares. The original CDSC rate that would have
been
charged if the outstanding Class A shares were redeemed
will
carry over to the new Class shares received in the
exchange, and
will be charged accordingly at the time of redemption.
QUALIFYING FOR A REDUCED SALES CHARGE
RIGHTS OF ACCUMULATION (ROA). Rights of Accumulation
("ROA") is
calculated by determining the current market value of
all Class A
shares in all Ivy or Mackenzie Fund accounts (except
Ivy Money
Market Fund) owned by you, your spouse, and your
children under
21 years of age. ROA is also applicable to accounts
under a
trustee or other single fiduciary (including retirement
accounts
qualified under Section 401 of the Code). The current
market
value of all of your accounts as described above is
added
together and then added to your current purchase
amount. If the
combined total is equal or greater than a breakpoint
amount for
the Fund, then you qualify for the reduced sales
charge.
LETTER OF INTENT (LOI). A Letter of Intent ("LOI") is
a non-
binding agreement that states your intention to invest
in
additional Class A shares, within a thirteen month
period after
the initial purchase, an amount equal to a breakpoint
amount for
the Fund. The LOI may be backdated up to 90 days. To
sign a
LOI, please complete Section 4B of the new account
application.
Should the LOI not be fulfilled within the thirteen
month period,
your account will be debited for the difference between
the full
sales charge that applies for the amount actually
invested and
the reduced sales charge actually paid on purchases
placed under
the terms of the LOI.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. An
investor who
was a shareholder of any Ivy Fund on December 31, 1991
or a
shareholder of American Investors Income Fund, Inc. or
American
Investors Growth Fund, Inc. on October 31, 1988 and who
became a
shareholder of Mackenzie Fixed Income Trust or Ivy
Growth Fund as
a result of the respective reorganizations between the
funds will
be exempt from sales charges on the purchase of Class A
shares of
any Ivy or Mackenzie Fund. This privilege is also
available to
immediate family members of a shareholder (i.e., the
shareholder's children, the shareholder's spouse and
the children
of the shareholder's spouse). This no-load privilege
terminates
for the investor if the investor redeems all shares
owned.
Shareholders and their relatives as described above
should call
1-800-235-3322 for information about additional
purchases or to
inquire about their account.
Officers and Trustees of the Trust (and their
relatives) and IMI,
MIMI, and Mackenzie Financial Corporation (of which
MIMI is a
subsidiary) and their officers, directors, employees,
and
retired employees, and legal counsel and independent
accountants
(and their relatives) may buy Class A shares of the
Fund without
an initial sales charge or contingent deferred sales
charge.
Directors, officers, partners, registered
representatives,
employees and retired employees (and their relatives)
of dealers
having a sales agreement with MIFDI or trustees or
custodians of
any qualified retirement plan established for the
benefit of a
person enumerated above may buy Class A shares of the
Fund
without an initial sales charge or contingent deferred
sales
charge. In addition, certain investment advisors and
financial
planners who charge a management, consulting or other
fee for
their services and who place trades for their own
accounts and
the accounts of their clients may purchase Class A
shares of the
Fund without an initial sales charge or a contingent
deferred
sales charge, provided such purchases are placed
through a broker
or agent who maintains an omnibus account with the
Fund. Also,
clients of these advisors and planners may make
purchases under
the same conditions if the purchases are through the
master
account of such advisor or planner on the books of such
broker or
agent. THIS PROVISION APPLIES TO ASSETS OF RETIREMENT
AND
DEFERRED COMPENSATION PLANS AND TRUSTS USED TO FUND
THOSE PLANS
INCLUDING, BUT NOT LIMITED TO, THOSE DEFINED IN SECTION
401(a),
403(b) OR 457 OF THE CODE AND "RABBI TRUSTS" WHOSE
ASSETS ARE
USED TO PURCHASE SHARES OF THE FUND THROUGH THE
AFOREMENTIONED
CHANNELS.
Class A shares of the Fund may be purchased at net
asset value by
retirement plans qualified under section 401(a) or
403(b) of the
Code and subject to the Employee Retirement Income
Security Act
of 1974, as amended, subject to the following: (i)
either (a) the
sponsoring organization must have at least 25 employees
or (b)
the aggregate purchases by the retirement plan of Class
A shares
of the Fund must be in an amount of at least $250,000
within a
reasonable period of time, as determined by MIFDI in
its sole
discretion; and (ii) a contingent deferred sales charge
of 0.75%
will be imposed on such purchases in the event of
certain
redemption transactions within 24 months of such
purchases.
If investments by retirement plans at NAV are made
through a
dealer who has executed a dealer agreement with respect
to the
Fund, MIFDI may, at the time of purchase, pay such
dealer, out of
MIFDI's own resources, a commission to compensate such
dealer for
its distribution assistance in connection with such
purchase.
Commissions would be computed at 0.75% of the first
$3,000,000
invested, 0.50% of the next $2,000,000 invested, and
0.25% of the
amount invested in excess of $5,000,000. Please
contact MIFDI
for additional information.
Class A shares can also be purchased without an initial
sales
charge, but subject to a contingent deferred sales
charge of
0.40% during the first 12 months by any state, county,
city, or
any instrumentality, department, authority or agency of
these
entities, which is prohibited by applicable investment
laws from
paying a sales charge or commission when purchasing
shares of any
registered investment management company (an "eligible
governmental authority"). MIFDI may, at the time of
any such
purchase, pay out of MIFDI's own resources commissions
to dealers
which provided distribution assistance in connection
with the
purchase. Commissions would be computed at 0.40% of
the first
$3,000,000 invested, 0.20% of the next $2,000,000
invested, and
0.10% of the amount invested in excess of $5,000,000.
Class A shares can also be purchased without an initial
sales
charge, but subject to a contingent deferred sales
charge of
0.40% in the first 12 months by trust companies, bank
trust
departments, credit unions, savings and loans and other
similar
organizations in their fiduciary capacity or for their
own
accounts subject to any minimum requirements set by
MIFDI.
Currently, these criteria require that the amount
invested or to
be invested in the subsequent 13-month period totals at
least
$250,000. MIFDI may, at the time of any such purchase,
pay out
of MIFDI's own resources commissions to dealers which
provided
distribution assistance in connection with the
purchase.
Commissions would be computed at 0.40% of the first
$3,000,000
invested, 0.20% of the next $2,000,000 invested, and
0.10% of the
amount invested in excess of $5,000,000.
Class A shares of the Fund may also be purchased
without a sales
charge in connection with certain liquidation, merger
or
acquisition transactions involving other investment
companies or
personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE--CLASS B
SHARES
Class B shares are offered at net asset value per share
without a
front end sales charge. However, Class B shares
redeemed within
six years of purchase will be subject to a CDSC at the
rates set
forth below. This charge 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. Accordingly, you
will not be
assessed a CDSC on increases in account value above the
initial
purchase price, including shares derived from dividend
reinvestment. In determining whether a CDSC applies to
a
redemption, the calculation will be determined in a
manner that
results in the lowest possible rate being charged. It
will be
assumed that your redemption comes first from shares
you have
held beyond the six-year CDSC redemption period or
those you
acquire through reinvestment of dividends or
distributions, and
next from the shares you have held the longest during
the six-
year period.
Proceeds from the contingent deferred sales charge are
paid to
MIFDI. MIFDI uses them, in whole or in part, to defray
its
expenses related to providing the Fund with
distribution services
in connection with the sale of Class B shares, such as
compensating selected dealers and agents for selling
these
shares. The combination of the contingent deferred
sales charge
and the distribution and service fees makes it possible
for the
Fund to sell Class B shares without deducting a sales
charge at
the time of the purchase.
The amount of the contingent deferred sales charge, if
any, will
vary depending on the number of years from the time you
purchase
your Class B shares until the time you redeem them.
Solely for
purposes of determining this holding period, any
payments you
make during the month will be aggregated and deemed to
have been
made on the last day of the month.
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%
MIFDI currently intends to pay dealers a sales
commission of 4%
of the sale price of Class B shares sold by such
dealers, subject
to future amendment or termination. The distributor
will retain
0.75% of the continuing 1.00% distribution/service fee
assessed
to Class B shareholders and will receive the entire
amount of the
contingent deferred sales charge paid by shareholders
on the
redemption of Class B shares to finance the 4%
commission plus
related marketing expense.
CONVERSION OF CLASS B SHARES. Your Class B shares and
an
appropriate portion of both reinvested dividends and
capital
gains on those shares will be converted into Class A
shares
automatically no later than the month following eight
years after
the shares were purchased, resulting in lower annual
distribution
fees. If you exchanged Class B shares from another Ivy
or
Mackenzie fund into Class B shares of the Fund, the
calculation
will be based on the time the shares in the original
fund were
purchased.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The
contingent
deferred sales charge is waived for (i) redemptions in
connection
with distributions not exceeding 12% annually of the
initial
account balance (i.e., the value of the shareholder's
Class A
Fund account at the time of the initial distribution)
(a)
following retirement under a tax qualified retirement
plan or (b)
in the case of an IRA, custodial account pursuant to
section
403(b)(7) of the Code, or Keogh Plan; (ii) redemption
resulting
from tax-free return of an excess contribution to an
IRA; or
(iii) any partial or complete redemption following the
death or
disability (as defined in Section 72(m)(7) of the Code)
of a
shareholder from an account in which the deceased or
disabled is
named, provided that the redemption is requested within
one year
of death or disability. The distributor may require
documentation prior to waiver of the contingent
deferred sales
charge.
ARRANGEMENTS WITH BROKER/DEALERS AND OTHERS. MIFDI
may, at its
own expense, pay concessions in addition to those
described above
to dealers which satisfy certain criteria established
from time
to time by MIFDI. These conditions relate to
increasing sales of
shares of the Fund over specified periods and to
certain other
factors. These payments may, depending on the dealer's
satisfaction of the required conditions, be periodic
and may be
up to (i) 0.25% of the value of Fund shares sold by
such dealer
during a particular period, and (ii) 0.10% of the value
of Fund
shares held by the dealer's customers for more than one
year
calculated on an annual basis.
HOW TO REDEEM SHARES
You may redeem your Fund shares through your registered
securities representative, by mail or by telephone. A
contingent
deferred sales charge may apply to certain Class A
share
redemptions, and to Class B share redemptions prior to
conversion. All redemptions are made at the net asset
value next
determined after a redemption request has been received
in good
order. Requests for redemptions must be received by
4:00 PM EST
to be processed at the net asset value for that day.
Any
redemption requests in good order that is received
after 4:00 PM
will be processed at the price determined on the
following
business day. If shares to be redeemed were purchased
by check,
payment of the redemption may be delayed until the
check has
cleared or for up to 15 days after the date of
purchase,
whichever is less. If a shareholder owns shares of
more than one
class of the Fund, the Fund will redeem first the
shares having
the highest 12b-1 fees; provided, that any shares
subject to a
contingent deferred sales charge will be redeemed last
unless the
shareholder specifically elects otherwise.
When shares are redeemed, the Fund generally sends you
payment on
the next business day. Under unusual circumstances,
the Fund may
suspend redemptions or postpone payment to the extent
permitted
by Federal securities laws. The proceeds of the
redemption may
be more or less than the purchase price of your shares,
depending
upon, among other factors, the market value of the
Fund's
securities at the time of the redemption. If the
redemption is
for over $50,000, or the proceeds are to be sent to an
address
other than the address of record, or an address change
has
occurred in the last 30 days, it must be requested in
writing
with a signature guarantee.
If you are not certain of the requirements for a
redemption,
please contact MIISC at 1-800-777-6472.
THROUGH The Dealer is responsible for promptly
transmitting
YOUR redemption orders. Redemptions requested
by dealers
REGISTERED will be made at the net asset value (less
any
SECURITIES applicable contingent deferred sales
charge)
DEALER determined at the close of regular trading
(4:00 PM
EST) on the day that a redemption request
is
received in good order by MIISC.
BY MAIL Requests for redemption in writing are
considered to
be in "proper or good order" if they
contain the
following:
- Any outstanding certificate(s) for
shares
being redeemed.
- A letter of instruction, including
the fund
name, the account number, the
account
name(s), the address and the dollar
amount or
number of shares to be redeemed.
- Signatures of all registered owners
whose
names appear on the account.
- Any required signature guarantees.
- Other supporting legal
documentation, if
required (in the case of estates,
trusts,
guardianships, corporations,
retirement plans
or other representative
capacities).
The dollar amount or number of shares
indicated
for redemption must not exceed the
available
shares or net asset value of your
account at the
next-determined prices. If your request
exceeds
these limits, then the trade will be
rejected in
its entirety.
Mail your request to:
MACKENZIE IVY INVESTOR SERVICES CORP.
PO BOX 3022
BOCA RATON, FL 33431-0922
Our courier address is:
MACKENZIE IVY INVESTOR SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
BY Individual and joint accounts may redeem
up to
TELEPHONE $50,000 per day over the telephone by
contacting
MIISC at 1-800-777-6472. In times of
unusual
economic or market changes, the telephone
redemption
privilege may be difficult to implement.
If you are
unable to execute your transaction (for
example,
during such times), you may want to
consider placing
the order in writing and sending it by
mail or
overnight courier.
Checks will be made payable to the
current account
registration and sent to the address of
record.
If there has been a change of address in
the last
30 days, please use the instructions for
redemption requests by mail described
above. A
signature guarantee would be required.
Requests for telephone redemptions will
be
accepted from the registered owner of
the account,
the designated registered representative
or
his/her assistant.
Shares held in certificate form cannot
be redeemed
by telephone.
If Section 6E of the new account application is not
completed,
telephone redemption privileges will be provided
automatically.
Although telephone redemptions may be a convenient
feature, you
should realize that you may be giving up a measure of
security
that you may otherwise have if you terminated the
privilege and
redeemed your shares in writing. If you do not wish to
make
telephone redemptions or let your registered
representative or
his/her assistant do so on your behalf, you must notify
MIISC in
writing.
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.
For shareholders who established this feature at the
time they
opened their new account, telephone instructions will
be accepted
for redemption of amounts up to $50,000 and proceeds
will be
wired on the next business day to a predesignated bank
account.
In order to add this feature to an existing account or
to change
existing bank account information, please submit a
letter of
instructions including your bank information to MIISC
at the
address provided above. The letter must be signed by
all
registered owners, and their signatures must be
guaranteed.
Your account will be charged a fee of $10.00 each time
that
redemption proceeds are wired to your bank.
Neither MIMI nor the Fund can be responsible for the
efficiency
of the Federal Funds wire system or the shareholder's
bank.
MINIMUM ACCOUNT BALANCE REQUIREMENTS
Due to the high cost of maintaining small accounts and
subject to
state law requirements, the Fund may redeem the
accounts of
shareholders who have maintained an investment,
including sales
charges paid, of less than $1,000 for more than 12
months. No
redemption will be made unless the shareholder has been
given at
least 60 day's notice of the Fund's intention to redeem
the
shares. No redemption will be made if a shareholder's
account
falls below the minimum due to a reduction in the value
of the
Fund's portfolio securities. This provision does not
apply to
IRAs, other retirement accounts and UGMA/UTMA accounts.
SIGNATURE GUARANTEES
For your protection, and to prevent fraudulent
redemptions, we
require a signature guarantee in order to accommodate
the
following requests:
- Redemption requests over $50,000.
- Requests for redemption proceeds to be sent
to someone
other than the registered shareholder.
- Requests for redemption proceeds to be sent
to an
address other than the address of record.
- Registration transfer requests.
- Requests for redemption proceeds to be wired
to your
bank account (if this option was not selected
on your
original application, or if you are changing
the bank
wire information).
A signature guarantee may be obtained only from an
eligible
guarantor institution as defined in Rule 17Ad-15 of the
Securities Exchange Act of 1934, as amended. An
eligible
guarantor institution includes banks, brokers, dealers,
municipal
securities dealers, government securities dealers,
government
securities brokers, credit unions, national securities
exchanges,
registered securities associations, clearing agencies
and savings
associations. The signature guarantee must not be
qualified in
any way. Notarizations from notary publics are not the
same as
signature guarantees, and are not accepted.
Circumstances other than those described above may
require a
signature guarantee. Please contact MIISC at
1-800-777-6472 for
more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the dividend and
capital gain
distribution option that best suits your needs:
1. AUTOMATIC REINVESTMENT OPTION - Both dividends and
capital
gains are automatically reinvested at net
asset value
in additional shares of the same class of the Fund
unless
you specify one of the other options.
2. INVESTMENT IN ANOTHER IVY OR MACKENZIE FUND - Both
dividends and capital gains are automatically
invested at
net asset value in the same class of shares of
another Ivy
or Mackenzie Fund.
3. DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED -
Dividends will
be paid in cash. Capital gains will be reinvested
at net
asset value in additional shares of the same class
of the
fund or another Ivy or Mackenzie Fund of the same
class.
4. DIVIDENDS AND CAPITAL GAINS IN CASH - Both
dividends and
capital gains will be paid in cash.
If you wish to have your cash distributions deposited
directly to
your bank account via electronic funds transfer, or if
you wish
to change your distribution option, please contact
MIISC at 1-
800-777-6472.
If you wish to have your cash distributions go to an
address
other than the address of record, a signature guarantee
is
required.
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% Federal
backup
withholding tax on dividends, capital gains
distributions and
redemption proceeds, you must furnish the Fund with
your
certified tax identification number (TIN) and certify
that you
are not subject to backup withholding due to prior
underreporting
of interest and dividends to the Internal Revenue
Service. If
you fail to provide a certified TIN or such other
tax-related
certifications as the Fund may require, within 30 days
of opening
your new account, the Fund reserves the right to
involuntarily
redeem your account and send the proceeds to your
address of
record.
You can avoid the above withholding and/or redemption
by
correctly furnishing your TIN, and making certain
certifications,
in Section 2 of the new account application at the time
you open
your new account, unless the IRS requires that backup
withholding
be applied to your account.
Certain payees, such as corporations, generally are
exempt from
backup withholding. Please complete IRS Form W-9 with
the new
account application to claim this exemption. If the
registration
is for a UGMA/UTMA account, please provide the social
security
number of the minor. Non-U.S. investors who do not
have a TIN
must provide, with their new account application, a
completed IRS
Form W-8.
CERTIFICATES
In order to facilitate transfers, exchanges and
redemptions, most
shareholders elect not to receive certificates. Should
you wish
to have a certificate issued, please contact MIISC at
1-800-777-
6472 and request that one be sent to you. (Retirement
plan
accounts are not eligible for this service.) Please
note that if
you were to lose your certificate, you would incur an
expense to
replace it.
Certificates requested by telephone for shares valued
up to
$50,000 will be issued to the current registration and
mailed to
the address of record. Should you wish to have your
certificates
mailed to a different address, or registered
differently from the
current registration, you must provide a letter of
instruction
signed by all registered owners with signatures
guaranteed. The
letter of instruction would be sent to Mackenzie Ivy
Investor
Services Corp., PO Box 3022, Boca Raton, FL
33431-0922.
EXCHANGE PRIVILEGE
Shareholders of the Fund have an exchange privilege
with other
Mackenzie and Ivy Funds. Class A shareholders may
exchange
their outstanding Class A shares for Class A shares of
another
Ivy or Mackenzie Fund on the basis of the net asset
value per
Class A share, plus an amount equal to the difference
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. Incremental sales charges are
waived for
outstanding Class A shares that have been invested for
12 months
or longer.
Class B shareholders may exchange their outstanding
Class B
shares for Class B shares of another Ivy or Mackenzie
Fund on the
basis of the net asset value per Class B share, without
the
payment of any contingent deferred sales charge that
would
otherwise be due upon the redemption of Class B shares.
Class B
shareholders who exercise the exchange privilege would
continue
to be subject to the Fund's contingent deferred sales
charge
schedule (or period) following an exchange if such
schedule is
higher (or longer) than the contingent deferred sales
charge for
the new Class B shares.
Shares resulting from the reinvestment of dividends and
other
distributions will not be charged an initial sales
charge or a
contingent deferred sales charge when exchanged to
another Ivy or
Mackenzie Fund.
Exchanges are considered to be taxable events, and may
result in
a capital gain or a capital loss for tax purposes.
Prior to
executing an exchange, you should obtain and read the
prospectus
and consider the investment objective of the fund to be
purchased. Shares must be unissued in order to execute
an
exchange. Exchanges are available only in states where
they can
be legally made. This privilege is not intended to
provide
shareholders a means by which to speculate on
short-term
movements in the market. Exchanges are accepted only
if the
registrations of the two accounts are identical.
Amounts to be
exchanged must meet minimum investment requirements for
the Ivy
or Mackenzie Fund into which the exchange is made.
With respect to shares subject to a contingent deferred
sales
charge, if less than all of an investment is exchanged
out of the
Fund, the shares exchanged will reflect, pro rata, the
cost,
capital appreciation and/or reinvestment of
distributions of the
original investment as well as the original purchase
date, for
purposes of calculating any contingent deferred sales
charge for
future redemptions of the exchanged shares.
An investor who was a shareholder of American Investors
Income
Fund, Inc. or American Investors Growth Fund, Inc.
prior to
October 31, 1988, or a shareholder of the Ivy Funds
prior to
December 31, 1991, who became a shareholder of the Fund
as a
result of a reorganization or merger between the Funds
may
exchange between funds without paying a sales charge.
An
investor who was a shareholder of American Investors
Income Fund,
Inc. or American Investors Growth Fund, Inc. on or
after October
31, 1988, who became a shareholder of the Fund as a
result of the
reorganization between the Funds will receive credit
toward any
applicable sales charge imposed by any Ivy or Mackenzie
Fund into
which an exchange is made.
In calculating the sales charge assessed on an
exchange,
shareholders will be allowed to use the Rights of
Accumulation
privilege.
EXCHANGES BY TELEPHONE
When you fill out the application for your purchase of
Fund
shares, if Section 6E of the new account application is
not
completed, telephone exchange privileges will be
provided
automatically. Although telephone exchanges may be a
convenient
feature, you should realize that you may be giving up a
measure
of security that you may otherwise have if you
terminated the
privilege and exchanged your shares in writing. If you
do not
wish to make telephone exchanges or let your registered
representative or his/her assistant do so on your
behalf, you
must notify MIISC in writing.
In order to execute an exchange, please contact MIISC
at 1-800-
777-6472. Have the account number of your current fund
and the
exact name in which it is registered available to give
to the
telephone representative.
The Fund 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
may be
liable for any losses due to unauthorized or fraudulent
telephone
instructions.
EXCHANGES IN WRITING
In a letter, request an exchange and provide the
following
information:
- The name and class of the fund whose shares
you
currently own.
- Your account number.
- The name(s) in which the account is
registered.
- The name of the fund in which you wish your
exchange to
be invested.
- The number of shares, all shares or the
dollar amount
you wish to exchange.
The request must be signed as by all registered owners.
Mail the request and information to:
Mackenzie Ivy Investor Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
REINVESTMENT PRIVILEGE
Investors who have redeemed Class A shares of the Fund
have a
one-time privilege of reinvesting 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
after the
date of redemption. In order to reinvest without a
sales charge,
shareholders or their brokers must inform MIISC that
they are
exercising the reinvestment privilege at the time of
reinvestment. The tax status of a gain realized on a
redemption
generally will not be affected by the exercise of the
reinvestment privilege, but a loss realized on a
redemption
generally may be disallowed by the Internal Revenue
Service if
the reinvestment privilege is exercised within 30 days
after the
redemption. In addition, upon a reinvestment, the
shareholder
may not be permitted to take into account sales charges
incurred
on the original purchase of shares in computing their
taxable
gain or loss.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
You may elect the Systematic Withdrawal Plan at any
time by
completing the Account Application, which is attached
to this
Prospectus. You can also obtain this application by
contacting
your registered representative or MIISC at
1-800-777-6472. To be
eligible, you must have at least $5,000 in your
account.
Payments (minimum distribution amount - $50) from your
account
can be made monthly, quarterly, semi-annually, annually
or on a
selected monthly basis, to yourself or any other
designated
payee. You may elect to have your systematic
withdrawal paid
directly to your bank account via electronic funds
transfer
("EFT"). For more information, please contact MIISC at
1-800-
777-6472.
If payments you receive through the Systematic
Withdrawal Plan
exceed the dividends and capital appreciation of your
account,
you will be reducing the value of your account.
Additional
investments made by shareholders participating in the
Systematic
Withdrawal Plan must equal at least $1,000 while the
plan is in
effect. However, it may not be advantageous to
purchase
additional Class A or Class B shares when you have a
Systematic
Withdrawal Plan, because you may be subject to an
initial sales
charge on your purchase of Class A shares or to a
contingent
deferred sales charge imposed on your redemptions of
Class B
shares. In addition, redemptions are taxable events.
Amounts paid to you through the Systematic Withdrawal
Plan are
derived from the redemption of shares in your account.
Any
applicable contingent deferred sales charge will be
assessed upon
the redemptions. A contingent deferred sales charge
will not be
assessed on withdrawals not exceeding 12% annually of
the initial
account balance when the Systematic Withdrawal Plan was
started.
Should you wish at any time to add a Systematic
Withdrawal Plan
to an existing account or change payee instructions,
you will
need to submit a written request, signed by all
registered
owners, with signatures guaranteed.
Retirement accounts are eligible for Systematic
Withdrawal Plans.
Please contact MIISC at
1-800-777-6472 to obtain the necessary paperwork to
establish a
plan.
If the U.S. Postal Service cannot deliver your checks,
or if
deposits to a bank account are returned for any reason,
your
redemptions will be discontinued.
AUTOMATIC INVESTMENT METHOD ("AIM")
You may authorize an investment to be automatically
drawn each
month from your bank for investment in Fund shares
under the
"Automatic Investment Method" and "Fed Wire/EFT"
sections of the
Account Application. There is no charge to you for
this program.
You may terminate or suspend your Automatic Investment
Method by
telephone at any time by contacting MIISC at
1-800-777-6472.
If you have investments being withdrawn from a bank
account and
we are notified that the account has been closed, your
Automatic
Investment Method will be discontinued.
CONSOLIDATED ACCOUNT STATEMENTS
Shareholders with two or more Ivy or Mackenzie fund
accounts will
receive a single quarterly account statement, unless
otherwise
specified. This feature consolidates the activity for
each
account onto one statement. Requests for quarterly
consolidated
statements for all other accounts must be submitted in
writing
and must be signed by all registered owners.
RETIREMENT PLANS
The Ivy Mackenzie Funds offers several IRS-approved tax
sheltered
retirement plans that may fit your needs:
- IRA (Individual Retirement Account)
- 401(k) Plan
Money Purchase Pension Plan
Profit Sharing Plan
- SEP-IRA (Simplified Employee Pension Plan)
- 403(b)(7) Plan
Minimum initial and subsequent investments for
retirement plans
are $25.00.
Please call MIISC at 1-800-777-6472 for complete
information kits
describing the plans, their benefits, restrictions,
provisions
and fees.
IVY FUND
Board of Trustees
John S. Anderegg, Jr.
Paul H. Broyhill
Frank W. DeFriece, Jr.
Michael G. Landry
Michael R. Peers
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Officers
Michael G. Landry, President
Keith J. Carlson, Vice President
C. William Ferris, Secretary/Treasurer
Michael R. Peers, Chairman
Custodian
Brown Brothers Harriman & Co.
Boston, MA
Transfer Agent
Mackenzie Ivy Investor Services Corp.
P.O. Box 3022
Boca Raton, Florida 33431-0922
1-800-777-6472
Auditors
Coopers & Lybrand L.L.P.
Ft. Lauderdale, Florida
Legal Counsel
Dechert Price & Rhoads
Boston, MA
Investment Manager
Ivy Management, Inc.
Boca Raton, Florida
Distributor
Mackenzie Ivy Funds Distribution, Inc.
Via Mizner Financial Plaza
700 South Federal Highway
Boca Raton, Florida 33432
1-800-456-5111
