As filed with the Securities and Exchange Commission on
March 30, 1998
(File No. 2-17613)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 98 [ X ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ X ]
IVY FUND
(Exact Name of Registrant as Specified in Charter)
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 777-6472
C. William Ferris
Mackenzie Investment Management Inc.
Via Mizner Financial Plaza
700 South Federal Highway - Suite 300
Boca Raton, Florida 33432
(Name and Address of Agent for Service)
Copies to:
Joseph R. Fleming, Esq.
Dechert Price & Rhoads
Ten Post Office Square, South - Suite 1230
Boston, MA 02109
[ X ] It is proposed that this Post-Effective Amendment
will
become effective on April 6, 1998 pursuant to paragraph
(b) of Rule 485.
[ X ] This Post-Effective Amendment designates a new
effective date for a previously filed post-effective
amendment.
Title of Securities Being Registered...Shares of Beneficial
Interest, No Par Value Per Share
<PAGE>
THIS POST-EFFECTIVE AMENDMENT NO. 98 TO THE REGISTRATION
STATEMENT OF IVY FUND (THE "REGISTRANT") IS BEING MADE TO FILE CERTAIN
EXHIBITS TO THE REGISTRANT'S REGISTRATION STATEMENT INCLUDING IVY
HIGH YIELD FUND'S (THE "FUND") INITIAL BALANCE SHEET, TO
DESIGNATE A NEW EFFECTIVE DATE FOR THE PREVIOUSLY FILED POST-EFFECTIVE
AMENDMENT IN WHICH THE FUND'S PROSPECTUSES AND STATEMENTS OF
ADDITIONAL INFORMATION WERE INCLUDED, AND TO EFFECT CERTAIN OTHER
CHANGES. THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL
INFORMATION THAT ARE INCLUDED IN THIS POST-EFFECTIVE AMENDMENT NO. 98
ARE TO BE USED CONCURRENTLY WITH AND SEPARATELY FROM THE CURRENTLY
EFFECTIVE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR IVY
MONEY MARKET FUND, IVY ASIA PACIFIC FUND, IVY BOND FUND, IVY CANADA
FUND, IVY CHINA REGION FUND, IVY US EMERGING GROWTH FUND, IVY GLOBAL
FUND, IVY GLOBAL NATURAL RESOURCES FUND, IVY GLOBAL SCIENCE &
TECHNOLOGY FUND, IVY GROWTH FUND, IVY GROWTH WITH INCOME FUND,
IVY INTERNATIONAL FUND, IVY INTERNATIONAL FUND II, IVY INTERNATIONAL
SMALL COMPANIES FUND, IVY SOUTH AMERICA FUND, IVY DEVELOPING
NATIONS FUND AND IVY PAN-EUROPE FUND, WHICH ARE NOT INCLUDED IN,
BUT ARE INCORPORATED BY REFERENCE TO, THIS FILING.
<PAGE>
IVY FUND
CROSS REFERENCE SHEET
Post-Effective Amendment No. 98 contains the Prospectuses
and Statements of Additional Information to be used with Ivy High
Yield Fund, one of the eighteen series of Ivy Fund (the "Registrant").
The other series of the Registrant are described in separate
prospectuses and statements of additional information, all of
which are incorporated by reference.
Items Required by Form N-1A
CLASS A, B, C, AND I SHARES
PART A:
1 COVER PAGE: Cover Page
2 SYNOPSIS: Expense Information
3 CONDENSED FINANCIAL INFORMATION: Not Applicable
4 GENERAL DESCRIPTION OF REGISTRANT: Investment Objectives
and Policies; Risk Factors and Investment Techniques; Special
Risk Considerations; Appendix A
5 MANAGEMENT OF THE FUND: Organization and Management of the
Fund; Investment Manager; Transfer Agent; Fund
Administration and Accounting
6 CAPITAL STOCK AND OTHER SECURITIES: Performance Data;
Dividends and Taxes; Choosing a Distribution Option;
Shareholder Inquiries; Signature Guarantees; Consolidated
Account Statements
7 PURCHASE OF SECURITIES BEING OFFERED: How to Buy Shares; How
Your Purchase Price is Determined; How the Fund Values its
Shares; Initial Sales Charge Alternative--Class A Shares;
Contingent Deferred Sales Charge Alternative--Class A Shares;
Qualifying for a Reduced Sales Charge; Contingent Deferred
Sales Charge Alternative--Class B and Class C Shares;
Automatic Investment Method; Retirement Plans
8 REDEMPTION OR REPURCHASE: How to Redeem Shares; Minimum
Account Balance Requirements; Tax Identification Number;
Certificates; Exchange Privilege; Systematic Withdrawal Plan
9 PENDING LEGAL PROCEEDINGS: Not Applicable
CLASS A, B, C, AND I SHARES
PART B:
10 COVER PAGE: Cover Page
11 TABLE OF CONTENTS: Table of Contents
12 GENERAL INFORMATION AND HISTORY: Investment Objectives and
Policies
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and
Policies; Investment Restrictions; Additional Restrictions;
Appendix A
14 MANAGEMENT OF THE FUND: Trustees and Officers; Investment
Advisory and Other Services
15 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees
and Officers; Capitalization and Voting Rights
16 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory
and Other Services
17 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage
Allocation; Portfolio Turnover
18 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting
Rights; Conversion of Class B Shares
19 PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED:
Net Asset Value; Redemptions
20 TAX STATUS: Taxation
21 UNDERWRITERS: Investment Advisory and Other Services
22 CALCULATION OF PERFORMANCE DATA: Performance Information
23 FINANCIAL STATEMENTS: Financial Statements
ADVISOR CLASS SHARES
PART A:
1 COVER PAGE: Cover Page
2 SYNOPSIS: Expense Information
3 CONDENSED FINANCIAL INFORMATION: Not Applicable
4 GENERAL DESCRIPTION OF REGISTRANT: Investment Objectives and
Policies; Risk Factors and Investment Techniques; Special Risk
Considerations; Appendix A
5 MANAGEMENT OF THE FUND: Organization and Management of the
Fund; Investment Manager; Transfer Agent; Fund Administration
and Accounting
6 CAPITAL STOCK AND OTHER SECURITIES: Performance Data;
Dividends and Taxes; Choosing a Distribution Option;
Shareholder Inquiries; Signature Guarantees; Consolidated
Account Statements
7 PURCHASE OF SECURITIES BEING OFFERED: How to Buy Shares; How
Your Purchase Price is Determined; How the Fund Values its
Shares; Automatic Investment Method; Retirement Plans
8 REDEMPTION OR REPURCHASE: How to Redeem Shares; Minimum
Account Balance Requirements; Tax Identification Number;
Certificates; Exchange Privilege; Systematic Withdrawal Plan
9 PENDING LEGAL PROCEEDINGS: Not Applicable
ADVISOR CLASS SHARES
PART B:
10 COVER PAGE: Cover Page
11 TABLE OF CONTENTS: Table of Contents
12 GENERAL INFORMATION AND HISTORY: Investment Objectives and
Policies
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and
Policies; Investment Restrictions; Additional Restrictions;
Appendix A
14 MANAGEMENT OF THE FUND: Trustees and Officers; Investment
Advisory and Other Services
15 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Trustees
and Officers; Capitalization and Voting Rights
16 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory
and Other Services
17 BROKERAGE ALLOCATION AND OTHER PRACTICES: Brokerage
Allocation; Portfolio Turnover
18 CAPITAL STOCK AND OTHER SECURITIES: Capitalization and Voting
Rights
19 PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED:
Net Asset Value; Redemptions
20 TAX STATUS: Taxation
21 UNDERWRITERS: Investment Advisory and Other Services
22 CALCULATION OF PERFORMANCE DATA: Performance Information
23 FINANCIAL STATEMENTS: Financial Statements
<PAGE> 1
APRIL 6, 1998 IVY FUNDS (R)
Ivy
High
Yield
Funds
- - ----------
Prospectus
- - ----------
Ivy Management, Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[PICTURE]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Ivy Fund (the "Trust) is a registered investment company currently
consisting of eighteen separate portfolios. One of these portfolios, Ivy High
Yield Fund (the"Fund"), is described in this Prospectus. The Fund offers Class
A, Class B, Class C and Class I shares through this Prospectus. The Fund's
Advisor Class shares are described in a separate prospectus dated April 6, 1998.
THE FUND SEEKS A HIGH LEVEL OF CURRENT INCOME AND, SECONDARILY, CAPITAL
APPRECIATION BY INVESTING PRIMARILY IN BELOW INVESTMENT GRADE DEBT SECURITIES.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Please read it carefully and
retain it for future reference. Additional information about the Fund is
contained in the Fund's Statement of Additional Information dated April 6,1998
(the "SAI"), which has been filed with the Securities and Exchange Commission
("SEC") and is incorporated by reference in to this Prospectus. The SAI is
available upon request and without charge from the Trust at the Distributor's
address and telephone number below. The SEC maintains a web site
(http://www.sec.gov) that contains the SAI and other material incorporated by
reference.
THE FUND INVESTS SIGNIFICANTLY IN LOWER-QUALITY DEBT SECURITIES, COMMONLY
REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE
SPECULATIVE WITH REGARD TO THE PAYMENT OF INVESTMENT AND RETURN OF PRINCIPAL.
THEY CARRY GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN OTHER DEBT
SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. REFER TO "INVESTMENT OBJECTIVES AND POLICIES", "RISK
FACTORS AND INVESTMENT TECHNIQUES" AND "SPECIAL RISK CONSIDERATIONS" FOR
FURTHER INFORMATION.
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Expense Information ............................................................... 2
Investment Objectives and Policies................................................. 4
Risk Factors and Investment Techniques............................................. 4
Special Risk Considerations........................................................ 6
Organization and Management of the Fund............................................ 7
Investment Manager................................................................. 7
Fund Administration and Accounting................................................. 7
Transfer Agent..................................................................... 7
Alternative Purchase Arrangements.................................................. 7
Dividends and Taxes................................................................ 8
Performance Data................................................................... 8
How to Buy Shares.................................................................. 9
How Your Purchase Price is Determined.............................................. 9
How The Fund Values Its Shares..................................................... 9
Initial Sales Charge Alternative-Class A Shares....................................10
Contingent Deferred Sales Charge-Class A Shares....................................10
Qualifying for a Reduced Sales Charge..............................................10
Contingent Deferred Sales Charge Alternative-
Class B and Class C Shares.....................................................11
How to Redeem Shares...............................................................12
Minimum Account Balance Requirements...............................................13
Signature Guarantees...............................................................13
Choosing a Distribution Option.....................................................13
Tax Identification Number..........................................................13
Certificates.......................................................................14
Exchange Privilege.................................................................14
Reinvestment Privilege.............................................................14
Systematic Withdrawal Plan.........................................................15
Automatic Investment Method........................................................15
Consolidated Account Statements....................................................15
Retirement Plans...................................................................15
Shareholder Inquiries..............................................................15
Appendix...........................................................................16
Account Application................................................................18
</TABLE>
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT INVESTMENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Chairman Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Keith J. Carlson, President Services Corp. 700 South Federal Highway
Keith J. Carlson James W. Broadfoot, Vice President P.O. Box 3022 Boca Raton, FL 33432
Stanley Channick C. William Ferris, Boca Raton, FL 33431-0922 1-800-456-5111
Frank W. DeFriece, Jr. Secretary/Treasurer 1-800-777-6472
Roy J. Glauber DISTRIBUTOR
Michael G. Landry LEGAL COUNSEL AUDITORS Ivy Mackenzie
Joseph G. Rosenthal Dechert Price & Rhoads Coopers & Lybrand L.L.P. Distributors, Inc.
Richard N. Silverman Boston, MA Ft. Lauderdale, FL Via Mizner Financial Plaza
J. Brendan Swan 700 South Federal Highway
CUSTODIAN Boca Raton, FL 33432
Brown Brothers Harriman & Co. 1-800-456-5111
Boston, MA
</TABLE>
IVY MACKENZIE
<PAGE> 2
EXPENSE INFORMATION
The expenses and costs associated with investing in the Fund are reflected
in the following tables.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MAXIMUM SALES LOAD MAXIMUM CONTINGENT
IMPOSED ON PURCHASES DEFERRED SALES CHARGE
(AS A % OF (AS A % OF ORIGINAL
OFFERING PRICE) PURCHASE PRICE)
-------------------- ---------------------
<S> <C> <C>
Class A..................................................... 4.75%(1) None(2)
Class B..................................................... None 5.00%(3)
Class C..................................................... None 1.00%(4)
Class I..................................................... None None
</TABLE>
The Fund does not charge a redemption fee, an exchange fee, or a sales load on
reinvested dividends.
- - ---------------
(1) Class A shares may be purchased under a variety of plans that provide for
the reduction or elimination of the sales charge.
(2) A contingent deferred sales charge ("CDSC") 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-Class A Shares."
(3) The maximum CDSC 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 year and fourth years, 2% during the fifth year, 1% during
the sixth year, and 0% in the seventh year and thereafter.
(4) The CDSC on Class C shares applies to redemptions during the first year
after purchase.
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL FUND
OTHER OPERATING
12b-1 SERVICE/ EXPENSES EXPENSES
MANAGEMENT DISTRIBUTION (AFTER EXPENSE (AFTER EXPENSE
FEES FEES REIMBURSEMENT) REIMBURSEMENT)
---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Class A................................................ 0.75% 0.25% 0.10% 1.10%
Class B................................................ 0.75% 1.00%(2) 0.10% 1.85%
Class C................................................ 0.75% 1.00%(2) 0.10% 1.85%
Class I................................................ 0.75% None 0.01%(3) 0.76%
</TABLE>
- - ---------------
<TABLE>
<S> <C>
(1) Annual fund operating expenses are based on estimated fees
and expenses that the Fund expects to incur in its initial
fiscal year ending December 31, 1998, net of expense
reimbursements from Ivy Management, Inc. ("IMI"). IMI
currently limits Total Fund Operating Expenses (excluding
Rule 12b-1 fees and certain other items, and net of any
credits for fees paid indirectly) for the Fund to an annual
rate of 0.85% of the Fund's average net assets. Total Fund
Operating Expenses include fees paid indirectly. Without
expense reimbursements, "Other Expenses" are estimated to
increase 0.25% for each class. See "Investment Manager" for
a more detailed discussion of the Fund's fees and expenses.
(2) 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 Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD").
(3) "Other Expenses" of Class I shares are lower than such
expenses for the Fund's other classes because that class
bears lower administrative services fees and transfer agency
fees than Class A, Class B and Class C shares. See "Fund
Administration and Accounting" and "Transfer Agent."
</TABLE>
2
<PAGE> 3
EXAMPLES
The following table lists the expenses an investor would pay on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) unless otherwise
noted, redemption at the end of each time period. These examples further assume
reinvestment of all dividends and distributions, and that the percentage amounts
under "Total Fund Operating Expenses" (above) remain the same each year. THESE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE SHOWN.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C> <C> <C>
Class A*.................................................... $58 $ 81
Class B..................................................... $69(1) $ 88(2)
Class B (no redemption)..................................... $19 $ 58
Class C..................................................... $29(3) $ 58
Class C (no redemption)..................................... $19 $ 58
Class I**................................................... $ 8 $ 24
</TABLE>
- - ---------------
<TABLE>
<S> <C>
* Assumes deduction of the maximum 4.75% initial sales charge
at the time of purchase and no deduction of a CDSC at the
time of redemption.
** Class I shares are not subject to an initial sales charge at
the time of purchase, nor are they subject to the deduction
of a CDSC at the time of redemption.
(1) Assumes deduction of a 5% CDSC at the time of redemption.
(2) Assumes deduction of a 3% CDSC at the time of redemption.
(3) Assumes deduction of a 1% CDSC at the time of redemption.
</TABLE>
The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The information presented in the table does not reflect the charge
of $10 per transaction that would apply if a shareholder elects to have
redemption proceeds wired to his or her bank account. For a more detailed
discussion of the Fund's fees and expenses, see the following sections of this
Prospectus: "Organization and Management of the Fund," "Investment Manager,"
"Fund Administration and Accounting," "Initial Sales Charge Alternative-Class A
Shares," and "Contingent Deferred Sales Charge Alternative-Class B and Class C
Shares" and the following section of the SAI: "Investment Advisory and Other
Services."
3
<PAGE> 4
INVESTMENT OBJECTIVES AND POLICIES
Ivy High Yield Fund's investment objectives are to achieve a high level of
current income and, secondarily, capital appreciation by investing primarily in
below investment grade debt securities.
The Fund's investment objectives are fundamental and may not be changed
without the approval of a majority of the Fund's outstanding voting shares.
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 may be
changed by the Board of Trustees of the Trust ("Trustees") without shareholder
approval. There can be no assurance that the Fund's objectives will be met. The
different types of securities and investment techniques used by the Fund involve
varying degrees of risk. For information about the particular risks associated
with each type of investment, see "Risk Factors and Investment Techniques" and
"Special Risk Considerations" below, and the SAI.
Whenever a policy or restriction of the Fund described in this Prospectus or
in the SAI states a maximum percentage of assets that may be invested in a
security or other asset, or describes a policy regarding quality standards, that
percentage limitation or standard will, unless otherwise indicated, apply to the
Fund only at the time a transaction takes place. Thus, for example, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in the percentage that results from circumstances not involving any
affirmative action by the Fund will not be considered a violation.
The Fund will invest primarily in debt securities rated Ba or below by
Moody's Investors Service, Inc. ("Moody's") or BB or below by Standard & Poor's
Corporation ("S&P"), or, if unrated, are considered by IMI to be of comparable
quality (commonly referred to as "high yield" or "junk" bonds). The Fund
normally invests at least 65% of its total assets in these high yield bonds
(including convertible debt securities, zero coupon bonds and pay-in-kind
("PIK") securities), but may invest without limit in such securities. It should
be noted that achieving the Fund's investment objectives may be more dependent
on the credit analysis of IMI, and less on that of credit rating agencies, than
may be the case for funds that invest in more highly rated bonds.
For temporary defensive purposes, the Fund may invest without limit in U.S.
Government securities maturing in 13 months or less, certificates of deposit,
bankers' acceptances, commercial paper and repurchase agreements. The Fund may
also invest up to 35% of its total assets in such money market securities in
order to meet redemptions or to maximize income to the Fund while it is
arranging longer-term investments.
The Fund may invest up to 35% of its net assets in investment-grade bonds
(those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality) and (ii) U.S.
Government securities (including mortgage-backed securities issued by U.S.
Government agencies or instrumentalities) that mature in more than 13 months.
See Appendix A for a description of Moody's and S&P's bond ratings.
The Fund may invest up to 20% of its total assets in dividend-paying common
and preferred stocks. As a temporary measure for extraordinary or emergency
purposes, the Fund may borrow from banks up to 20% of the value of its total
assets.
The Fund may invest up to 10% of its net assets 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 instrumentalities thereof. The
Fund may also enter into forward foreign currency contracts, but not for
speculative purposes. The Fund may not invest more than 15% of the value of its
net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in interest
rate futures contracts, currency futures contracts and options on interest rate
futures and currency futures contracts.
RISK FACTORS AND INVESTMENT TECHNIQUES
The Fund is subject to above-average bond fund risk. The Fund may invest
without limit in debt securities rated below investment grade (i.e., "junk
bonds"). Bonds of this type are considered to be speculative with regard to the
payment of interest and return of principal, and generally involve a greater
risk of default and more price volatility than securities in higher rating
categories. The yields on high yield/high risk bonds will fluctuate over time.
Lower rated and unrated securities are especially subject to adverse changes in
general economic conditions, including changes in interest rates, and changes in
the financial condition of their issuers. See "Special Risk Considerations"
below.
In addition, investment in sovereign debt can involve a high degree of risk.
Emerging market securities in which the Fund may invest can be more volatile and
less liquid than securities in more developed markets. Foreign securities often
have less publicly available information and are subject to different
regulations than domestic securities. Political events, changes in the perceived
creditworthiness of issuers, high rates of inflation, higher brokerage costs,
fluctuating national interest rates, thinner trading markets, foreign taxes and
movements in foreign currencies will affect the value of the Fund's holdings
which determine the Fund's share price.
The Fund's share price is likely to vary from day to day. An investor incurs
principal risk when investing, because Fund shares, when sold, may be worth more
or less than the amount paid for them. Investors should carefully assess the
risks associated with an investment in the Fund.
BANK OBLIGATIONS: The bank obligations in which the Fund may invest include
certificates of deposit, bankers' acceptances and other short-term debt
obligations. 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 the obligation is fully insured
by the Federal Deposit Insurance Corporation ("FDIC"). Investments in
certificates of deposit of savings associations are limited to obligations of
Federal or state-chartered institutions whose total assets exceed $1 billion and
whose deposits are insured by the FDIC.
BORROWING: Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's portfolio
securities. Money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances).
COMMERCIAL PAPER: Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations,
and finance companies. The Fund's investments in commercial paper are not
limited to a particular Moody's or S&P rating category. The lower an issuer's
rating, however, the greater the risk of payment deafault.
CONVERTIBLE SECURITIES: The convertible securities in which the Fund may
invest include corporate bonds, notes, debentures and other securities
convertible into common stocks. Because convertible securities can be converted
into equity securities, their value will normally vary in some proportion with
those of the underlying equity security. Convertible securities usually provide
a higher
4
<PAGE> 5
yield than the underlying equity, so the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
DEBT SECURITIES, IN GENERAL: Investment in debt securities, including
municipal securities, involves both interest rate and credit risk. Generally,
the value of debt instruments rise and fall inversely with fluctuations in
interest rates. As interest rates decline, the value of debt securities
generally increases. Conversely, rising interest rates tend to cause the value
of debt securities to decrease. Bonds with longer maturities generally are more
volatile than bonds with shorter maturities. The market value of debt securities
also varies according to the relative financial condition of the issuer. In
general, lower-quality bonds offer higher yields due to the increased risk that
the issuer will be unable to meet its obligations on interest or principal
payments at the time called for by the debt instrument. See "Special Risk
Considerations."
U.S. GOVERNMENT SECURITIES: U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities. Such
securities include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates,
which are mortgage-backed securities). When such securities are held to
maturity, the payment of principal and interest is unconditionally guaranteed by
the U.S. Government, and thus they are of the highest possible credit quality.
U.S. Government securities that are not held to maturity are subject to
variations in market value caused by fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. Although the mortgage loans in the pool will have
maturities of up to 30 years, the actual average life of the loans typically
will be substantially less because the mortgages will be subject to principal
amortization and may be prepaid prior to maturity. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the security. Conversely, rising interest rates tend to
decrease the rate of prepayment, thereby lengthening the security's actual
average life (and increasing the security's price volatility.) Since it is not
possible to predict accurately the average life of a particular pool, and
because prepayments are reinvested at current rates, the market value of
mortgage-backed securities may decline during periods of declining interest
rates.
INVESTMENT GRADE DEBT SECURITIES: Bonds rated Aaa by Moody's and AAA by S&P
are judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered "medium grade" obligations) generally have an
adequate capacity to pay interest and repay principal, but lack outstanding
investment characteristics and have some speculative characteristics.
INTERNATIONAL BOND MARKETS: 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. 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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS: The Fund usually effects its
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price spread on
currency exchange (e.g., to cover service charges) is usually incurred when the
Fund converts assets from one currency to another. The Fund may also be affected
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations.
FOREIGN SECURITIES: The Fund may invest up to 10% of its net assets 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 instrumentalities
thereof. Investors should consider carefully the special risks that arise in
connection with investing in securities issued by companies and governments of
foreign nations, which are in addition to those risks that are generally
associated with the Fund's investments.
In many foreign countries there is less regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. For example, foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and foreign securities
transactions may be subject to higher brokerage costs. There also tends to be
less publicly available information about issuers in foreign countries, and
foreign securities markets of many of the countries in which the Fund may invest
may be smaller, less liquid and subject to greater price volatility than those
in the United States. Securities issued in emerging market countries may be even
less liquid and more volatile than securities of issuers operating in more
developed economies (e.g., countries in other parts of Europe). Generally, price
fluctuations in the Fund's foreign security holdings are likely to be high
relative to those of securities issued in the United States.
Other risks include the possibility of expropriation, nationalization or
confiscatory taxation, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), difficulties in
pricing, default in foreign government securities, high rates of inflation,
difficulties in enforcing foreign judgments, political or social instability, or
other developments that could adversely affect the Fund's foreign investments.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a predetermined price. Although these contracts are intended to minimize the
risk of loss due to a decline in the value of the hedged currencies, they also
tend to limit any potential gain that might result should the value of the
currencies increase. In addition, 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, which may prevent the Fund from
achieving the intended hedge or expose the Fund to the risk of currency exchange
loss.
OPTIONS AND FUTURES TRANSACTIONS: The Fund may 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 the
value of the Fund's securities. These techniques may involve derivative
transactions such as engaging in transactions in foreign currency futures and
related options.
The Fund may enter into futures transactions and options on futures
contracts in accordance with its investment objectives and policies. An interest
5
<PAGE> 6
rate futures contract is an agreement between two parties to buy or sell a
specified debt security at a set price on a future date. A foreign currency
futures contract is an agreement to buy or sell a specified amount of a foreign
currency for a set price on a future date.
Investors should be aware that the risks associated with the use of options
and futures are considerable. Options and futures transactions generally involve
a small investment of cash relative to the magnitude of the risk assumed, and
therefore, could result in a significant loss to the Fund if IMI judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments. The Fund may also experience a significant loss if it is
unable to close a particular position due to the lack of a liquid secondary
market. For further information regarding the use of options and futures
transactions and any associated risks, see the SAI.
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 agreed-upon
yield. 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. The Fund could experience a delay in obtaining direct
ownership of the underlying collateral, and might incur a loss if the value of
the security should decline.
ILLIQUID SECURITIES: An "illiquid security" is an asset that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security on its books.
Illiquid securities may include securities that are subject to restrictions on
resale ("restricted securities") because they have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"). Illiquid securities often
offer the potential for higher returns than more readily marketable securities,
but carry the risk that the Fund may not be able to dispose of them at an
advantageous time or price. The Fund may have to bear the expense of registering
restricted securities for resale, and the risk of substantial delays in
effecting such registrations. In addition, issuers of restricted securities may
not be subject to the disclosure and other investor protection requirements that
would apply if their securities were publicly traded.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS: The Fund may invest in
securities sold on a "when-issued" or firm commitment basis. Purchasing
securities on a "when-issued" or firm commitment basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date.
ZERO COUPON BONDS AND PIK SECURITIES: The Fund may invest in zero coupon
bonds and PIK securities, which may be more speculative than securities that pay
income periodically and in cash. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest, and are issued at
a significant discount from face value. Since the interest on such bonds is, in
effect, compounded, they are subject to greater market value fluctuations in
response to changing interest rates than debt securities that distribute income
regularly. PIK securities are bonds or preferred stock that are issued at a
discount from face value and pay interest or dividends in the form of additional
bonds or preferred stock. In addition, for Federal income tax purposes, the Fund
generally recognizes and is required to distribute income generated by such
investments currently in the amount of the unpaid accrued interest, even though
the actual income will not yet have been received by the Fund.
SPECIAL RISK CONSIDERATIONS
HIGH YIELD/HIGH RISK SECURITIES: The Fund may invest without limit in debt
securities which are rated below investment grade or which are unrated. The
lower the ratings of such debt securities, the greater their risks. These debt
instruments generally offer a higher current yield than that available from
higher grade issues, but typically involve greater risk. Investors in the Fund
should be aware of the special risks associated with these securities.
While high yield debt securities are likely to have some quality and
protective characteristics, these qualities are largely outweighed by the risk
of exposure to adverse conditions and other uncertainties. Accordingly,
investments in such securities, while generally providing for greater income and
potential opportunity for gain than investments in higher-rated securities, also
entail greater risk (including the possibility of default or bankruptcy of the
issuer of such securities) and generally involve greater price volatility than
securities in higher rating categories. IMI seeks to reduce risk through
diversification (including investments in foreign securities), credit analysis
and attention to current developments and trends in both the economy and
financial markets. 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.
The yields on high yield bonds will fluctuate over time. In general, prices
of all bonds rise when interest rates fall and fall when interest rates rise.
Lower rated and unrated securities are especially subject to adverse changes in
general economic conditions and to changes in the financial condition of their
issuers. During periods of economic downturn or rising interest rates, issuers
of these instruments may experience financial stress that could adversely affect
their ability to make payments of principal and interest and increase the
possibility of default. If the issuer of a bond defaults, the Fund may incur
additional expenses to seek recovery. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of these securities especially in a market characterized by
only a small amount of trading.
In cases where market quotations are not available, lower rated securities
are valued using guidelines established by the Board of Trustees. Perceived
credit quality in this market can change suddenly and unexpectedly, and may not
fully reflect the actual risk posed by a particular lower rated or unrated
security.
Over the course of this decade, the market for higher yielding domestic debt
securities has changed dramatically. U.S. high yield bonds now total over $350
billion, about a quarter of the entire U.S. corporate bond market. The average
quality of the overall high yield bond category has improved. Growing companies
that may not have access to more traditional sources of financing are using high
yield bonds to raise capital. As a result of their need to borrow in order to
fuel growth, they must pay out higher levels of income in order to compensate
investors for additional credit risk. The conditions of these companies can
improve over time, thus offering the prospect for price appreciation as well.
By owning shares in the Fund, investors enjoy the opportunity to receive
high monthly income and growth of investment capital over time. In return for
these potential benefits, shareholders must be willing to accept a significantly
higher amount of risk when compared with most funds owning U.S. Government bonds
and other investment grade debt securities. Changes in interest rates may have a
less direct or dominant impact on high yield bonds than on higher quality issues
of similar maturities. However, the price of high yield bonds can change
significantly or suddenly due to a host of factors including
6
<PAGE> 7
changes in interest rates, fundamental credit quality, market psychology,
government regulations, U.S. economic growth and, at times, stock market
activity. In the case of high yield bonds structured as zero coupon or pay-in-
kind securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities which
pay interest periodically and in cash. High yield bonds may contain redemption
or call provisions. If an issuer exercises these provisions in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security. As a result, investors should be comfortable with the
possibility of wide fluctuations in the Fund's share price and should not rely
on the Fund as a sole source of investment income. Instead, the Fund should be
only one part of a balanced investment program.
Please refer to the Appendix for further information concerning debt
securities ratings. For a more complete description of the risks of high
yield/high risk securities, please refer to the Fund's SAI.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a separate, diversified portfolio of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. The Fund's business and affairs 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 18
separate portfolios. The Fund has five classes of shares, designated as Class A,
Class B, Class C, Class I and Advisor Class (the latter of which is offered by a
separate prospectus). 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 Fund investments. Each
class of shares, except for the Advisor Class and Class I, has a different Rule
12b-1 distribution plan and bears different distribution fees. Class I shares
are subject to lower administrative services and transfer agency fees than the
Fund's Class A, Class B, Class C and Advisor Class shares. Each class of shares
also has its own sales charge and expense structure that may affect its
performance relative to the Fund's other classes of shares. 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.
The Trust employs IMI to provide business management and investment advisory
services, Mackenzie Investment Management Inc. ("MIMI") to provide
administrative and accounting services, Ivy Mackenzie Distributors, Inc.
("IMDI") to distribute the Fund's shares and Ivy Mackenzie Services Corp.
("IMSC") to provide transfer agency and shareholder-related services for the
Fund. IMI, IMDI and IMSC are wholly-owned subsidiaries of MIMI. As of March 16,
1998, IMI and MIMI had approximately $3.8 billion and $1.3 billion in assets
under management respectively. MIMI is a subsidiary of Mackenzie Financial
Corporation ("MFC"), which has been an investment counsel and mutual fund
manager in Toronto, Ontario, Canada for more than 25 years.
INVESTMENT MANAGER
For IMI's business management and investment advisory services, the Fund
pays IMI a fee, that is equal, on an annual basis, to 0.75% of its average net
assets.
Currently, IMI limits the Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification, and extraordinary expenses) to an annual rate of
0.85% of the Fund's average net assets, which may lower the Fund's expenses and
increase its return. This voluntary expense limitation may be terminated or
revised at any time, at which point the Fund's expenses may increase and its
yield may be reduced.
IMI pays all expenses that it incurs in rendering management services to the
Fund. The Fund bears its own operational costs. General expenses of the Trust
that are not readily identifiable as belonging to a particular series of the
Trust (or a particular class thereof) are allocated among and charged to each
series based on its relative net asset size. Expenses that are attributable to a
particular series (or class thereof) will be borne solely by that series (or
class) directly. The fees payable to IMI are subject to any reimbursement or fee
waiver to which IMI may agree.
PORTFOLIO MANAGEMENT:
Leslie A. Ferris, a Senior Vice President of IMI, is the Fund's portfolio
manager and has been a portfolio manager for Ivy Bond Fund since 1993. Ms.
Ferris joined the organization in 1988 and has 16 years of professional
investment experience. She is a Chartered Financial Analyst and holds an
MBA degree from the University of Chicago. From 1982 to 1988 she was a
portfolio manager at Kemper Financial Services, Inc.
Michael Borowsky is the fixed income portfolio lead analyst specializing in
high yield and emerging markets. Mr. Borowsky joined the Ivy Management
team in 1994. Prior to joining Ivy, he was a collateralized mortgage
obligation specialist at Lehwald, Orosey and Pepe. Mr. Borowsky holds a
Bachelor of Science degree in finance and economics from Drexel University.
FUND ADMINISTRATION AND ACCOUNTING
MIMI provides various administrative services for the Fund, such as
maintaining the registration of Fund shares under state "Blue Sky" laws, and
assisting with the preparation of Federal and state income tax returns,
financial statements and periodic reports to shareholders. MIMI also assists the
Trust's legal counsel with the filing of registration statements, proxies and
other required filings under Federal and state law. Under this arrangement, the
average net assets attributable to the Fund's Class A, Class B and Class C
shares are subject to a fee, accrued daily and paid monthly, at an annual rate
of 0.10%. The net assets attributable to the Fund's Class I shares are subject
to a fee at the annual rate of 0.01%.
MIMI also provides certain accounting and pricing services for the Fund (see
"Fund Accounting Services" in the SAI for more information).
TRANSFER AGENT
IMSC is the transfer and dividend-paying agent for the Fund, and also
provides certain shareholder-related services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly (see "Investment Advisory and
Other Services" in the SAI).
ALTERNATIVE PURCHASE ARRANGEMENTS
CLASS A SHARES: Class A shares are subject to an initial sales charge,
unless the amount you purchase is $500,000 or more (see "Contingent Deferred
Sales Charge -- Class A Shares"). Certain purchases qualify for a reduced
7
<PAGE> 8
initial sales charge (see "Qualifying for a Reduced Sales Charge"). Class A
shares are subject to ongoing service fees at an annual rate of 0.25% of the
Fund's average net assets attributable to its Class A 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.
CLASS B AND CLASS C SHARES: Class B and Class C shares are not subject to
an initial sales charge, but are subject to a CDSC if redeemed within six years
of purchase, in the case of Class B shares, or within one year of purchase, in
the case of Class C shares. Both classes of shares are subject to ongoing
service and distribution fees at a combined annual rate of up to 1.00% of the
Fund's average net assets attributable to its Class B or Class C shares. The
ongoing distribution fee will cause these shares to have a higher expense ratio
than that of Class A shares. Also, to the extent that the Fund pays any
dividends, these higher expenses will result in lower dividends than those paid
on Class A shares.
CLASS I SHARES: Class I shares are offered only to institutions and certain
individuals, and are not subject to an initial sales charge or a CDSC, nor to
any ongoing service or distribution fees. Class I shares also bear lower
administrative services fees and transfer agency fees than Class A, Class B, and
Class C.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE: The multi-class structure
of the Fund allows you to choose the most beneficial way to buy shares given the
size of your purchase and the length of time you expect to hold your shares. You
should consider whether, during the anticipated life of your Fund investment,
the accumulated service and distribution fees on Class B and Class C shares
would be less than the initial sales charge and accumulated service fees on
Class A shares purchased at the same time, and to what extent this differential
would be offset by the Class A shares' potentially higher return. Also, sales
personnel may receive different compensation depending on which class of shares
they are selling. The table under the caption "Annual Fund Operating Expenses"
at the beginning of this Prospectus contains additional information that is
designed to assist you in making this determination.
DIVIDENDS AND TAXES
DIVIDENDS: Distributions you receive from the Fund are reinvested in
additional shares of the same class of the Fund unless you elect to receive them
in cash.
The Fund intends normally to make monthly distributions of its net
investment income. The Fund intends to make a distribution for each fiscal year
of any remaining net investment income and net realized short-term capital gain,
as well as any net long-term capital gain realized during the year. The Fund may
make an additional distribution 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").
TAXATION: The following discussion is intended for general information
only. You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
The Fund intends to qualify annually 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 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. If a portion of the Fund's income consists
of dividends paid by U.S. corporations, a portion of the dividends paid by the
Fund may be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, that the Fund designates as capital
gains dividends are taxable at 28% or 20% long-term capital gain rates,
regardless of how long the shareholder has held the 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.
Investments in securities that are issued at a discount will result each
year in income to the Fund 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 may be
eligible for reduced tax rates, 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 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 Internal Revenue Service
("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.
Fund distributions may be subject to state, local and foreign taxes.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies, authorities and instrumentalities
may be exempt from state and local taxes in certain states. Further information
relating to tax consequences is contained in the SAI.
PERFORMANCE DATA
Performance information (e.g., "total return" and "yield") is computed
separately for each class of Fund shares in accordance with formulas prescribed
by the SEC. Performance information for each class may be compared in reports
and promotional literature to one or more broad-based securities market indices.
Advertisements, sales literature and communications to shareholders may also
contain statements of the Fund's current yield, various expressions of total
return and current distribution rate. Performance figures will vary in part
8
<PAGE> 9
because of the different expense structures of the Fund's different classes. ALL
PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT INTENDED TO SUGGEST FUTURE
RESULTS.
"Total return" is the change in value of an investment in the Fund for a
specified period, and assumes the reinvestment of all distributions and
imposition of the maximum applicable sales charge. "Average annual total return"
represents the average annual compound rate of return of an investment in a
particular class of Fund shares assuming the investment is held for one year,
five years and ten years as of the end of the most recent calendar quarter.
Where the Fund provides total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value, "total return"
is based on the total of all income and capital gains paid to (and reinvested
by) shareholders, 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, and 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. Dividends or
distributions that were paid to the Fund's shareholders are reflected in the
"current distribution rate," which is computed by dividing the total amount of
dividends per share paid by the Fund during the preceding 12 months by the
Fund's current maximum offering price (which includes any applicable sales
charge). The "current 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.
HOW TO BUY SHARES
OPENING AN ACCOUNT: Complete and sign the Account Application on the last
page of this Prospectus. Make your check payable to Ivy High Yield Fund. No
third party checks will be accepted. Deliver these items to your registered
representative or selling broker, or send them to one of the addresses below:
Regular Mail:
IVY MACKENZIE SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Courier:
IVY MACKENZIE SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
The Fund reserves the right to reject any purchase order.
MINIMUM INVESTMENT POLICIES: The minimum initial investment in Class A,
Class B or Class C shares is $1,000; the minimum additional investment is $100.
Initial or additional amounts for retirement accounts may be less (see
"Retirement Plans").
Accounts in Class I shares can be opened with a minimum initial investment
of $250,000; the minimum additional investment is $10,000. The minimum initial
investment in the Fund's Class I shares may be spread over the thirteen-month
period following the opening of the account.
BUYING ADDITIONAL SHARES: You may add to your account at any time through
any of the following options:
By Mail: Complete the investment slip attached to your statement, or write
instructions including the account registration, fund number, and account number
of the shares you wish to purchase. Send your check (payable to the Fund) and
investment slip or written instructions to one of the addresses above.
Through Your Broker: Deliver to your registered representative or selling
broker the investment slip attached to your statement (or written instructions)
along with your payment.
By Wire: Purchases may also be made by wiring money from your bank account
to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 1-800-777-6472. Wiring instructions are as
follows:
FIRST UNION NATIONAL BANK OF FLORIDA
JACKSONVILLE, FL
ABA#063000021
ACCOUNT #2090002063833
FOR FURTHER CREDIT TO:
YOUR IVY ACCOUNT REGISTRATION
YOUR FUND NUMBER AND ACCOUNT NUMBER
By Automatic Investment Method: Complete Sections 6A and 7B on the Account
Application (See "Automatic Investment Method" on page 15 for more information).
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Class A shares of the Fund is the net asset value
("NAV") 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, Class C and Class I shares of
the Fund is the net asset value per share.
Share purchases will be made at the next determined price after your
purchase order is received. The price is effective for orders received by IMSC
or by your registered securities dealer prior to the time of the determination
of the NAV. Any orders received after the time of the determination of the NAV
will be entered at the next calculated price.
Orders placed with a securities dealer before the NAV is determined and that
are transmitted through the facilities of the National Securities Clearing
Corporation 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 after any purchase, exchange or full
liquidation. Statements related to reinvestment of dividends, capital gains,
automatic investment plans (see the SAI for further explanation) and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The NAV per share is the value of one share. The NAV is determined for each
class of shares as of the close of the New York Stock Exchange (the "Exchange")
on each day the Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that are
outstanding, adjusted to the nearest cent. These procedures are described more
completely in the SAI.
9
<PAGE> 10
The Trustees have established procedures to value the Fund's securities in
order to determine the NAV. The value of a foreign security is determined 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. 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. 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. Money
market instruments of the Fund are valued at amortized cost.
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>
<CAPTION>
SALES CHARGE
----------------------- PORTION OF
AS A AS A PUBLIC
PERCENTAGE PERCENTAGE OFFERING
OF PUBLIC OF NET PRICE
OFFERING AMOUNT RETAINED
AMOUNT INVESTED PRICE INVESTED BY DEALER
--------------- ---------- ---------- ----------
<S> <C> <C> <C>
Less than $100,000............. 4.75% 4.99% 4.00%
$100,000 but less than
$250,000...................... 3.75% 3.90% 3.00%
$250,000 but less than
$500,000...................... 2.50% 2.56% 2.00%
$500,000 or over*.............. 0.00% 0.00% 0.00%
</TABLE>
* A CDSC may apply to the redemption of Class A shares that are purchased
without an initial sales charge. See "Contingent Deferred Sales Charge --
Class A Shares."
Sales charges are not applied to any dividends or capital gains that are
reinvested in additional shares of the Fund. An investor may be charged a
transaction fee for Class A or Class I shares purchased or redeemed at NAV
through a broker or agent other than IMDI.
With respect to purchases of $500,000 or more through dealers or agents,
IMDI may, at the time of purchase, pay such dealers or agents from its own
resources a commission to compensate such dealers or agents for their
distribution assistance in connection with such purchases. The commission would
be computed as set forth below:
NAV COMMISSION TABLE
<TABLE>
<CAPTION>
PURCHASE AMOUNT COMMISSION
--------------- ----------
<S> <C> <C>
First $3,000,000.................................................. 1.00%
Next $2,000,000.................................................. 0.50%
Over $5,000,000.................................................. 0.25%
</TABLE>
Dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" as that term is defined in the 1933 Act.
IMDI compensates participating brokers who sell Class A shares through the
initial sales charge. IMDI 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, Class
B and Class C shares, IMDI 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 Class A distribution plan, IMDI currently
pays a continuing service fee to qualified dealers at an annual rate of 0.25% of
qualified investments.
IMDI may from time to time pay a bonus or other incentive to dealers (other
than IMDI) which employ a registered representative who sells a minimum dollar
amount of the shares of the Fund and/or other funds distributed by IMDI during a
specified 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 U.S. 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 NAV 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 CDSC period), a
CDSC of 1.00% will be imposed.
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 or capital gains 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 Charge."
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The CDSC 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) (i.a) following retirement
under a tax qualified retirement plan, or (i.b) upon attaining age 59 1/2 in the
case of an 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. IMDI
may require documentation prior to waiver of the CDSC.
Class A shareholders may exchange their Class A shares subject to a CDSC
("outstanding Class A shares") for Class A shares of another Ivy fund ("new
Class A shares") on the basis of the relative NAV per Class A share, without the
payment of any CDSC 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 A
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 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 each 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.
10
<PAGE> 11
To reduce or eliminate the sales charge, you must complete Section 4C of the
Account Application.
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
an LOI, please complete Section 4C of the 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: Investors who held Ivy Fund
shares as of December 31, 1991, or who held shares of certain funds that were
reorganized into an Ivy fund, may be exempt from sales charges on the purchase
of Class A shares of any of the Ivy funds. If you believe you may be eligible
for such an exemption, please contact IMSC at 1-800-235-3322 for additional
information.
Class A shares of the Fund may be purchased without an initial sales charge
or CDSC by (i) officers and Trustees of the Trust (and their relatives), (ii)
officers, directors, employees, retired employees, legal counsel and accountants
of IMI, MIMI, and MFC (and their relatives), and (iii) directors, officers,
partners, registered representatives, employees and retired employees (and their
relatives) of dealers having a sales agreement with IMDI (or trustees or
custodians of any qualified retirement plan or IRA established for the benefit
of any such person). In addition, certain investment advisers and financial
planners who charge a management, consulting or other fee for their services and
who place trades for their own accounts or the accounts of their clients may
purchase Class A shares of the Fund without an initial sales charge or a CDSC,
provided such purchases are placed through a broker or agent who maintains an
omnibus account with the Fund. Also, clients of these advisers and planners may
make purchases under the same conditions if the purchases are through the master
account of such adviser 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 NAV by retirement plans
qualified under section 401(a) or 403(b) of the Code, subject to the Employee
Retirement Income Security Act of 1974, as amended. A CDSC of 1.00% will be
imposed on such purchases in the event of certain plan-level redemption
transactions within 24 months following such purchases. Class A shares of the
Fund are made available to Merrill Lynch Daily K Plan (the "Plan") participants
at NAV without an initial sales charge if the Plan has at least $3 million in
assets or 500 or more eligible employees. Class B shares of the Fund are made
available Plan participants at NAV without a CDSC if the Plan has less than $3
million in assets or fewer than 500 eligible employees. For further information
see "Group Systematic Investment Program" in the Fund's SAI.
If investments by retirement plans at NAV are made through a dealer who has
executed a dealer agreement with respect to the Fund, IMDI may, at the time of
purchase, pay the dealer out of IMDI's own resources a commission to compensate
the dealer for its distribution assistance in connection with the retirement
plan's investment. Please refer to the NAV Commission Table on page 11 of this
Prospectus. Please contact IMDI for additional information.
Class A shares can also be purchased without an initial sales charge, but
subject to a CDSC of 1.00% during the first 24 months by: (a) any state, county,
or city (or any instrumentality, department, authority or agency of such
entities) that is prohibited by applicable investment laws from paying a sales
charge or commission when purchasing shares of a registered investment
management company (an "eligible governmental authority"), and (b) 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 IMDI (currently, these criteria
require that the amount invested or to be invested in the subsequent 13-month
period totals at least $250,000). In either case, IMDI may pay commissions to
dealers that provide distribution assistance on the same basis as in the
preceding paragraph.
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. Additional
information on reductions or waivers may be obtained from IMDI at the address
listed on the cover of the Prospectus.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B AND CLASS C SHARES
Class B and Class C shares are offered at NAV per share without a front end
sales charge. Class C shares redeemed within one year of purchase will be
subject to a CDSC of 1%, and Class B shares redeemed within six years of
purchase will be subject to a CDSC at the 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 dividends or capital gains reinvested. 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 requisite maximum holding period or those you acquire through
reinvestment of dividends or capital gains, and next from the shares you have
held the longest during the requisite holding period.
Proceeds from the CDSC are paid to IMDI. The proceeds are used, 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 and Class C shares, such as
compensating selected dealers and agents for selling these shares. The
combination of the CDSC and the distribution and service fees makes it possible
for the Fund to sell Class B or Class C shares without deducting a sales charge
at the time of the purchase.
In the case of Class B shares, the amount of the CDSC, 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 quarter will be aggregated and deemed
to have been made on the last day of the quarter. In the case of Class C shares,
solely for purposes of determining this holding period, any purchases you make
during a month will be deemed to have been made on the last day of the month.
11
<PAGE> 12
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
CLASS B SHARES AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
------------------- --------------------
<S> <C>
First......................................... 5%
Second........................................ 4%
Third......................................... 3%
Fourth........................................ 3%
Fifth......................................... 2%
Sixth......................................... 1%
Seventh and thereafter........................ 0%
</TABLE>
IMDI currently intends to pay to dealers a sales commission of 4% of the
sale price of Class B shares that they have sold, and will receive the entire
amount of the CDSC paid by shareholders on the redemption of Class B shares to
finance the 4% commission and related marketing expenses.
With respect to Class C shares, IMDI currently intends to pay to dealers a
sales commission of 1% of the sale price of Class C shares that they have sold,
a portion of which is to compensate the dealers for providing Class C
shareholder account services during the first year of investment. IMDI will
receive the entire amount of the CDSC paid by shareholders on the redemption of
Class C shares to finance the 1% commission and related marketing expenses.
In accordance with separate distribution plans for the Fund's Class B and
Class C shares adopted pursuant to Rule 12b-1 under the 1940 Act, IMDI bears
various promotional and sales related expenses, including the cost of printing
and mailing prospectuses to persons other than shareholders. Under the Fund's
Class B plan, IMDI retains 0.75% of the continuing 1.00% service/distribution
fee assessed to Class B shareholders, and pays a continuing service fee to
qualified dealers at an annual rate of 0.25% of qualified investments. Under the
Class C plan, IMDI pays continuing service/distribution fees to qualified
dealers at an annual rate of 1.00% of qualified investments after the first year
of investment (0.25% of which represents a service fee).
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 into the Fund from Class B
shares of another Ivy fund, the calculation will be based on the time the shares
in the original fund were purchased.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE: The CDSC 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 B or Class C
Fund account at the time of the initial distribution) (i.a) following retirement
under a tax qualified retirement plan, or (i.b) upon attaining age 59 1/2 in the
case of an 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. IMDI
may require documentation prior to waiver of the CDSC.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS: IMDI may, at its own expense,
pay concessions in addition to those described above to dealers that satisfy
certain criteria established from time to time by IMDI. 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 the 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 CDSC may apply to certain Class A
share redemptions, to Class B share redemptions prior to conversion and to Class
C shares that are redeemed within one year of purchase. All redemptions are made
at the NAV next determined after a redemption request has been received in good
order. Requests for redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good order that is
received after 4:00 p.m. Eastern time will be processed at the price determined
on the following business day. If you own shares of more than one class of the
Fund, the Fund will redeem first the shares having the highest 12b-1 fees; any
shares subject to a CDSC will be redeemed last unless you specifically elect
otherwise.
When shares are redeemed, the Fund will normally send redemption proceeds to
you on the next business day, but may take up to seven business days (or longer
in the case of shares recently purchased by check). 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, 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. See "Signature
Guarantees," below.
If you are not certain of the requirements for a redemption, please contact
IMSC at 1-800-777-6472.
THROUGH YOUR REGISTERED SECURITIES DEALER: The Dealer is responsible for
promptly transmitting redemption orders. Redemptions requested by dealers will
be made at the NAV determined at the close of regular trading (4:00 p.m. Eastern
time) on the day that a redemption request is received in good order by IMSC.
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 account registration, fund number,
account number, and 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, unincorporated associations
retirement plan trustees or others acting in representative capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or NAV of your account at the next-determined
prices. If your request exceeds these limits, then the trade will be rejected in
its entirety.
12
<PAGE> 13
Mail your request to IMSC at one of the addresses on page 10 of this
Prospectus.
BY TELEPHONE: Individual and joint accounts may redeem up to $50,000 per
day over the telephone by contacting IMSC 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 by telephone, 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 the registered
representative's assistant.
Shares held in certificate form cannot be redeemed by telephone.
If Section 6E of the 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 do so on your
behalf, you must notify IMSC 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.
Receiving Your Proceeds By Federal Funds Wire: For shareholders who
established this feature at the time they opened their account, telephone
instructions will be accepted for redemption of amounts up to $50,000 ($1,000
minimum) 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 instruction including your
bank information to IMSC 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 each time redemption proceeds are
wired to your bank. Your bank may also charge you a fee for receiving a Federal
Funds wire.
Neither IMSC 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 whose investment
has been less than $1,000 for more than 12 months. The Fund will not redeem an
account unless the shareholder has been given at least 60 days' advance notice
of the Fund's intention to do so. 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 IMSC at 1-800-777-6472 for more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the distribution option that best suits
your needs:
AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains are
automatically reinvested at NAV in additional shares of the same class of the
Fund unless you specify one of the other options.
INVESTMENT IN ANOTHER IVY FUND -- Both dividends and capital gains are
automatically invested at NAV another Ivy fund of the same class.
DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED -- Dividends will be paid in
cash. Capital gains will be reinvested at NAV in additional shares of the same
class of the Fund or another Ivy fund of the same class.
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 ("EFT"), or if you wish to change your
distribution option, please contact IMSC at 1-800-777-6472.
If you wish to have your cash distributions go to an address other than the
address of record you must provide IMSC with a letter of instruction signed by
all registered owners with signatures guaranteed.
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% U.S. 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 IRS. If you fail to provide a
certified TIN, or such other tax-related certifications as the Fund may require,
13
<PAGE> 14
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
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 Account Application to claim
this exemption. If the registration is for an UGMA/UTMA account, please provide
the social security number of the minor. Alien individuals must furnish their
individual TIN on a completed IRS Form W-9. Other non-U.S. investors who are not
required to have a TIN must provide, with their 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 IMSC 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, contact IMSC at 1-800-777-6472.
EXCHANGE PRIVILEGE
Fund shareholders have an exchange privilege with other Ivy funds (except
Ivy International Fund, unless they have an existing Ivy International Fund
account). The funds reserve the right to reject, for any reason, any exchange
requests.
Class A shareholders may exchange their outstanding Class A shares for Class
A shares of another Ivy fund on the basis of the relative NAV 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 (and Class C) shareholders may exchange their outstanding shares for
Class B (or Class C) shares of another Ivy fund on the basis of the relative NAV
per share, without the payment of any CDSC that would otherwise be due upon
redemption. Class B shareholders who exercise the exchange privilege would
continue to be subject to the Fund's CDSC schedule (or period) following an
exchange if such schedule is higher (or longer) than the CDSC for the new Class
B shares.
Class I shareholders may exchange their outstanding Class I shares for Class
I shares of another Ivy fund on the basis of the relative NAV per share.
Exchanges into an Ivy fund in which shares are not already held are subject to
certain minimum investment restrictions. See "Exchange of Shares" in the SAI or
contact IMSC at 1-800-777-6472 for further details.
Shares resulting from the reinvestment of dividends and other distributions
will not be charged an initial sales charge or a CDSC when exchanged into
another Ivy fund.
Exchanges are considered to be taxable events, and may result in a capital
gain or a capital loss for tax purposes. Before executing an exchange, you
should obtain and read the prospectus and consider the investment objective of
the fund to be purchased. Shares must be uncertificated in order to execute an
exchange. Exchanges are available only in states where they can be legally made.
The funds reserve the right to limit the frequency of exchanges. 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 fund into
which the exchange is made. It is the policy of the funds to discourage the use
of the exchange privilege for the purpose of timing short-term market
fluctuations. To protect the interests of other shareholders of a fund, a fund
may cancel the exchange privileges of any persons that, in the opinion of the
fund, are using market timing strategies or are making more than five exchanges
per owner or controlling person per calendar year.
With respect to shares subject to a CDSC, 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 CDSC for future redemptions of the exchanged shares.
Investors who held Ivy Fund shares as of December 31, 1991, or who held
shares of certain funds that were reorganized into an Ivy fund, may be exempt
from sales charges on the exchange of shares between any of the Ivy funds. If
you believe you may be eligible for such an exemption, please contact IMSC at
1-800-235-3322 for additional information.
In calculating the sales charge assessed on an exchange, shareholders will
be allowed to use the Rights of Accumulation privilege.
EXCHANGES BY TELEPHONE: If Section 6D of the 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 do so on
your behalf, you must notify IMSC in writing.
In order to execute an exchange, please contact IMSC 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 or the dollar amount you wish to exchange.
14
<PAGE> 15
The request must be signed by all registered owners.
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 NAV (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 IMSC 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 IRS 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
You may elect the Systematic Withdrawal Plan at any time by completing the
Account Application, which is attached to this Prospectus. (This option is not
available to Class I shareholders of the Fund.) You can also obtain this
application by contacting your registered representative or IMSC 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 EFT, at no charge. Shares must be
uncertificated (i.e., held by the Fund) while the plan is in effect. A
Systematic Withdrawal Plan may not be established if you are currently
participating in the Automatic Investment Method. For more information, please
contact IMSC 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,
Class B or Class C 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 CDSC imposed on your redemptions of Class B or Class C 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 CDSC will be assessed
upon the redemptions. A CDSC 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 IMSC 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
You may authorize an investment to be automatically drawn each month from
your bank for investment in Fund shares by completing Sections 6A and 7B of the
Account Application. Attach a "voided" check to your Account Application. At
pre-specified intervals, your bank account will be debited and the proceeds will
be credited to your Ivy account. The minimum investment under this plan is $50
per month ($25 per month for retirement plans). 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 IMSC 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 fund accounts having the same taxpayer
I.D. number 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 family of funds offer several tax-sheltered retirement plans that
may fit your needs:
- Traditional and Roth IRAs
- 401(k), Money Purchase Pension and Profit Sharing Plans
- SEP-IRA (Simplified Employee Pension Plan)
- 403(b)(7) Plan
- SIMPLE Plans (Individual Retirement Account and 401(k))
Minimum initial and subsequent investments for retirement plans are $25.
Investors Bank & Trust, which serves as custodian or trustee under the
retirement plan prototypes available from the Fund, charges certain nominal fees
for annual maintenance. A portion of these fees is remitted to IMSC as
compensation for its services to the retirement plan accounts maintained with
the Fund.
Distributions from retirement plans are subject to certain requirements
under the Code. Certain documentation, including IRS Form W-4P, must be provided
to IMSC prior to taking any distribution. Please contact IMSC for details. The
Ivy funds and IMSC assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws, and will not be responsible for
any penalties assessed. For additional information, please contact your broker,
tax adviser or IMSC.
Please call IMSC at 1-800-777-6472 for complete information kits describing
the plans, their benefits, restrictions, provisions and fees.
SHAREHOLDER INQUIRIES
Inquiries regarding the Fund should be directed to IMSC at 1-800-777-6472.
15
<PAGE> 16
APPENDIX
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 Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(A) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by Moody's to be
of the best quality, carrying the smallest degree of investment risk. Interest
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Bonds rated Baa by Moody's are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
(B) COMMERCIAL PAPER. The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers rated Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(A) CORPORATE BONDS. An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the
16
<PAGE> 17
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating. The rating CC typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(B) COMMERCIAL PAPER. An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
17
<PAGE> 18
ACCOUNT APPLICATION
IVY HIGH YIELD FUND
----------------------
ACCOUNT NUMBER
PLEASE MAIL APPLICATIONS AND CHECKS TO: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for
retirement accounts for which Ivy is custodian.)
- - --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C> <C> <C> <C> <C>
101/ 1 / 2 1 / 2
FUND ------------------- ---------- ---------- ---------- ---------- ---------- ----------
USE Dealer # Branch # Rep # Acct Type Soc Cd Div Cd CG Cd
ONLY
- - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<C> <C> <C> <C>
0 / 1 0 / X
FUND ---------- ----------
USE Exc Cd Red Cd
ONLY
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 REGISTRATION
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
[ ] Individual ------------------------------------------------------------
[ ] Joint Tenant Owner, Custodian or Trustee
[ ] Estate ------------------------------------------------------------
[ ] UGMA/UTMA Co-owner or Minor
[ ] Corporation ------------------------------------------------------------
[ ] Partnership Minor's State of Residence
[ ] Sole Proprietor ------------------------------------------------------------
[ ] Trust Street
-------------------
Date of Trust
[ ] Other
------------------- ------------------------------------------------------------
City State Zip Code
- - - -
------------------------------ ------------------------------
Phone Number -- Day Phone Number -- Evening
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
2 TAX ID #
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- - or -
--------------------------- -------------------------
Social Security Number Tax Identification Number
Citizenship: [ ] U.S. [ ] Other__________________
UNDER PENALTIES OF PERJURY, I CERTIFY BY SIGNING IN SECTION 8 BELOW THAT: (1) THE NUMBER SHOWN IN
THIS SECTION IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (TIN), AND (2) I AM NOT SUBJECT TO BACKUP
WITHHOLDING BECAUSE: (a) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (IRS) THAT I AM
SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (b)
THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. (CROSS OUT ITEM (2) IF
YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF
UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN.) PLEASE SEE THE "TAX IDENTIFICATION
NUMBER" SECTION OF THE PROSPECTUS FOR ADDITIONAL INFORMATION ON COMPLETING THIS SECTION.
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
3 DEALER INFORMATION
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <S>
The undersigned ("Dealer") agrees to all applicable
provisions in this Application, guarantees the signature and
legal capacity of the Shareholder, and agrees to notify IMSC
of any purchases made under a Letter of Intent or Rights of
Accumulation.
------------------------------------------------------------ ------------------------------------------------------------
Dealer Name Representative's Name and Number
------------------------------------------------------------ ------------------------------------------------------------
Branch Office Address Representative's Phone Number
------------------------------------------------------------ ------------------------------------------------------------
City State Zip Code Authorized Signature of Dealer
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
4 INVESTMENTS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
A. Enclosed is my check for $________________($1,000 minimum)
made payable to Ivy High Yield Fund. Please invest it in
[ ] Class A [ ] Class B [ ] Class C [ ] Class I
B. I qualify for an elimination of sales charge due to the
following privilege (applies only to Class A shares):
[ ] New Letter of Intent (if ROA or 90-day backdate
privilege is applicable, provide account(s) information
below.)
[ ] ROA with the account(s) listed below.
[ ] Existing Letter of Intent with account(s) listed below.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------------------ ------------------------- [ ] or New
Fund Name Account Number
------------------------------------ ------------------------- [ ] or New
Fund Name Account Number
If establishing a Letter of Intent, you will need to purchase Class A shares
over a thirteen-month period in accordance with the provisions in the
Prospectus. The aggregate amount of these purchases will be at least equal
to the amount indicated below.
[ ] $100,000 [ ] $250,000 [ ] $500,000
C. FOR DEALER USE ONLY
Confirmed trade orders: .
--------------- --------------- -----------
Confirm Number Number of Shares Trade Date
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5 DISTRIBUTION OPTIONS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
A. I would like to reinvest dividends and capital gains into
additional shares of the same class in this account at net asset
value unless a different option is checked below.
B. [ ] Reinvest all dividends and capital gains into additional shares
of a different Ivy fund.
---------------------------------------------- --------------
Fund Name Account Number [ ] New Account
C. [ ] Pay all dividends in cash and reinvest capital gains into
additional shares in this fund or a different Ivy Fund.
---------------------------------------------- --------------
Fund Name Account Number [ ] New Account
D. [ ] Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D ABOVE, BE:
[ ] Sent to the address listed in the registration. [ ] Sent to the special payee listed in Section 7A [ ] (By Mail)
7B [ ] (By E.F.T.)
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
6 OPTIONAL SPECIAL FEATURES
<TABLE>
<S> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
A. [ ] AUTOMATIC INVESTMENT METHOD (AIM)
I wish to invest [ ] once per month. My bank account will be debited on or about the
[ ] twice _________________ day of the month*
[ ] 3 times _________________ day of the month
[ ] 4 times _________________ day of the month
_________________ day of the month
Please invest $ ________________ each period starting in the month of __________
Dollar Amount Month
in [ ] Class A [ ] Class B or [ ] Class C of _______________________.
Fund Name
[ ] I have attached a voided check to ensure my correct bank account
will be debited.
B. [ ] SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account I request the distribution be:
[ ] Monthly [ ] Sent to the address listed in the registration.
[ ] Once [ ] Twice [ ] 3 times [ ] 4 times per month [ ] Sent to the special payee listed in Section 7.
[ ] Invested into additional Advisor Class
[ ] Quarterly shares of a different Ivy fund: ______________________
Fund Name
[ ] Semiannually
| | | | | | | | | | | | | | |
[ ] Annually -----------------------------
Account Number
Amount $________________, starting on or about the ________ day of __________________________
Minimum $50 month
________ day of __________________________
month
________ day of __________________________
month*
NOTE: Account minimum: $5,000 in shares at current offering price
C. [ ] FEDERAL FUNDS WIRE FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(COMPLETE SECTION 7B)
D. [ ] TELEPHONIC EXCHANGES** [ ] YES [ ] NO
I authorize exchanges by telephone among the Ivy family of funds,
upon instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
E. [ ] TELEPHONIC REDEMPTIONS** [ ] YES [ ] NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the
redemption shall not exceed $50,000 and the proceeds are to be
payable to the shareholder of record and mailed to the address
of record. To change this option once established, written
instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
* There must be a period of at least seven calendar days between each
investment/withdrawal period.
** This option may not be selected if shares are issued in certificate
form.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7 SPECIAL PAYEE
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
A. MAILING ADDRESS B. FED WIRE / E.F.T. INFORMATION
Please send all disbursements to this
special payee ------------------------------------------------------------
Financial Institution
------------------------------------------
Name of Bank or Individual
------------------------------------------ ---------------------------- ------------------------
Account Number (if applicable) ABA # Account #
------------------------------------------ ------------------------------------------------------------
Street Street
------------------------------------------ ------------------------------------------------------------
City/State/Zip City/State/Zip
(Please attach a voided check)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 SIGNATURES
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investors should be aware that failure to check "No" under Section 6D
or 6E above means that the Telephone Exchange/Redemptions Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such
instructions are genuine. In the absence of such procedures, the Fund
may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "Exchange Privilege" and "How to
Redeem Shares" in the Prospectus for more information on these
privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named
in Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
---------------------------------------------------------------------- --------
Signature of Owner, Custodian, Trustee or Corporate Officer Date
---------------------------------------------------------------------- -------
Signature of Joint Owner, Co-Trustee or Corporate Officer Date
- - -----------------------------------------------------------------------------------------------------------------------------------
(Remember to Sign Section 8)
</TABLE>
01IHYABC0498
<PAGE> 20
IVY FUNDS(R)
April 6, 1998
Ivy
High Yield
Fund Advisor
Class Shares
- - ----------
Prospectus
- - ----------
Ivy Management, Inc.
Via Mizner Financial
Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
[Picture]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
Ivy Fund (the"Trust") is a registered investment company currently
consisting of eighteen separate portfolios. The Advisor Class of shares of one
of these portfolios, Ivy High Yield Fund (the "Fund"), is described in this
Prospectus.
Advisor Class shares are offered at net asset value without the imposition
of a front-end or contingent deferred sales charge or Rule 12b-1 fees, and are
available for purchase only by certain investors. The Fund's Class A, Class B,
Class C and Class I shares are described in a separate prospectus dated April 6,
1998.
THE FUND SEEKS A HIGH LEVEL OF CURRENT INCOME, AND, SECONDARILY, CAPITAL
APPRECIATION BY INVESTING PRIMARILY IN BELOW INVESTMENT GRADE DEBT SECURITIES.
This Prospectus sets forth concisely the information about the Fund's
Advisor Class shares that a prospective investor should know before investing.
Please read it carefully and retain it for future reference. Additional
information about the Fund's Advisor Class shares is contained in the Fund's
Statement of Additional Information for the Advisor Class shares dated April 6,
1998 (the"SAI"), which has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated by reference into this Prospectus. The
SAI is available upon request and without charge from the Trust at the
Distributor's address and telephone number below. The SEC maintains a web site
(http://www.sec.gov) that contains the SAI and other material incorporated by
reference.
THE FUND INVESTS SIGNIFICANTLY IN LOWER-QUALITY DEBT SECURITIES, COMMONLY
REFERRED TO AS "JUNK BONDS." BONDS OF THIS TYPE ARE CONSIDERED TO BE SPECULATIVE
WITH REGARD TO THE PAYMENT OF INTEREST AND RETURN OF PRINCIPAL. THEY CARRY
GREATER RISKS, SUCH AS THE RISK OF DEFAULT, THAN OTHER DEBT SECURITIES.
INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE
FUND. REFER TO "INVESTMENT OBJECTIVES AND POLICIES," "RISK FACTORS AND
INVESTMENT TECHNIQUES" AND "SPECIAL RISK CONSIDERATIONS" FOR FURTHER
INFORMATION.
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, 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.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Expense Information ........................... 2
Investment Objectives and Policies ............ 3
Risk Factors and Investment Techniques ........ 3
Special Risk Considerations.................... 5
Organization and Management of the Fund ....... 6
Investment Manager ............................ 6
Fund Administration and Accounting ............ 6
Transfer Agent ................................ 6
Dividends and Taxes ........................... 6
Performance Data .............................. 7
How to Buy Shares ............................. 7
How Your Purchase Price is Determined ......... 8
How The Fund Values Its Shares ................ 8
How to Redeem Shares .......................... 8
Minimum Account Balance Requirements .......... 9
Signature Guarantees .......................... 9
Choosing a Distribution Option ................ 10
Tax Identification Number ..................... 10
Certificates .................................. 10
Exchange Privilege ............................ 10
Systematic Withdrawal Plan .................... 11
Automatic Investment Method ................... 11
Consolidated Account Statements ............... 11
Retirement Plans .............................. 11
Shareholder Inquiries ......................... 11
Appendix ...................................... 12
Account Application ........................... 14
[/R]
</TABLE>
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES OFFICERS TRANSFER AGENT INVESTMENT MANAGER
John S. Anderegg, Jr. Michael G. Landry, Chairman Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Keith J. Carlson, President Services Corp. 700 South Federal Highway
Keith J. Carlson James W. Broadfoot, Vice President P.O. Box 3022 Boca Raton, FL 33432
Stanley Channick C. William Ferris, Boca Raton, FL 33431-0922 1-800-456-5111
Frank W. DeFriece, Jr. Secretary/Treasurer 1-800-777-6472
Roy J. Glauber DISTRIBUTOR
Michael G. Landry LEGAL COUNSEL AUDITORS Ivy Mackenzie
Joseph G. Rosenthal Dechert Price & Rhoads Coopers & Lybrand L.L.P. Distributors, Inc.
Richard N. Silverman Boston, MA Ft. Lauderdale, FL Via Mizner Financial Plaza
J. Brendan Swan 700 South Federal Highway
CUSTODIAN Boca Raton, FL 33432
Brown Brothers Harriman & Co. 1-800-456-5111
Boston, MA
</TABLE>
[IVY MACKENZIE LOGO]
<PAGE> 21
EXPENSE INFORMATION
The expenses and costs associated with investing in the Advisor Class shares
of the Fund are reflected in the following tables.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
MAXIMUM SALES LOAD MAXIMUM CONTINGENT
IMPOSED ON PURCHASES DEFERRED SALES CHARGE
(AS A % OF (AS A % OF ORIGINAL
OFFERING PRICE) PURCHASE PRICE)
-------------------- ---------------------
<S> <C> <C>
Advisor Class Shares........................................ None None
</TABLE>
The Fund does not charge a redemption fee, an exchange fee, or a sales load
on reinvested dividends.
ANNUAL FUND OPERATING EXPENSES(1)
(as a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL FUND
OPERATING
OTHER EXPENSES EXPENSES
12b-1 SERVICE/ (AFTER EXPENSE (AFTER EXPENSE
MANAGEMENT FEES DISTRIBUTION FEES REIMBURSEMENT) REIMBURSEMENT)
--------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Advisor Class Shares...................................... 0.75% None 0.10% 0.85%
</TABLE>
- - ---------------
(1) Annual fund operating expenses are based on estimated fees and expenses that
the Fund expects to incur in its initial fiscal year ending December 31,
1998, net of expense reimbursements from Ivy Management, Inc. ("IMI"). IMI
currently limits Total Fund Operating Expenses (excluding Rule 12b-1 fees
and certain other items, and net of any credits for fees paid indirectly)
for the Fund to an annual rate of 0.85% of the Fund's average net assets.
Total Fund Operating Expenses include fees paid indirectly. Without expense
reimbursements, "Other Expenses" are estimated to increase 0.25%. See
"Investment Manager" for a more detailed discussion of the Fund's fees and
expenses.
EXAMPLE
The following table lists the expenses an investor would pay on a $1,000
investment in the Fund's Advisor Class shares, assuming (1) 5% annual return and
(2) unless otherwise noted, redemption at the end of each time period. This
example further assumes reinvestment of all dividends and distributions, and
that the percentage amounts under "Total Fund Operating Expenses" (above) remain
the same each year. THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE HIGHER OR LOWER THAN THOSE
SHOWN.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Advisor Class Shares........................................ $ 9 $ 27
</TABLE>
The purpose of the foregoing table is to assist you in understanding the
various costs and expenses that an investor in the Fund's Advisor Class shares
will bear directly or indirectly. The information presented in the table does
not reflect the charge of $10 per transaction that would apply if a shareholder
elects to have redemption proceeds wired to his or her bank account. For a more
detailed discussion of the Fund's fees and expenses, see the following sections
of this Prospectus: "Organization and Management of the Fund," "Investment
Manager," "Fund Administration and Accounting," and the following section of the
SAI: "Investment Advisory and Other Services."
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<PAGE> 22
INVESTMENT OBJECTIVES AND POLICIES
Ivy High Yield Fund's investment objectives are to achieve a high level of
current income and, secondarily, capital appreciation by investing primarily in
below investment grade debt securities.
The Fund's investment objectives are fundamental and may not be changed
without the approval of a majority of the Fund's outstanding voting shares.
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 may be
changed by the Board of Trustees of the Trust ("Trustees") without shareholder
approval. There can be no assurance that the Fund's objectives will be met. The
different types of securities and investment techniques used by the Fund involve
varying degrees of risk. For information about the particular risks associated
with each type of investment, see "Risk Factors and Investment Techniques" and
"Special Risk Considerations" below, and the SAI.
Whenever a policy or restriction of the Fund described in this Prospectus or
in the SAI states a maximum percentage of assets that may be invested in a
security or other asset, or describes a policy regarding quality standards, that
percentage limitation or standard will, unless otherwise indicated, apply to the
Fund only at the time a transaction takes place. Thus, for example, if a
percentage limitation is adhered to at the time of investment, a later increase
or decrease in the percentage that results from circumstances not involving any
affirmative action by the Fund will not be considered a violation.
The Fund will invest primarily in debt securities rated Ba or below by
Moody's Investors Service, Inc. ("Moody's") or BB or below by Standard & Poor's
Corporation ("S&P"), or, if unrated, are considered by IMI to be of comparable
quality (commonly referred to as "high yield" or "junk" bonds). The Fund
normally invests at least 65% of its total assets in these high yield bonds
(including convertible debt securities, zero coupon bonds and pay-in-kind
("PIK") securities), but may invest without limit in such securities. It should
be noted that achieving the Fund's investment objectives may be more dependent
on the credit analysis of IMI, and less on that of credit rating agencies, than
may be the case for funds that invest in more highly rated bonds.
For temporary defensive purposes, the Fund may invest without limit in U.S.
Government securities maturing in 13 months or less, certificates of deposit,
bankers' acceptances, commercial paper and repurchase agreements. The Fund may
also invest up to 35% of its total assets in such money market securities in
order to meet redemptions or to maximize income to the Fund while it is
arranging longer-term investments.
The Fund may invest up to 35% of its net assets in investment-grade bonds
(those rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or BBB by S&P, or, if
unrated, are considered by IMI to be of comparable quality) and (ii) U.S.
Government securities (including mortgage-backed securities issued by U.S.
Government agencies or instrumentalities) that mature in more than 13 months.
See Appendix A for a description of Moody's and S&P's bond ratings.
The Fund may invest up to 20% of its total assets in dividend-paying common
and preferred stocks. As a temporary measure for extraordinary or emergency
purposes, the Fund may borrow from banks up to 20% of the value of its total
assets.
The Fund may invest up to 10% of its net assets 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 instrumentalities thereof. The
Fund may also enter into forward foreign currency contracts, but not for
speculative purposes. The Fund may not invest more than 15% of the value of its
net assets in illiquid securities.
For hedging purposes only, the Fund may engage in transactions in interest
rate futures contracts, currency futures contracts and options on interest rate
futures and currency futures contracts.
RISK FACTORS AND INVESTMENT TECHNIQUES
The Fund is subject to above-average bond fund risk. The Fund may invest
without limit in debt securities rated below investment grade (i.e., "junk
bonds"). Bonds of this type are considered to be speculative with regard to the
payment of interest and return of principal, and generally involve a greater
risk of default and more price volatility than securities in higher rating
categories. The yields on high yield/high risk bonds will fluctuate over time.
Lower rated and unrated securities are especially subject to adverse changes in
general economic conditions, including changes in interest rates, and changes in
the financial condition of their issuers. See "Special Risk Considerations"
below.
In addition, investment in sovereign debt can involve a high degree of risk.
Emerging market securities in which the Fund may invest can be more volatile and
less liquid than securities in more developed markets. Foreign securities often
have less publicly available information and are subject to different
regulations than domestic securities. Political events, changes in the perceived
creditworthiness of issuers, high rates of inflation, higher brokerage costs,
fluctuating national interest rates, thinner trading markets, foreign taxes and
movements in foreign currencies will affect the value of the Fund's holdings
which determine the Fund's share price.
The Fund's share price is likely to vary from day to day. An investor incurs
principal risk when investing, because Fund shares, when sold, may be worth more
or less than the amount paid for them. Investors should carefully assess the
risks associated with an investment in the Fund.
BANK OBLIGATIONS: The bank obligations in which the Fund may invest include
certificates of deposit, bankers' acceptances and other short-term debt
obligations. 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 the obligation is fully insured
by the Federal Deposit Insurance Corporation ("FDIC"). Investments in
certificates of deposit of savings associations are limited to obligations of
Federal or state-chartered institutions whose total assets exceed $1 billion and
whose deposits are insured by the FDIC.
BORROWING: Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's portfolio
securities. Money borrowed will be subject to interest costs (which may include
commitment fees and/or the cost of maintaining minimum average balances).
COMMERCIAL PAPER: Commercial paper represents short-term unsecured
promissory notes issued in bearer form by bank holding companies, corporations,
and finance companies. The Fund's investments in commercial paper are not
limited to a particular Moody's or S&P rating category. The lower an issuer's
rating, however, the greater the risk of payment default.
CONVERTIBLE SECURITIES: The convertible securities in which the Fund may
invest include corporate bonds, notes, debentures and other securities
convertible into common stocks. Because convertible securities can be converted
into equity securities, their value will normally vary in some proportion with
those of the underlying equity security. Convertible securities usually provide
a higher
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<PAGE> 23
yield than the underlying equity, so the price decline of a convertible security
may sometimes be less substantial than that of the underlying equity security.
DEBT SECURITIES, IN GENERAL: Investment in debt securities, including
municipal securities, involves both interest rate and credit risk. Generally,
the value of debt instruments rise and fall inversely with fluctuations in
interest rates. As interest rates decline, the value of debt securities
generally increases. Conversely, rising interest rates tend to cause the value
of debt securities to decrease. Bonds with longer maturities generally are more
volatile than bonds with shorter maturities. The market value of debt securities
also varies according to the relative financial condition of the issuer. In
general, lower-quality bonds offer higher yields due to the increased risk that
the issuer will be unable to meet its obligations on interest or principal
payments at the time called for by the debt instrument. See "Special Risk
Considerations."
U.S. GOVERNMENT SECURITIES: U.S. Government securities are obligations of,
or guaranteed by, the U.S. Government, its agencies or instrumentalities. Such
securities include: (1) direct obligations of the U.S. Treasury (such as
Treasury bills, notes, and bonds) and (2) Federal agency obligations guaranteed
as to principal and interest by the U.S. Treasury (such as GNMA certificates,
which are mortgage-backed securities). When such securities are held to
maturity, the payment of principal and interest is unconditionally guaranteed by
the U.S. Government, and thus they are of the highest possible credit quality.
U.S. Government securities that are not held to maturity are subject to
variations in market value caused by fluctuations in interest rates.
Mortgage-backed securities are securities representing part ownership of a
pool of mortgage loans. Although the mortgage loans in the pool will have
maturities of up to 30 years, the actual average life of the loans typically
will be substantially less because the mortgages will be subject to principal
amortization and may be prepaid prior to maturity. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening the
actual average life of the security. Conversely, rising interest rates tend to
decrease the rate of prepayment, thereby lengthening the security's actual
average life (and increasing the security's price volatility.) Since it is not
possible to predict accurately the average life of a particular pool, and
because prepayments are reinvested at current rates, the market value of
mortgage-backed securities may decline during periods of declining interest
rates.
INVESTMENT GRADE DEBT SECURITIES: Bonds rated Aaa by Moody's and AAA by S&P
are judged to be of the best quality (i.e., capacity to pay interest and repay
principal is extremely strong). Bonds rated Aa/AA are considered to be of high
quality (i.e., capacity to pay interest and repay principal is very strong and
differs from the highest rated issues only to a small degree). Bonds rated A are
viewed as having many favorable investment attributes, but elements may be
present that suggest a susceptibility to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
Bonds rated Baa/BBB (considered "medium grade" obligations) generally have an
adequate capacity to pay interest and repay principal, but lack outstanding
investment characteristics and have some speculative characteristics.
INTERNATIONAL BOND MARKETS: 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. 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.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS: The Fund usually effects its
currency exchange transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign exchange market. However, some price spread on
currency exchange (e.g., to cover service charges) is usually incurred when the
Fund converts assets from one currency to another. The Fund may also be affected
unfavorably by fluctuations in the relative rates of exchange between the
currencies of different nations.
FOREIGN SECURITIES: The Fund may invest up to 10% of its net assets 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 instrumentalities
thereof. Investors should consider carefully the special risks that arise in
connection with investing in securities issued by companies and governments of
foreign nations, which are in addition to those risks that are generally
associated with the Fund's investments.
In many foreign countries there is less regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the United
States. For example, foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and foreign securities
transactions may be subject to higher brokerage costs. There also tends to be
less publicly available information about issuers in foreign countries, and
foreign securities markets of many of the countries in which the Fund may invest
may be smaller, less liquid and subject to greater price volatility than those
in the United States. Securities issued in emerging market countries may be even
less liquid and more volatile than securities of issuers operating in more
developed economies (e.g., countries in other parts of Europe). Generally, price
fluctuations in the Fund's foreign security holdings are likely to be high
relative to those of securities issued in the United States.
Other risks include the possibility of expropriation, nationalization or
confiscatory taxation, foreign exchange controls (which may include suspension
of the ability to transfer currency from a given country), difficulties in
pricing, default in foreign government securities, high rates of inflation,
difficulties in enforcing foreign judgments, political or social instability, or
other developments that could adversely affect the Fund's foreign investments.
FORWARD FOREIGN CURRENCY CONTRACTS: A forward foreign currency contract
involves an obligation to purchase or sell a specific currency at a future date
at a predetermined price. Although these contracts are intended to minimize the
risk of loss due to a decline in the value of the hedged currencies, they also
tend to limit any potential gain that might result should the value of the
currencies increase. In addition, 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, which may prevent the Fund from
achieving the intended hedge or expose the Fund to the risk of currency exchange
loss.
OPTIONS AND FUTURES TRANSACTIONS: The Fund may 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 the
value of the Fund's securities. These techniques may involve derivative
transactions such as engaging in transactions in foreign currency futures and
related options.
The Fund may enter into futures transactions and options on futures
contracts in accordance with its investment objectives and policies. An interest
4
<PAGE> 24
rate futures contract is an agreement between two parties to buy or sell a
specified debt security at a set price on a future date. A foreign currency
futures contract is an agreement to buy or sell a specified amount of a foreign
currency for a set price on a future date.
Investors should be aware that the risks associated with the use of options
and futures are considerable. Options and futures transactions generally involve
a small investment of cash relative to the magnitude of the risk assumed, and
therefore, could result in a significant loss to the Fund if IMI judges market
conditions incorrectly or employs a strategy that does not correlate well with
the Fund's investments. The Fund may also experience a significant loss if it is
unable to close a particular position due to the lack of a liquid secondary
market. For further information regarding the use of options and futures
transactions and any associated risks, see the SAI.
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 agreed-upon
yield. 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. The Fund could experience a delay in obtaining direct
ownership of the underlying collateral, and might incur a loss if the value of
the security should decline.
ILLIQUID SECURITIES: An "illiquid security" is an asset that may not be
sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the Fund has valued the security on its books.
Illiquid securities may include securities that are subject to restrictions on
resale ("restricted securities") because they have not been registered under the
Securities Act of 1933, as amended (the "1933 Act"). Illiquid securities often
offer the potential for higher returns than more readily marketable securities,
but carry the risk that the Fund may not be able to dispose of them at an
advantageous time or price. The Fund may have to bear the expense of registering
restricted securities for resale, and the risk of substantial delays if
effecting such registrations. In addition, issuers of restricted securities may
not be subject to the disclosure and other investor protection requirements that
would apply if their securities were publicly traded.
"WHEN-ISSUED" SECURITIES AND FIRM COMMITMENTS: The Fund may invest in
securities sold on a "when-issued" or firm commitment basis. Purchasing
securities on a "when-issued" or firm commitment basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date.
ZERO COUPON BONDS AND PIK SECURITIES: The Fund may invest in zero coupon
bonds and PIK securities, which may be more speculative than securities that pay
income periodically and in cash. Zero coupon bonds are debt obligations issued
without any requirement for the periodic payment of interest, and are issued at
a significant discount from face value. Since the interest on such bonds is, in
effect, compounded, they are subject to greater market value fluctuations in
response to changing interest rates than debt securities that distribute income
regularly. PIK securities are bonds or preferred stock that are issued at a
discount from face value and pay interest or dividends in the form of additional
bonds or preferred stock. In addition, for Federal income tax purposes, the Fund
generally recognizes and is required to distribute income generated by such
investments currently in the amount of the unpaid accrued interest, even though
the actual income will not yet have been received by the Fund.
SPECIAL RISK CONSIDERATIONS
HIGH YIELD/HIGH RISK SECURITIES: The Fund may invest without limit in debt
securities which are rated below investment grade or which are unrated. The
lower the ratings of such debt securities, the greater their risks. These debt
instruments generally offer a higher current yield than that available from
higher grade issues, but typically involve greater risk. Investors in the Fund
should be aware of the special risks associated with these securities.
While high yield debt securities are likely to have some quality and
protective characteristics, these qualities are largely outweighed by the risk
of exposure to adverse conditions and other uncertainties. Accordingly,
investments in such securities, while generally providing for greater income and
potential opportunity for gain than investments in higher-rated securities, also
entail greater risk (including the possibility of default or bankruptcy of the
issuer of such securities) and generally involve greater price volatility than
securities in higher rating categories. IMI seeks to reduce risk through
diversification (including investments in foreign securities), credit analysis
and attention to current developments and trends in both the economy and
financial markets. 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.
The yields on high yield/high risk bonds will fluctuate over time. In
general, prices of all bonds rise when interest rates fall and fall when
interest rates rise. Lower rated and unrated securities are especially subject
to adverse changes in general economic conditions and to changes in the
financial condition of their issuers. During periods of economic downturn or
rising interest rates, issuers of these instruments may experience financial
stress that could adversely affect their ability to make payments of principal
and interest and increase the possibility of default. If the issuer of a bond
defaults, the Fund may incur additional expenses to seek recovery. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities
especially in a market characterized by only a small amount of trading.
In cases where market quotations are not available, lower rated securities
are valued using guidelines established by the Board of Trustees. Perceived
credit quality in this market can change suddenly and unexpectedly, and may not
fully reflect the actual risk posed by a particular lower rated or unrated
security.
Over the course of this decade, the market for higher yielding domestic debt
securities has changed dramatically. U.S. high yield bonds now total over $350
billion, about a quarter of the entire U.S. corporate bond market. The average
quality of the overall high yield bond category has improved. Growing companies
that may not have access to more traditional sources of financing are using high
yield bonds to raise capital. As a result of their need to borrow in order to
fuel growth, they must pay out higher levels of income in order to compensate
investors for additional credit risk. The conditions of these companies can
improve over time, thus offering the prospect for price appreciation as well.
By owning shares in the Fund, investors enjoy the opportunity to receive
high monthly income and growth of investment capital over time. In return for
these potential benefits, shareholders must be willing to accept a significantly
higher amount of risk when compared with most funds owning U.S. Government bonds
and other investment grade debt securities. Changes in interest rates may have a
less direct or dominant impact on high yield bonds than on higher quality issues
of similar maturities. However, the price of high yield bonds can change
significantly or suddenly due to a host of factors including
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<PAGE> 25
changes in interest rates, fundamental credit quality, market psychology,
government regulations, U.S. economic growth and, at times, stock market
activity. In the case of high yield bonds structured as zero coupon or pay-in-
kind securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities which
pay interest periodically and in cash. High yield bonds may contain redemption
or call provisions. If an issuer exercises these provisions in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security. As a result, investors should be comfortable with the
possibility of wide fluctuations in the Fund's share price and should not rely
on the Fund as a sole source of investment income. Instead, the Fund should be
only one part of a balanced investment program.
Please refer to the Appendix for further information concerning debt
securities ratings. For a more complete description of the risks of high
yield/high risk securities, please refer to the Fund's SAI.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a separate, diversified portfolio of the Trust, an open-end
management investment company organized as a Massachusetts business trust on
December 21, 1983. The Fund's business and affairs 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 18
separate portfolios. The Trustees of the Trust also have the authority, without
shareholders approval, to classify and reclassify the shares of the Fund into
one or more classes. The Fund has five classes of shares, designated as Class A,
Class B, Class C, Class I and Advisor Class (only the latter of which is offered
by this Prospectus). 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 Fund investments. Each
class of shares, except for the Advisor Class and Class I, has a different Rule
12b-1 distribution plan and bears different distribution fees. Each class of
Shares also has its own sales charge and expense structure that may affect its
performance relative to the Fund's other classes of shares. 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.
The Trust employs IMI to provide business management and investment advisory
services, Mackenzie Investment Management Inc. ("MIMI") to provide
administrative and accounting services, Ivy Mackenzie Distributors, Inc.
("IMDI") to distribute the Fund's shares and Ivy Mackenzie Services Corp.
("IMSC") to provide transfer agency and shareholder-related services for the
Fund. IMI, IMDI and IMSC are wholly-owned subsidiaries of MIMI. As of March 16,
1998, IMI and MIMI had approximately $3.8 billion and $1.3 billion in assets
under management respectively. MIMI is a subsidiary of Mackenzie Financial
Corporation ("MFC"), which has been an investment counsel and mutual fund
manager in Toronto, Ontario, Canada for more than 25 years.
INVESTMENT MANAGER
For IMI's business management and investment advisory services, the Fund
pays IMI a fee, that is equal, on an annual basis, to 0.75% of its average net
assets.
Currently, IMI limits the Fund's total operating expenses (excluding Rule
12b-1 fees, interest, taxes, brokerage commissions, litigation, class-specific
expenses, indemnification, and extraordinary expenses) to an annual rate of
0.85% of the Fund's average net assets, which may lower the Fund's expenses and
increase its return. This voluntary expense limitation may be terminated or
revised at any time, at which point the Fund's expenses may increase and its
yield may be reduced.
IMI pays all expenses that it incurs in rendering management services to the
Fund. The Fund bears its own operational costs. General expenses of the Trust
that are not readily identifiable as belonging to a particular series of the
Trust (or a particular class thereof) are allocated among and charged to each
series based on its relative net asset size. Expenses that are attributable to a
particular series (or class thereof) will be borne solely by that series (or
class) directly. The fees payable to IMI are subject to any reimbursement or fee
waiver to which IMI may agree.
PORTFOLIO MANAGEMENT:
Leslie A. Ferris, a Senior Vice President of IMI, is the Fund's portfolio
manager and has been a portfolio manager for Ivy Bond Fund since 1993. Ms.
Ferris joined the organization in 1988 and has 16 years of professional
investment experience. She is a Chartered Financial Analyst and holds an
MBA degree from the University of Chicago. From 1982 to 1988 she was a
portfolio manager at Kemper Financial Services, Inc.
Michael Borowsky is the fixed income portfolio lead analyst specializing in
high yield and emerging markets. Mr. Borowsky joined the Ivy Management
team in 1994. Prior to joining Ivy, he was a collateralized mortgage
obligation specialist at Lehwald, Orosey and Pepe. Mr. Borowsky holds a
Bachelor of Science degree in finance and economics from Drexel University.
FUND ADMINISTRATION AND ACCOUNTING
MIMI provides various administrative services for the Fund, such as
maintaining the registration of Fund shares under state "Blue Sky" laws, and
assisting with the preparation of Federal and state income tax returns,
financial statements and periodic reports to shareholders. MIMI also assists the
Trust's legal counsel with the filing of registration statements, proxies and
other required filings under Federal and state law. Under this arrangement, the
average net assets attributable to the Fund's Advisor Class shares are subject
to a fee, accrued daily and paid monthly, at an annual rate of 0.10%.
MIMI also provides certain accounting and pricing services for the Fund (see
"Fund Accounting Services" in the SAI for more information).
TRANSFER AGENT
IMSC is the transfer and dividend-paying agent for the Fund, and also
provides certain shareholder-related services. Certain broker-dealers that
maintain shareholder accounts with the Fund through an omnibus account provide
transfer agent and other shareholder-related services that would otherwise be
provided by IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly (see "Investment Advisory and
Other Services" in the SAI).
DIVIDENDS AND TAXES
DIVIDENDS: Distributions you receive from the Fund are reinvested in
additional shares of the same class of the Fund unless you elect to receive them
in cash.
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<PAGE> 26
The Fund intends normally to make monthly distributions of its net
investment income. The Fund intends to make a distribution for each fiscal year
of any remaining net investment income and net realized short-term capital gain,
as well as any net long-term capital gain realized during the year. The Fund may
make an additional distribution 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").
TAXATION: The following discussion is intended for general information
only. You should consult with your tax adviser as to the tax consequences of an
investment in the Fund, including the status of distributions from the Fund
under applicable state or local law.
The Fund intends to qualify annually 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 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. If a portion of the Fund's income consists
of dividends paid by U.S. corporations, a portion of the dividends paid by the
Fund may be eligible for the corporate dividends-received deduction.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses), if any, that the Fund designates as capital
gains dividends are taxable at the applicable 28% or 20% long-term capital gain
rates, regardless of how long the shareholder has held the 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.
Investments in securities that are issued at a discount will result each
year in income to the Fund 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 may be
eligible for reduced tax rates, 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 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 Internal Revenue Service
("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.
Fund distributions may be subject to state, local and foreign taxes.
Distributions of the Fund which are derived from interest on obligations of the
U.S. Government and certain of its agencies, authorities and instrumentalities
may be exempt from state and local taxes in certain states. Further information
relating to tax consequences is contained in the SAI.
PERFORMANCE DATA
Performance information (e.g., "total return" and "yield") is computed
separately for each class of Fund shares in accordance with formulas prescribed
by the SEC. Performance information for each class may be compared in reports
and promotional literature to one or more broad-based securities market indices.
Advertisements, sales literature and communications to shareholders may also
contain statements of the Fund's current yield, various expressions of total
return and current distribution rate. Performance figures will vary in part
because of the different expense structures of the Fund's different classes. ALL
PERFORMANCE INFORMATION IS HISTORICAL AND IS NOT INTENDED TO SUGGEST FUTURE
RESULTS.
"Total return" is the change in value of an investment in the Fund for a
specified period, and assumes the reinvestment of all distributions and
imposition of the maximum applicable sales charge. "Average annual total return"
represents the average annual compound rate of return of an investment in a
particular class of Fund shares assuming the investment is held for one year,
five years and ten years as of the end of the most recent calendar quarter.
Where the Fund provides total return quotations for other periods, or based on
investments at various sales charge levels or at net asset value, "total return"
is based on the total of all income and capital gains paid to (and reinvested
by) shareholders, 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, and 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. Dividends or
distributions that were paid to the Fund's shareholders are reflected in the
"current distribution rate," which is computed by dividing the total amount of
dividends per share paid by the Fund during the preceding 12 months by the
Fund's current maximum offering price (which includes any applicable sales
charge). The "current 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.
HOW TO BUY SHARES
Advisor Class shares are offered through this Prospectus only to the
following investors:
(i) trustees or other fiduciaries purchasing shares for employee benefit plans
that are sponsored by organizations that have at least 1,000 employees; and
(ii) any investor (a) with an account over which a financial planner, trust
company, bank trust department or registered investment adviser has
investment discretion, and where the investor pays such person as com-
7
<PAGE> 27
pensation for its advice and other services an annual fee of at least .50%
on the assets in the account, or (b) whose account is established under a
"wrap fee" program and the account holder pays the sponsor of the program an
annual fee of at least .50% on the assets in the account; and
(iii) officers and Trustees of the Trust (and their relatives); and
(iv) officers, directors, employees, retired employees, legal counsel and
accountants of IMI, MIMI, and MFC (and their relatives); and
(v) directors, officers, partners, registered representatives, employees and
retired employees (and their relatives) of dealers having a sales
agreement with IMDI (or trustees or custodians of any qualified retirement
plan or IRA established for the benefit of any such person).
OPENING AN ACCOUNT: Complete and sign the Account Application on the last
page of this Prospectus. Make your check payable to Ivy High Yield Fund. No
third party checks will be accepted. Deliver these items to your registered
representative or selling broker, or send them to one of the addresses below:
Regular Mail:
IVY MACKENZIE SERVICES CORP.
P.O. BOX 3022
BOCA RATON, FL 33431-0922
Courier:
IVY MACKENZIE SERVICES CORP.
700 SOUTH FEDERAL HIGHWAY, SUITE 300
BOCA RATON, FL 33432
The Fund reserves the right to reject any purchase order.
MINIMUM INVESTMENT POLICIES: The minimum initial investment in Advisor
Class shares is $10,000. The minimum additional investment is $250. Initial or
additional amounts for retirement accounts may be less (see "Retirement Plans").
The minimum initial investment in the Advisor Class may be spread over the
thirteen-month period following the opening of the account.
BUYING ADDITIONAL SHARES: You may add to your account at any time through
any of the following options:
By Mail: Complete the investment slip attached to your statement, or write
instructions including the account registration, fund number, and account number
of the shares you wish to purchase. Send your check (payable to the Fund) and
investment slip or written instructions to one of the addresses above.
Through Your Broker: Deliver to your registered representative or selling
broker the investment slip attached to your statement (or written instructions)
along with your payment.
By Wire: Purchases may also be made by wiring money from your bank account
to your Ivy account. Your bank may charge a fee for wiring funds. Before wiring
any funds, please call IMSC at 1-800-777-6472. Wiring instructions are as
follows:
FIRST UNION NATIONAL BANK OF FLORIDA
JACKSONVILLE, FL
ABA#063000021
ACCOUNT #2090002063833
FOR FURTHER CREDIT TO:
YOUR IVY ACCOUNT REGISTRATION
YOUR FUND NUMBER AND ACCOUNT NUMBER
By Automatic Investment Method: Complete Sections 6A and 7B on the Account
Application (See "Automatic Investment Method" on page 11 for more information).
HOW YOUR PURCHASE PRICE IS DETERMINED
Your purchase price for Advisor Class shares of the Fund is the net asset
value ("NAV") per share. The purchase price per share is known as the public
offering price.
Share purchases will be made at the next determined price after your
purchase order is received. The price is effective for orders received by IMSC
or by your registered securities dealer prior to the time of the determination
of the NAV. Any orders received after the time of the determination of the NAV
will be entered at the next calculated price.
Orders placed with a securities dealer before the NAV is determined and that
are transmitted through the facilities of the National Securities Clearing
Corporation 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 after any purchase, exchange or full
liquidation. Statements related to reinvestment of dividends, capital gains,
automatic investment plans (see the SAI for further explanation) and/or
systematic withdrawal plans will be sent quarterly.
HOW THE FUND VALUES ITS SHARES
The NAV per share is the value of one share. The NAV is determined for each
class of shares as of the close of the New York Stock Exchange (the "Exchange")
on each day the Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that are
outstanding, adjusted to the nearest cent. These procedures are described more
completely in the SAI.
The Trustees have established procedures to value the Fund's securities in
order to determine the NAV. The value of a foreign security is determined 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. 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. 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. Money
market instruments of the Fund are valued at amortized cost.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS: IMDI may, at its own expense,
pay concessions in addition to those described above to dealers that satisfy
certain criteria established from time to time by IMDI. 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 the 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 Advisor Class shares through your registered securities
representative, by mail or by telephone. All redemptions are made at the NAV
next determined after a redemption request has been received in good
8
<PAGE> 28
order. Requests for redemptions must be received by 4:00 p.m. Eastern time to be
processed at the NAV for that day. Any redemption request in good order that is
received after 4:00 p.m. Eastern time will be processed at the price determined
on the following business day.
When shares are redeemed, the Fund will normally send redemption proceeds to
you on the next business day, but may take up to seven business days (or longer
in the case of shares recently purchased by check). 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, 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. See "Signature
Guarantees," below.
If you are not certain of the requirements for a redemption, please contact
IMSC at 1-800-777-6472.
Through Your Registered Securities Dealer: The Dealer is responsible for
promptly transmitting redemption orders. Redemptions requested by dealers will
be made at the NAV determined at the close of regular trading (4:00 p.m. Eastern
time) on the day that a redemption request is received in good order by IMSC.
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 account registration, fund number,
account number, and 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, unincorporated associations
retirement plan trustees or others acting in representative capacities).
The dollar amount or number of shares indicated for redemption must not
exceed the available shares or NAV 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 IMSC at one of the addresses on page 9 of this
Prospectus.
By Telephone: Individual and joint accounts may redeem up to $50,000 per
day over the telephone by contacting IMSC 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 by telephone, 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 the registered
representative's assistant.
Shares held in certificate form cannot be redeemed by telephone.
If Section 6E of the 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 do so on your
behalf, you must notify IMSC 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.
Receiving Your Proceeds by Federal Funds Wire: For shareholders who
established this feature at the time they opened their account, telephone
instructions will be accepted for redemption of amounts up to $50,000 ($1,000
minimum) 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 IMSC 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 each time redemption proceeds are
wired to your bank. Your bank may also charge you a fee for receiving a Federal
Funds wire.
Neither IMSC 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 whose investment
has been less than $10,000 for more than 12 months. The Fund will not redeem an
account unless the shareholder has been given at least 60 days' advance notice
of the Fund's intention to do so. 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.
9
<PAGE> 29
- 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 IMSC at 1-800-777-6472 for more information.
CHOOSING A DISTRIBUTION OPTION
You have the option of selecting the distribution option that best suits
your needs:
AUTOMATIC REINVESTMENT OPTION -- Both dividends and capital gains are
automatically reinvested at NAV in additional Advisor Class shares of the Fund
unless you specify one of the other options.
INVESTMENT IN ANOTHER IVY FUND -- Both dividends and capital gains are
automatically invested at NAV in the Advisor Class shares of another Ivy fund.
DIVIDENDS IN CASH/CAPITAL GAINS REINVESTED -- Dividends will be paid in
cash. Capital gains will be reinvested at NAV in additional Advisor Class shares
of the Fund or the Advisor Class shares of another Ivy fund.
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 ("EFT"), or if you wish to change your
distribution option, please contact IMSC at 1-800-777-6472.
If you wish to have your cash distributions go to an address other than the
address of record you must provide IMSC with a letter of instruction signed by
all registered owners with signatures guaranteed.
TAX IDENTIFICATION NUMBER
In general, to avoid being subject to a 31% U.S. 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 IRS. 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
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 Account Application to claim
this exemption. If the registration is for an UGMA/UTMA account, please provide
the social security number of the minor. Alien individuals must furnish their
individual TIN on a completed IRS Form W-9. Other non-U.S. investors who are not
required to have a TIN must provide, with their 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 IMSC 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, contact IMSC at 1-800-777-6472.
EXCHANGE PRIVILEGE
Fund shareholders have an exchange privilege with other Ivy funds (except
Ivy International Fund, unless they have an existing Ivy International Fund
account). The funds reserve the right to reject, for any reason, any exchange
requests.
Advisor Class shareholders may exchange their outstanding Advisor Class
shares for Advisor Class shares of another Ivy fund on the basis of the relative
NAV per Advisor Class share. Exchanges into an Ivy fund in which shares are not
already held are subject to certain minimum investment restrictions. See
"Exchange of Shares" in the SAI or contact IMSC at 1-800-777-6472 for further
details.
Exchanges are considered to be taxable events, and may result in a capital
gain or a capital loss for tax purposes. Before executing an exchange, you
should obtain and read the prospectus and consider the investment objective of
the fund to be purchased. Shares must be uncertificated in order to execute an
exchange. Exchanges are available only in states where they can be legally made.
The funds reserve the right to limit the frequency of exchanges. 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 fund into
which the exchange is made. It is the policy of the funds to discourage the use
of the exchange privilege for the purpose of timing short-term market
fluctuations. To protect the interests of other shareholders of a fund, a fund
may cancel the exchange privileges of any persons that, in the opinion of the
fund, are using market timing strategies or are making more than five exchanges
per owner or controlling person per calendar year.
EXCHANGES BY TELEPHONE: If Section 6D of the 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 do so on
your behalf, you must notify IMSC in writing.
In order to execute an exchange, please contact IMSC 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,
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<PAGE> 30
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 or the dollar amount you wish to exchange.
The request must be signed by all registered owners.
SYSTEMATIC WITHDRAWAL PLAN
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 IMSC at
1-800-777-6472. To be eligible, you must continually maintain at least $10,000
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 EFT, at no charge.
Shares must be uncertificated (i.e., held by the Fund) while the plan is in
effect. A Systematic Withdrawal Plan may not be established if you are currently
participating in the Automatic Investment Method. For more information, please
contact IMSC 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 $250 while the plan is in
effect. Redemptions are taxable events.
Amounts paid to you through the Systematic Withdrawal Plan are derived from
the redemption of shares in your account.
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 IMSC 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
You may authorize an investment to be automatically drawn each month from
your bank for investment in Fund shares by completing Sections 6A and 7B of the
Account Application. Attach a "voided" check to your Account Application. At
pre-specified intervals, your bank account will be debited and the proceeds will
be credited to your Ivy account. The minimum investment under this plan is $250
per month ($25 per month for retirement plans). 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 IMSC 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 fund accounts having the same taxpayer
I.D. number 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 funds offer several tax-sheltered retirement plans that may fit your
needs:
- Traditional and Roth IRAs
- 401(k), Money Purchase Pension and Profit Sharing Plans
- SEP-IRA (Simplified Employee Pension Plan)
- 403(b)(7) Plan
- SIMPLE Plans (Individual Retirement Account and 401(k))
Minimum initial and subsequent investments for retirement plans are $25.
Investors Bank & Trust, which serves as custodian or trustee under the
retirement plan prototypes available from the Fund, charges certain nominal fees
for annual maintenance. A portion of these fees is remitted to IMSC as
compensation for its services to the retirement plan accounts maintained with
the Fund.
Distributions from retirement plans are subject to certain requirements
under the Code. Certain documentation, including IRS Form W-4P, must be provided
to IMSC prior to taking any distribution. Please contact IMSC for details. The
Ivy funds and IMSC assume no responsibility to determine whether a distribution
satisfies the conditions of applicable tax laws, and will not be responsible for
any penalties assessed. For additional information, please contact your broker,
tax adviser or IMSC.
Please call IMSC at 1-800-777-6472 for complete information kits describing
the plans, their benefits, restrictions, provisions and fees.
SHAREHOLDER INQUIRIES
Inquiries regarding the Fund should be directed to IMSC at 1-800-777-6472.
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<PAGE> 31
APPENDIX
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 Investors Service,
New York, 1994), and "Standard & Poor's Municipal Ratings Handbook," October
1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS: Bonds rated Aaa by Moody's are judged by Moody's to be
of the best quality, carrying the smallest degree of investment risk. Interest
payments are protected by a large or exceptionally stable margin and principal
is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by Moody's to be of
high quality by all standards. Aa bonds are rated lower than Aaa bonds because
margins of protection may not be as large as those of Aaa bonds, or fluctuations
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds which are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a susceptibility
to impairment sometime in the future.
Bonds rated Baa by Moody's are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
(b) COMMERCIAL PAPER: The Prime rating is the highest commercial paper
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the relative strengths of
these factors. The designation of Prime-1 indicates the highest quality
repayment capacity of the rated issue. Issuers rated Prime-2 are deemed to have
a strong ability for repayment while issuers rated Price-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not fall within any
of the Prime rating categories.
S&P:
(a) CORPORATE BONDS: An S&P corporate debt rating is a current assessment
of the creditworthiness of an obligor with respect to a specific obligation. The
ratings are based on current information furnished by the issuer or obtained by
S&P from other sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA is judged by S&P
to have a very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate capacity to
pay interest and repay principal. Although such bonds normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or exposures to adverse conditions. Debt
rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating. Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The B rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently identifiable
vulnerability to default, and is dependent upon favorable business, financial,
and economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the
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<PAGE> 32
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B-rating. The rating CC typically is applied to debt subordinated to senior
debt which is assigned an actual or implied CCC debt rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC debt rating. The C rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service payments are
continued.
The rating CI is reserved for income bonds on which no interest is being
paid. Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER: An S&P commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market.
The commercial paper rating A-1 by S&P indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation. For
commercial paper with an A-2 rating, the capacity for timely payment on issues
is satisfactory, but not as high as for issues designated A-1. Issues rated A-3
have adequate capacity for timely payment, but are more vulnerable to the
adverse effects of changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. The C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
13
<PAGE> 33
ACCOUNT APPLICATION
IVY HIGH YIELD FUND
ADVISOR CLASS SHARES
----------------------
ACCOUNT NUMBER
PLEASE MAIL APPLICATIONS AND CHECKS TO: Ivy Mackenzie Services Corp.,
P.O. Box 3022, Boca Raton, FL 33431-0922.
(This application should not be used for
retirement accounts for which Ivy is custodian.)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
101/ 1 / 2 1 / 2
FUND ------------------- ---------- ---------- ---------- ---------- ---------- ----------
USE Dealer # Branch # Rep I.D. # Acct Type Soc Cd: Div Cd: CG Cd:
ONLY
- - ------------------------------------------------------------------------------------------------------------------
0 / 1 0 / X
FUND ---------- ----------
USE Exc Cd: Red Cd:
ONLY
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
1 REGISTRATION
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
[ ] Individual ------------------------------------------------------------
[ ] Joint Tenant Owner, Custodian or Trustee
[ ] Estate ------------------------------------------------------------
[ ] UGMA/UTMA Co-owner or Minor
[ ] Corporation ------------------------------------------------------------
[ ] Partnership Minor's State of Residence
[ ] Sole Proprietor ------------------------------------------------------------
[ ] Trust Street
------------------------------------------------------------
------------------- City State Zip Code
Date of Trust
[ ] Other
-------------------
- - - -
------------------------------ ------------------------------
Phone Number -- Day Phone Number -- Evening
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
2 TAX ID #
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
- - or -
--------------------------- -------------------------
Social Security Number Tax Identification Number
Citizenship: [ ] U.S. [ ] Other ________________
UNDER PENALTIES OF PERJURY, I CERTIFY BY SIGNING IN SECTION 8 BELOW THAT: (1) THE NUMBER SHOWN IN
THIS SECTION IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (TIN), AND (2) I AM NOT SUBJECT TO BACKUP
WITHHOLDING BECAUSE: (a) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (IRS) THAT I AM
SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (b)
THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. (CROSS OUT ITEM (2) IF
YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE OF
UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX RETURN.) PLEASE SEE THE "TAX IDENTIFICATION
NUMBER" SECTION OF THE PROSPECTUS FOR ADDITIONAL INFORMATION ON COMPLETING THIS SECTION.
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
3 DEALER INFORMATION
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
The undersigned ("Dealer") agrees to all applicable
provisions in this Application, guarantees the signature and
legal capacity of the Shareholder, and agrees to notify IMSC
of any purchases made under a Letter of Intent or Rights of
Accumulation.
------------------------------------------------------------ ------------------------------------------------------
Dealer Name Representative's Name and Number
------------------------------------------------------------ ------------------------------------------------------
Branch Office Address Representative's Phone Number
------------------------------------------------------------ ------------------------------------------------------
City State Zip Code Authorized Signature of Dealer
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
4 INVESTMENTS
- - -----------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
A. Enclosed is my check for $______________ ($10,000 minimum)
made payable to Ivy High Yield Fund.
B. FOR DEALER USE ONLY
Confirmed trade orders: .
--------------- --------------- ----------
Confirm Number Number of Shares Trade Date
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5 DISTRIBUTION OPTIONS
- - -----------------------------------------------------------------------
<TABLE>
<S> <C>
I would like to reinvest dividends and capital gains into additional
shares of the same class in this account at net asset value unless a
different option is checked below.
A. [ ] Reinvest all dividends and capital gains into additional shares
of a different Ivy fund.
----------------------------------------------
Fund Name
---------------------------------------------
Account Number
B. [ ] Pay all dividends in cash and reinvest capital gains into
additional shares in this Fund or a different Ivy fund.
----------------------------------------------
Fund Name
---------------------------------------------
Account Number
C. [ ] Pay all dividends and capital gains in cash.
I REQUEST THE ABOVE CASH DISTRIBUTION, SELECTED IN C OR D ABOVE, BE:
[ ] Sent to the address listed in the registration. [ ] Sent to the special payee listed in Section 7A [ ] (By Mail)
7B [ ] (By E.F.T.)
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 34
6 OPTIONAL SPECIAL FEATURES
<TABLE>
<S> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
A. [ ] AUTOMATIC INVESTMENT METHOD (AIM)
I wish to invest [ ] once per month. My bank account will be debited on or about the
[ ] twice _________________ day of the month*
[ ] 3 times _________________ day of the month
[ ] 4 times _________________ day of the month
_________________ day of the month
Please invest $ ________________ each period starting in the month of __________
Dollar Amount Month
[ ] I have attached a voided check to ensure my correct bank account
will be debited.
B. [ ] SYSTEMATIC WITHDRAWAL PLANS**
I wish to automatically withdraw funds from my account I request the distribution be:
[ ] Monthly [ ] Sent to the address listed in the registration.
[ ] Once [ ] Twice [ ] 3 times [ ] 4 times per month [ ] Sent to the special payee listed in Section 7.
[ ] Invested into additional Advisor Class
[ ] Quarterly shares of a different Ivy fund: ______________________
Fund Name
[ ] Semiannually
| | | | | | | | | | | | | | |
[ ] Annually -----------------------------
Account Number
Amount $________________, starting on or about the ________ day of __________________________
Minimum $250 month
________ day of __________________________
month
________ day of __________________________
month*
NOTE: Account minimum: $10,000 in shares at current offering price
C. [ ] ELECTRIC FUNDS TRANSFER FOR REDEMPTION PROCEEDS**
I authorize the Agent to honor telephone instructions for the
redemption of Fund shares up to $50,000. Proceeds may be wire
transferred to the bank account designated ($1,000 minimum).
(COMPLETE SECTION 7B)
D. [ ] TELEPHONIC EXCHANGES** [ ] YES [ ] NO
I authorize exchanges by telephone among the Ivy funds, upon
instructions from any person as more fully described in the
Prospectus. To change this option once established, written
instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
E. [ ] TELEPHONIC REDEMPTIONS** [ ] YES [ ] NO
The Fund or its agents are authorized to honor telephone
instructions from any person as more fully described in the
Prospectus for the redemption of Fund shares. The amount of the
redemption shall not exceed $50,000 and the proceeds are to be
payable to the shareholder of record and mailed to the address
of record. To change this option once established, written
instructions must be received from the shareholder of record or
the current registered representative.
If neither box is checked, the telephone exchange privilege
will be provided automatically.
* There must be a period of at least seven calendar days between each
investment/withdrawal period.
** This option may not be selected if shares are issued in certificate
form.
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7 SPECIAL PAYEE
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
A. MAILING ADDRESS B. FED WIRE / E.F.T. INFORMATION
Please send all disbursements to this
special payee ------------------------------------------------------------
Financial Institution
------------------------------------------
Name of Bank or Individual
------------------------------------------ ---------------------------- ------------------------
Account Number (if applicable) ABA # Account #
------------------------------------------ ------------------------------------------------------------
Street Street
------------------------------------------ ------------------------------------------------------------
City/State/Zip City/State/Zip
(Please attach a voided check)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8 SIGNATURES
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investors should be aware that failure to check "No" under Section 6D
or 6E above means that the Telephone Exchange/Redemptions Privileges
will be provided. The Fund employs reasonable procedures that require
personal identification prior to acting on exchange/redemption
instructions communicated by telephone to confirm that such
instructions are genuine. In the absence of such procedures, the Fund
may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Please see "Exchange Privilege" and "How to
Redeem Shares" in the Prospectus for more information on these
privileges.
I certify to my legal capacity to purchase or redeem shares of the
Fund for my own account or for the account of the organization named
in Section 1. I have received a current Prospectus and understand its
terms are incorporated in this application by reference. I am
certifying my taxpayer information as stated in Section 2.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
---------------------------------------------------------------------- --------
Signature of Owner, Custodian, Trustee or Corporate Officer Date
---------------------------------------------------------------------- -------
Signature of Joint Owner, Co-Trustee or Corporate Officer Date
- - -----------------------------------------------------------------------------------------------------------------------------------
(Remember to Sign Section 8)
</TABLE>
01IHYADV0498
<PAGE>
IVY HIGH YIELD FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
April 6, 1998
_________________________________________________________________
Ivy Fund (the "Trust") is an open-end management investment
company that currently consists of eighteen fully managed
portfolios, each of which (except for Ivy South America Fund) is
diversified. This Statement of Additional Information ("SAI")
relates to Class A, Class B, Class C and Class I shares of Ivy
High Yield Fund (the "Fund"). The other seventeen portfolios of
the Trust are described in separate prospectuses and statements
of additional information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated April 6, 1998
(the "Prospectus"), which may be obtained upon request and
without charge from the Trust at the Distributor's address and
telephone number listed below. The Fund also offers Advisor
Class shares, which are offered only to investors through a
separate prospectus and statement of additional information that
may be obtained from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . 5
DEVELOPMENT OF THE HIGH YIELD BOND MARKET . . . . . . 5
HIGH YIELD BONDS-PORTFOLIO DIVERSIFICATION. . . . . . . . 5
HIGH YIELD/HIGH RISK SECURITIES . . . . . . . . . . . . . 6
U.S. GOVERNMENT SECURITIES. . . . . . . . . . . . . . . . 7
COMMERCIAL PAPER. . . . . . . . . . . . . . . . . . . . . 8
CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . . . 9
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . 10
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS . . . . 10
FOREIGN SECURITIES. . . . . . . . . . . . . . . . . . . . 11
FOREIGN CURRENCIES. . . . . . . . . . . . . . . . . . . . 12
FORWARD FOREIGN CURRENCY CONTRACTS. . . . . . . . . . . . 13
DEBT SECURITIES, IN GENERAL . . . . . . . . . . . . . . . 14
INTERNATIONAL BOND MARKETS. . . . . . . . . . . . . . . . 14
SMALL COMPANIES . . . . . . . . . . . . . . . . . . . . . 14
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT AGREEMENTS. . . 15
ZERO COUPON BONDS . . . . . . . . . . . . . . . . . . . . 16
ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . 16
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. . . . 17
GENERAL. . . . . . . . . . . . . . . . . . . . . . . 17
INTEREST RATE FUTURES CONTRACTS. . . . . . . . . . . 19
OPTIONS ON INTEREST RATE FUTURES CONTRACTS . . . . . 20
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS . . . . . . . . . . . . . . . . . . . . 20
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. . 21
COMBINED TRANSACTIONS. . . . . . . . . . . . . . . . 22
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . 23
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 23
ADDITIONAL RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 25
ADDITIONAL RIGHTS AND PRIVILEGES . . . . . . . . . . . . . . . 26
AUTOMATIC INVESTMENT METHOD . . . . . . . . . . . . . . . 26
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . 27
INITIAL SALES CHARGE SHARES. . . . . . . . . . . . . 27
CONTINGENT DEFERRED SALES CHARGE SHARES. CLASS A . . 27
CLASS B. . . . . . . . . . . . . . . . . . . . . . . 27
CLASS C. . . . . . . . . . . . . . . . . . . . . . . 28
CLASS I. . . . . . . . . . . . . . . . . . . . . . . 28
ALL CLASSES. . . . . . . . . . . . . . . . . . . . . 28
LETTER OF INTENT. . . . . . . . . . . . . . . . . . . . . 29
RETIREMENT PLANS. . . . . . . . . . . . . . . . . . . . . 30
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . 31
QUALIFIED PLANS. . . . . . . . . . . . . . . . . . . 32
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT") . . . . . . . . . . . . . . . . . . . 33
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS . . . . . . 34
SIMPLE PLANS . . . . . . . . . . . . . . . . . . . . 34
REINVESTMENT PRIVILEGE. . . . . . . . . . . . . . . . . . 34
RIGHTS OF ACCUMULATION. . . . . . . . . . . . . . . . . . 34
SYSTEMATIC WITHDRAWAL PLAN. . . . . . . . . . . . . . . . 35
GROUP SYSTEMATIC INVESTMENT PROGRAM . . . . . . . . . . . 36
BROKERAGE ALLOCATION . . . . . . . . . . . . . . . . . . . . . 37
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . 39
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. . . . . . . . . 43
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . 44
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . 46
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES. . . 46
DISTRIBUTION SERVICES . . . . . . . . . . . . . . . . . . 48
RULE 18F-3 PLAN. . . . . . . . . . . . . . . . . . . 49
RULE 12B-1 DISTRIBUTION PLANS. . . . . . . . . . . . 49
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . 51
FUND ACCOUNTING SERVICES. . . . . . . . . . . . . . . . . 51
TRANSFER AGENT AND DIVIDEND PAYING AGENT. . . . . . . . . 52
ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . 52
AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . . 52
CAPITALIZATION AND VOTING RIGHTS . . . . . . . . . . . . . . . 53
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . 55
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . 56
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 57
CONVERSION OF CLASS B SHARES . . . . . . . . . . . . . . . . . 58
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD
CONTRACTS. . . . . . . . . . . . . . . . . . . . . . 60
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR
LOSSES . . . . . . . . . . . . . . . . . . . . . . . 62
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. . . . 62
DEBT SECURITIES ACQUIRED AT A DISCOUNT. . . . . . . . . . 63
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 64
DISPOSITION OF SHARES . . . . . . . . . . . . . . . . . . 64
FOREIGN WITHHOLDING TAXES . . . . . . . . . . . . . . . . 65
BACKUP WITHHOLDING. . . . . . . . . . . . . . . . . . . . 66
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . 67
YIELD. . . . . . . . . . . . . . . . . . . . . . . . 67
AVERAGE ANNUAL TOTAL RETURN. . . . . . . . . . . . . 68
CUMULATIVE TOTAL RETURN. . . . . . . . . . . . . . . 68
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION . . . . . . . . . . . . . . . . . . 69
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 70
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P")
AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND AND COMMERCIAL PAPER RATINGS . . . . . . . 71
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 25,
1998 AND REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . 71
INVESTMENT OBJECTIVES AND POLICIES
The Fund has its own investment objectives and policies,
which are described in the Prospectus under the captions
"Investment Objectives and Policies" and "Risk Factors and
Investment Techniques." Additional information regarding the
characteristics and risks associated with the Fund's investment
techniques is set forth below.
DEVELOPMENT OF THE HIGH YIELD BOND MARKET
Over the course of this decade, the market for higher
yielding domestic debt securities has changed dramatically. U.S.
high yield bonds now total over $350 billion, about a quarter of
the entire U.S. corporate bond market.
In the early 1970s high yield bonds emerged as a way for new
companies, companies with troubled credit histories, or any
company without access to more traditional financing to raise
capital. The category grew and changed from a small, illiquid
market for special circumstances, to a larger, more liquid market
offering an alternative way to raise capital to companies of
every size and structure.
As the economy strengthened throughout the 1980s, some
companies began to replace more and more of the equity in their
capital structure with high yield debt. In the late 1980s, many
companies had little equity supporting the outstanding debt.
Those who had anticipated continuing growth and increasing cash
flows to contribute to debt service found that as the economy
slowed, they were unable to pay their creditors. This led to
defaults and the high yield bond market nearly collapsed under
the weight of several factors including a recession, the
bankruptcy of a major high yield bond underwriter, and the forced
withdrawal of thrifts from this market.
Expanding companies are now turning to the high yield bond
market for financing real growth. The average quality of the
overall high yield bond category has improved. There are many
opportunities to buy the debt of growing companies or companies
that may not yet have the track record necessary to utilize more
traditional sources of financing. The conditions of these
borrowing companies can improve over time, and as the quality of
the debt improves, the prospect for price appreciation adds to
the return from income.
HIGH YIELD BONDS-PORTFOLIO DIVERSIFICATION
The benefits of investing in high yield debt securities
include the potential for superior yields and also portfolio
diversification which may result in enhanced total returns with
the potential for reduced overall portfolio risk.
High yield bonds show a relatively low correlation with both
stocks and investment-grade bonds. Due to this low correlation,
high yield bonds offer diversification benefits to both equity
and income portfolios.
HIGH YIELD/HIGH RISK SECURITIES
The Fund invests in debt securities rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's"), or BB or lower by
Standard & Poor's Corporation ("S&P") and comparable unrated
securities. 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. Below investment-grade securities (rated Ba
or below by Moody's and BB or below by S&P) or unrated securities
of equivalent quality in which the Fund may invest carry a high
degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and
may be less liquid, than securities in the higher rating
categories and are considered speculative. (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 objectives may, to the extent of
its investment in low-rated debt securities, be more dependent
upon IMI's credit analysis than would be the case if the Fund was
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.
Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest.
Also, an increase in interest rates would likely have an adverse
impact on the value of such obligations. During an economic
downturn or period of rising interest rates, highly leveraged
issuers may experience financial stress which could adversely
affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities
will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely
affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in
interest rates.
The trading market for high yield securities may be thin to
the extent that there is no established retail secondary market
or because of a decline in the value of such securities. A thin
trading market may limit the ability of the Fund to accurately
value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such
securities, and cause large fluctuations in the daily net asset
value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for
high yield securities become relatively less liquid, it may be
more difficult to value the securities, requiring additional
research and elements of judgment. These securities may also
involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can
change suddenly and unexpectedly, and even recently issued credit
ratings may not fully reflect the actual risks posed by a
particular high-yield security. For these reasons, it is the
policy of IMI not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such
ratings with its own independent and on-going review of credit
quality. The achievement of the Fund's investment objectives by
investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds.
Should the rating of a portfolio security be downgraded, IMI will
determine whether it is in the best interest of the Fund to
retain or dispose of such security.
Prices for high yield securities may be affected by
legislative and regulatory developments. For example, federal
rules require savings and loan institutions to gradually reduce
their holdings of this type of security. Also, Congress has from
time to time considered legislation which would restrict or
eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such
legislation may significantly depress the prices of outstanding
securities of this type.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA
certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and
interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject
to variations in market value due to fluctuations in interest
rates.
Mortgage-backed securities are securities representing part
ownership of a pool of mortgage loans. For example, GNMA
certificates are such securities in which the timely payment of
principal and interest is guaranteed by the full faith and credit
of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life
of the loans typically will be substantially less because the
mortgages will be subject to principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of
falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the security.
Conversely, rising interest rates tend to decrease the rate of
prepayments, thereby lengthening the actual average life of the
security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average
life of a particular pool. Reinvestment of prepayment may occur
at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to
reinvest prepayments of principal at current rates, mortgage-
backed securities can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of
declining interest rates. Such securities may appreciate or
decline in market value during periods of declining or rising
interest rates, respectively.
Securities issued by U.S. Government instrumentalities and
certain federal agencies are neither direct obligations of nor
guaranteed by the U.S. Treasury; however, they involve Federal
sponsorship in one way or another. Some are backed by specific
types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the
issuer, others are supported only by the credit of the issuing
government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home
Loan Banks, Federal National Mortgage Association, Federal Home
Loan Mortgage Association, and Student Loan Marketing
Association.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory
notes issued in bearer form by bank holding companies,
corporations and finance companies. The Fund's investments are
not limited to a particular Moody's or S&P rating category. The
lower an issuer's rating, however, the greater the perceived risk
of its inability for repayment. An issuer's rating depends on
its ability to repay its short-term obligations as measured by
factors such as market position, capitalization characteristics,
earnings and profitability levels, and access to sources of
alternate liquidity.
CONVERTIBLE SECURITIES
Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion
with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying
equity, however, so that the price decline of a convertible
security may sometimes be less substantial than that of the
underlying equity security.
The Fund may invest in convertible securities, such as
corporate bonds, notes, debentures and other securities that may
be converted into common stock. Investments in convertible
securities can provide income through interest and dividend
payments as well as an opportunity for capital appreciation by
virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest
include dividend-paying preferred stock that may be converted or
exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any
particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio.
Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both
debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the
market value of convertible securities typically changes as the
market value of the underlying common stock changes, and,
therefore, also tends to follow movements in the general market
for equity securities. When the market price of the underlying
common stock increases, the price of a convertible security tends
to rise as a reflection of the value of the underlying common
stock, although typically not as much as the price of the
underlying common stock. While no securities investments are
without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same
issuer.
As debt securities, convertible securities are investments
which provide for a stream of income. Of course, like all debt
securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may
default on their obligations. Convertible securities generally
offer lower yields than non-convertible securities of similar
quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, are
senior in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar
non-convertible securities. Convertible securities may be issued
as fixed income obligations that pay current income.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund
buys a money market instrument and obtains a simultaneous
commitment from the seller to repurchase the instrument at a
specified time and at an agreed-upon yield. Under guidelines
approved by the Board, the Fund is permitted to enter into
repurchase agreements only if the repurchase agreements are at
least fully collateralized with U.S. Government securities or
other securities that IMI has approved for use as collateral for
repurchase agreements and the collateral must be marked-to-market
daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under
the above-referenced guidelines. In the unlikely event of
failure of the executing bank or broker-dealer, the Fund could
experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the
security should decline, as well as costs in disposing of the
security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at
maturity). In addition to investing in certificates of deposit
and bankers' acceptances, the Fund may invest in time deposits in
banks or savings and loan associations. Time deposits are
generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of
deposit, time deposits, and bankers' 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 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. The Fund's investments in
certificates of deposit of savings associations are limited to
obligations of Federal and state-chartered institutions whose
total assets exceed $1 billion and whose deposits are insured by
the FDIC.
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, which are not
typically associated with investing in United States securities
and which may affect the Fund's performance favorably or
unfavorably.
The risks of investing in foreign securities are likely to
be intensified in the case of investments in issuers domiciled or
doing substantial business in countries with emerging or
developing economies ("emerging markets"). For example,
countries with emerging markets may have relatively unstable
governments and therefore be susceptible to sudden adverse
government action (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets). Security prices in emerging markets can
also be significantly more volatile than in the more developed
nations of the world, and communications between the U.S. and
emerging market countries may be unreliable, increasing the risk
of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Delayed settlements could
cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of portfolio securities, resulting
in a loss if the value of the securities subsequently declines.
In addition, many emerging markets have experienced and continue
to experience especially high rates of inflation. In certain
countries, inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding
financial assets in those countries.
In recent years, many emerging market countries around the
world have undergone political changes that have reduced
government's role in economic and personal affairs and have
stimulated investment and growth. In order for these emerging
economies to continue to expand and develop industry,
infrastructure and currency reserves, continued influx of capital
is essential. Historically, there is a strong direct correlation
between economic growth and stock market returns. While this is
no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental
services, natural resources, basic materials, power,
telecommunications and transportation industries) may result
within the evolving economies of emerging market countries from
which the Fund and its shareholders will benefit. IMI believes
that similar investment opportunities will be created for
companies involved in providing consumer goods and services
(e.g., food, beverages, autos, housing, tourism and leisure and
merchandising).
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 the 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.
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 or liquid 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.
DEBT SECURITIES, IN GENERAL
Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises
and falls inversely with fluctuations in interest rates. As
interest rates decline, the value of debt securities generally
increases. Conversely, rising interest rates tend to cause the
value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter
maturities. The market value of debt securities also varies
according to the relative financial condition of the issuer. In
general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its
obligations on interest or principal payments at the time called
for by the debt instrument.
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.
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. 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.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with
investing in larger, more established companies. For example,
the securities of small or new companies may be subject to more
abrupt or erratic market movements because they tend to be thinly
traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to
have limited product lines, markets or financial resources.
Transaction costs associated with trading in smaller company
stocks may be higher than those of larger companies.
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 or liquid 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 or liquid securities of an
aggregate value sufficient to make payment for the securities.
ZERO COUPON BONDS
The Fund may purchase zero coupon bonds. Zero coupon bonds
are debt obligations issued without any requirement for the
periodic payment of interest. Zero coupon bonds are issued at a
significant discount from face value. The discount approximates
the total amount of interest the bonds would accrue and compound
over the period until maturity at a rate of interest reflecting
the market rate at the time of issuance. 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.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open
market, the securities so purchased are often "restricted
securities" or "not readily marketable," i.e., securities which
cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the
availability of an exemption from registration (such as Rule
144A) or because they are subject to other legal or contractual
delays in or restrictions on resale. This investment practice,
therefore, could have the effect of increasing the level of
illiquidity of the Fund. It is the Fund's policy that illiquid
securities (including repurchase agreements of more than seven
days duration, certain restricted securities, and other
securities which are not readily marketable) may not constitute,
at the time of purchase, more than 15% of the value of the Fund's
net assets. The Trust's Board of Trustees has approved
guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i)
only to qualified institutional buyers; (ii) in a privately
negotiated transaction to a limited number of purchasers; (iii)
in limited quantities after they have been held for a specified
period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for
which a registration statement is in effect under the 1933 Act.
Issuers of restricted securities may not be subject to the
disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. If
adverse market conditions were to develop during the period
between the Fund's decision to sell a restricted or illiquid
security and the point at which the Fund is permitted or able to
sell such security, the Fund might obtain a price less favorable
than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the
registration expenses. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund
may be liable to purchasers of such securities if the
registration statement prepared by the issuer is materially
inaccurate or misleading.
Since it is not possible to predict with assurance that the
market for securities eligible for resale under Rule 144A will
continue to be liquid, IMI will monitor such restricted
securities subject to the supervision of the Board of Trustees.
Among the factors IMI may consider in reaching liquidity
decisions relating to Rule 144A securities are: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the market for the security (i.e., the time
needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The Fund may enter into futures contracts and
options on futures contracts for hedging purposes. A futures
contract provides for the future sale by one party and purchase
by another party of a specified quantity of a commodity at a
specified price and time. When a purchase or sale of a futures
contract is made by the Fund, the Fund is required to deposit
with its Custodian (or broker, if legally permitted) a specified
amount of cash or 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 in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the
amounts deposited with an FCM as margin, are equal to the market
value of the instruments underlying the contract. Alternatively,
the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to
that of the index on which the futures contract is based), or by
holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the
contract written by that Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's
Custodian).
When selling a call option on a futures contract, the Fund
will maintain with its Custodian in a segregated account (and
mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, equal
the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by
owning the instruments underlying the futures contract, or by
holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike
price of the call option sold by that 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 the Fund's ability to act upon
economic events occurring in foreign markets during non-business
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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 the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its
component transactions. Although combined transactions are
normally entered into based on IMI's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder
achievement of the management objective.
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."
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's
portfolio securities. Money borrowed will be subject to interest
costs (which may include commitment fees and/or the cost of
maintaining minimum average balances). Although the principal of
the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus
increasing exposure to capital risk. All borrowings will be
repaid before any additional investments are made.
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 the 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 the Fund's portfolio securities in
accordance with applicable guidelines established by
the SEC and any guidelines established by the Trust's
Trustees, or (c) the entry into repurchase agreements
with banks or broker-dealers;
(vi) Borrow amounts in excess of 20% 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 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, except to the
extent that, in connection with the sale of
securities, it may be deemed to be an underwriter
under applicable securities laws;
(x) Make short sales of securities or maintain a short
position;
(xi) 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
(xii) 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.
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) invest more than 15% 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 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 or to other factors, is liquid;
or
(iv) 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, as amended (the "1940 Act") and
rules thereunder.
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 and (except as noted below) bears the cost
of providing to investors the following rights and privileges.
The Trust reserves the right to amend or terminate any one or
more of these rights and privileges. Notice of amendments to or
terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer
to funds, other than the Fund, whose shares are also distributed
by Ivy Mackenzie Distributors, Inc. ("IMDI"). These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Fund II, Ivy International
Small Companies Fund, Ivy South America Fund, Ivy Developing
Nations Fund, Ivy Pan-Europe Fund, and Ivy Money Market Fund (the
other seventeen series of the Trust). (Effective April 18, 1997,
Ivy International Fund suspended the offer of its shares to new
investors.) Shareholders should obtain a current prospectus
before exercising any right or privilege that may relate to these
funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund
shareholder to have specified amounts automatically drawn each
month from his or her bank for investment in Fund shares, is
available for all classes of shares, except Class I. The minimum
initial and subsequent investment under this method is $50 per
month (except in the case of a tax qualified retirement plan for
which the minimum initial and subsequent investment is $25 per
month). A shareholder may terminate the Automatic Investment
Method at any time upon delivery to Ivy Mackenzie Services Corp.
("IMSC") of telephone instructions or written notice. See
"Automatic Investment Method" in the Prospectus. To begin the
plan, complete Sections 6A and 7B of the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, shareholders of the Fund
have an exchange privilege with certain other Ivy funds (except
Ivy International Fund unless they have an existing Ivy
International Fund account). Before effecting an exchange,
shareholders of the Fund should obtain and read the currently
effective prospectus for the 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 Ivy fund ("new Class A Shares") on the
basis of the relative net asset value per Class A share, plus an
amount equal to the difference, if any, between the sales charge
previously paid on the outstanding Class A shares and the sales
charge payable at the time of the exchange on the new Class A
shares. (The additional sales charge will be waived for Class A
shares that have been invested for a period of 12 months or
longer.) Class A shareholders may also exchange their shares for
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 ("CDSC"), as described in
the Prospectus ("outstanding Class A shares"), for Class A shares
of another Ivy fund ("new Class A shares") on the basis of the
relative net asset value per Class A share, without the payment
of any CDSC that would otherwise be due upon the redemption of
the outstanding Class A shares. Class A shareholders of the Fund
exercising the exchange privilege will continue to be subject to
the Fund's CDSC period following an exchange if such period is
longer than the CDSC period, if any, applicable to the new
Class A shares.
For purposes of computing the CDSC that may be payable upon
the redemption of the new Class A shares, the holding period of
the outstanding Class A shares is "tacked" onto the holding
period of the new Class A shares.
CLASS B: Class B shareholders may exchange their Class B
shares ("outstanding Class B shares") for Class B shares of
another Ivy fund ("new Class B shares") on the basis of the
relative net asset value per Class B share, without the payment
of any CDSC that would otherwise be due upon the redemption of
the outstanding Class B shares. Class B shareholders of the Fund
exercising the exchange privilege will continue to be subject to
the Fund's CDSC schedule (or period) following an exchange if
such schedule is higher (or such period is longer) than the CDSC
schedule (or period) applicable to the new Class B shares.
Class B shares of the Fund acquired through an exchange of
Class B shares of another Ivy fund will be subject to the Fund's
CDSC schedule (or period) if such schedule is higher (or such
period is longer) than the CDSC schedule (or period) applicable
to the Ivy fund from which the exchange was made.
For purposes of both the conversion feature and computing
the CDSC that may be payable upon the redemption of the new
Class B shares (prior to conversion), the holding period of the
outstanding Class B shares is "tacked" onto the holding period of
the new Class B shares.
The following CDSC table applies to Class B shares of Ivy
Asia Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy High
Yield Fund, Ivy International Fund, Ivy International Fund II,
Ivy International Small Companies Fund, Ivy South America Fund,
Ivy Developing Nations Fund and Ivy Pan-Europe Fund:
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%
CLASS C: Class C shareholders may exchange their Class C
shares ("outstanding Class C shares") for Class C shares of
another Ivy fund ("new Class C shares") on the basis of the
relative net asset value per Class C share, without the payment
of any CDSC that would otherwise be due upon redemption. (Class
C shares are subject to a CDSC of 1% if redeemed within one year
of the date of purchase.)
CLASS I: Subject to the restrictions set forth in the
following paragraph, Class I shareholders may exchange their
outstanding Class I shares for Class I shares of another Ivy fund
on the basis of the relative net asset value per Class I share.
ALL CLASSES: The minimum value of shares which may be
exchanged into an Ivy fund in which shares are not already held
is $1,000 ($5,000,000 in the case of Class I shares of Ivy Global
Science & Technology Fund, Ivy International Fund, Ivy
International Fund II and Ivy International Small Companies Fund
(generally referred to herein as the "Class I Funds"), and
$250,000 in the case of Ivy High Yield Fund and Ivy Bond Fund).
No exchange out of the Fund (other than by a complete exchange of
all Fund shares) may be made if it would reduce the shareholder's
interest in the Fund to less than $1,000 ($250,000 in the case of
Class I shares of the Fund).
Each exchange will be made on the basis of the relative net
asset values per share of each fund of Ivy Fund next computed
following receipt by IMSC of telephone instructions by IMSC or a
properly executed request. Exchanges, whether written or
telephonic, must be received by IMSC by the close of regular
trading on the New York Stock Exchange, Inc. (the "Exchange")
(normally 4:00 p.m., eastern time) to receive the price computed
on the day of receipt. Exchange requests received after that
time will receive the price next determined following receipt of
the request. The exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice to the
extent required by applicable law. See "Redemptions."
An exchange of shares between any of the Ivy funds will
result in a taxable gain or loss. Generally, this will be a
capital gain or loss (long-term or short-term, depending on the
holding period of the shares) in the amount of the difference
between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain
circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on an
exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred
retirement plan will not be taxable to the plan and will not be
taxed to the participant until distribution. Each investor
should consult his or her tax adviser regarding the tax
consequences of an exchange transaction.
LETTER OF INTENT
Reduced sales charges apply to initial investments in
Class A shares of the Fund made pursuant to a non-binding Letter
of Intent. A Letter of Intent may be submitted by an individual,
his or her spouse and children under the age of 21, or a trustee
or other fiduciary of a single trust estate or single fiduciary
account. See the Account Application in the Prospectus. Any
investor may submit a Letter of Intent stating that he or she
will invest, over a period of 13 months, at least $50,000 in
Class A shares of the Fund. A Letter of Intent may be submitted
at the time of an initial purchase of Class A shares of the Fund
or within 90 days of the initial purchase, in which case the
Letter of Intent will be back dated. A shareholder may include,
as an accumulation credit, the value (at the applicable offering
price) of all Class A shares of Ivy Asia Pacific Fund, Ivy China
Region Fund, Ivy Canada Fund, Ivy South America Fund, Ivy
International Fund, Ivy International Fund II, Ivy Pan-Europe
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy
Global Science & Technology Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy US Emerging Growth Fund, Ivy High Yield
Fund, Ivy International Small Companies Fund, Ivy Developing
Nations Fund and Ivy Bond Fund (and shares that have been
exchanged into Ivy Money Market Fund from any of the other funds
in the Ivy funds) held of record by him or her as of the date of
his or her Letter of Intent. During the term of the Letter of
Intent, the Transfer Agent will hold Class A shares representing
5% of the indicated amount (less any accumulation credit value)
in escrow. The escrowed Class A shares will be released when the
full indicated amount has been purchased. If the full indicated
amount is not purchased during the term of the Letter of Intent,
the investor is required to pay IMDI an amount equal to the
difference between the dollar amount of sales charge that he or
she has paid and that which he or she would have paid on his or
her aggregate purchases if the total of such purchases had been
made at a single time. Such payment will be made by an automatic
liquidation of Class A shares in the escrow account. A Letter of
Intent does not obligate the investor to buy or the Trust to sell
the indicated amount of Class A shares, and the investor should
read carefully all the provisions of such letter before signing.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund
distributed by IMDI may be purchased in a single application
establishing a single plan account, and shares held in such an
account may be exchanged among the funds of Ivy Fund 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 Ivy Fund, 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 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 IMSC, who may impose a
charge for establishing the account. Individuals should consult
their tax advisers before investing IRA assets in an Ivy 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. For years after 1996, the result is similar even if
one spouse has no earned income; if the joint earned income of
the spouses is at least $4,000, a contribution of up to $2,000
may be made to each spouse's IRA. For years before 1997,
however, if one spouse has (or elects to be treated as having) no
earned income for IRA purposes for a year, 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 governmental 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 who are active
participants 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, or, for years
after 1996, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed
individuals not in excess of amounts paid for certain health
insurance premiums. 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 (other than 1997, 1998 or 1999)
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 of Ivy Fund
through a qualified retirement plan, a Custodial Agreement and a
Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension
plan. A profit sharing plan permits an annual contribution to be
made in an amount determined each year by the self-employed
individual within certain limits prescribed by law. A money
purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for
qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law
employees, employees who have met certain minimum age and service
requirements must be covered by the Retirement Plan. A self-
employed individual generally must contribute the same percentage
of income for common law employees as for himself or herself.
A self-employed individual may contribute up to the lesser
of $30,000 or 25% of compensation or earned income to a money
purchase pension plan or to a combination profit sharing and
money purchase pension plan arrangement each year on behalf of
each participant. To be deductible, total contributions to a
profit sharing plan generally may not exceed 15% of the total
compensation or earned income of all participants in the plan,
and total contributions to a combination money purchase-profit
sharing arrangement generally may not exceed 25% of the total
compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be
included in computing the deduction is limited (generally to
$150,000 for benefits accruing in plan years beginning after
1993, with annual inflation adjustments). A self-employed
individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement
and Retirement Plan for the benefit of their eligible employees.
Similar contribution and deduction rules apply to corporate
employers.
Distributions from the Retirement Plan generally are made
after a participant's separation from service. A 10% penalty tax
generally applies to distributions to an individual before he or
she reaches age 59-1/2, unless the individual (1) has reached age
55 and separated from service; (2) dies; (3) becomes disabled;
(4) uses the withdrawal to pay tax-deductible medical expenses;
(5) takes the withdrawal as part of a series of substantially
equal payments over his or her life expectancy or the joint life
expectancy of himself or herself and a designated beneficiary; or
(6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust
to furnish custodial services to the employer and any
participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"), permits
public school systems and certain charitable organizations to use
mutual fund shares held in a custodial account to fund deferred
compensation arrangements with their employees. A custodial
account agreement is available for those employers whose
employees wish to purchase shares of the Trust in conjunction
with such an arrangement. The special application for a
403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only
following death, disability, separation from service, attainment
of age 59-1/2, or incurring a financial hardship. A 10% penalty
tax generally applies to distributions to an individual before he
or she reaches age 59-1/2, unless the individual (1) has reached
age 55 and separated from service; (2) dies or becomes disabled;
(3) uses the withdrawal to pay tax-deductible medical expenses;
(4) takes the withdrawal as part of a series of substantially
equal payments over his or her life expectancy or the joint life
expectancy of himself or herself and a designated beneficiary; or
(5) rolls over the distribution. There is no set-up fee for
403(b)(7) Accounts and the annual maintenance fee is $20.00 per
account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may
deduct contributions to a SEP up to the lesser of $30,000 or 15%
of compensation. SEP accounts generally are subject to all rules
applicable to IRA accounts, except the deduction limits, and are
subject to certain employee participation requirements. No new
salary reduction SEPs ("SARSEPs") may be established after 1996,
but existing SARSEPs may continue to be maintained, and non-
salary reduction SEPs may continue to be established as well as
maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a
SIMPLE 401(k) for years after 1996. An employee can make pre-tax
salary reduction contributions to a SIMPLE Plan, up to $6,000 a
year. Subject to certain limits, the employer will either match
a portion of employee contributions, or will make a contribution
equal to 2% of each employee's compensation without regard to the
amount the employee contributes. An employer cannot maintain a
SIMPLE Plan for its employees if any contributions or benefits
are credited to those employees under any other qualified
retirement plan maintained by the employer.
REINVESTMENT PRIVILEGE
Shareholders who have redeemed Class A shares of the Fund
may reinvest all or a part of the proceeds of the redemption back
into Class A shares of the Fund at net asset value (without a
sales charge) within 60 days from the date of redemption. This
privilege may be exercised only once. The reinvestment will be
made at the net asset value next determined after receipt by IMSC
of the reinvestment order accompanied by the funds to be
reinvested. No compensation will be paid to any sales personnel
or dealer in connection with the transaction.
Any redemption is a taxable event. A loss realized on a
redemption generally may be disallowed for tax purposes if the
reinvestment privilege is exercised within 30 days after the
redemption. In certain circumstances, shareholders will be
ineligible to take sales charges into account in computing
taxable gain or loss on a redemption if the reinvestment
privilege is exercised. See "Taxation."
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.
The reduced sales charge is applicable to investments made at one
time by an individual, his or her spouse and children under the
age of 21, or a trustee or other fiduciary of a single trust
estate or single fiduciary account (including a pension, profit
sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code). Rights of
Accumulation is also applicable to current purchases of all of
the funds of Ivy Fund (except Ivy Money Market Fund) by any of
the persons enumerated above, where the aggregate quantity of
Class A shares of Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy
Canada Fund, Ivy China Region Fund, Ivy US Emerging Growth Fund,
Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund, Ivy High Yield Fund, Ivy
International Small Companies Fund, Ivy South America Fund, Ivy
Developing Nations Fund, Ivy International Fund II and Ivy Pan-
Europe Fund (and shares that have been exchanged into Ivy Money
Market Fund from any of the other funds in the Ivy funds) and of
any other investment company distributed by IMDI, previously
purchased or acquired and currently owned, determined at the
higher of current offering price or amount invested, plus the
Class A shares being purchased, amounts to $50,000 or more for
Ivy Asia Pacific Fund, Ivy Canada Fund, Ivy China Region Fund,
Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International Fund, Ivy
International Small Companies Fund, Ivy South America Fund, Ivy
Developing Nations Fund, Ivy International Fund II, Ivy Pan-
Europe Fund; or $100,000 or more for Ivy Bond Fund or Ivy High
Yield Fund.
At the time an investment takes place, IMSC must be notified
by the investor or his or her dealer that the investment
qualifies for the reduced sales charge on the basis of previous
investments. The reduced sales charge is subject to confirmation
of the investor's holdings through a check of the particular
fund's records.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder (except shareholders with accounts in Class I
of the Class I Funds) may establish a Systematic Withdrawal Plan
(a "Withdrawal Plan"), by telephone instructions or by delivery
to IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name,
properly endorsed by the shareholder. To be eligible to elect a
Withdrawal Plan, a shareholder must have at least $5,000 in his
or her account. A Withdrawal Plan may not be established if the
investor is currently participating in the Automatic Investment
Method. A Withdrawal Plan may involve the depletion of a
shareholder's principal, depending on the amount withdrawn.
A redemption under a Withdrawal Plan is a taxable event.
Shareholders contemplating participating in a Withdrawal Plan
should consult their tax advisers.
Additional investments made by investors participating in a
Withdrawal Plan must equal at least $1,000 each while the
Withdrawal Plan is in effect. Making additional purchases while
a Withdrawal Plan is in effect may be disadvantageous to the
investor because of applicable initial sales charges or CDSCs.
An investor may terminate his or her participation in the
Withdrawal Plan at any time by delivering written notice to IMSC.
If all shares held by the investor are liquidated at any time,
participation in the Withdrawal Plan will terminate
automatically. The Trust or IMSC may terminate the Withdrawal
Plan option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares may be purchased in connection with investment
programs established by employee or other groups using systematic
payroll deductions or other systematic payment arrangements. The
Trust does not itself organize, offer or administer any such
programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with
programs organized and offered by others. Unless shares of the
Fund are purchased in conjunction with IRAs (see "How to Buy
Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code.
The Trust reserves the right to refuse purchases at any time or
suspend the offering of shares in connection with group
systematic investment programs, and to restrict the offering of
shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment
programs.
With respect to each shareholder account established on or
after September 15, 1972 under a group systematic investment
program, the Trust and IMI each currently charge a maintenance
fee of $3.00 (or portion thereof) for each twelve-month period
(or portion thereof) that the account is maintained. The Trust
may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by
causing on the date the fee is assessed a redemption in each such
shareholder account sufficient to pay such fee. The Trust
reserves the right to change these fees from time to time without
advance notice.
Class A shares of the Fund are made available to Merrill
Lynch Daily K Plan (the "Plan") participants at NAV without an
initial sales charge if:
(i) the Plan is recordkept on a daily valuation basis by
Merrill Lynch and, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has
$3 million or more in assets invested in broker/dealer funds
not advised or managed by Merrill Lynch Asset Management,
L.P. ("MLAM") that are made available pursuant to a Service
Agreement between Merrill Lynch and the fund's principal
underwriter or distributor and in funds advised or managed
by MLAM (collectively, the "Applicable Investments");
(ii) the Plan is recordkept on a daily valuation basis by an
independent recordkeeper whose services are provided through
a contract or alliance arrangement with Merrill Lynch, and
on the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement, the Plan has $3 million or
more in assets, excluding money market funds, invested in
Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as
determined by Merrill Lynch plan conversion manager, on the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement.
Alternatively, Class B shares of the Fund are made available
to Plan participants at NAV without a CDSC if the Plan conforms
with the requirements for eligibility set forth in (i) through
(iii) above but either does not meet the $3 million asset
threshold or does not have 500 or more eligible employees.
Plans recordkept on a daily basis by Merrill Lynch or an
independent recordkeeper under a contract with Merrill Lynch that
are currently investing in Class B shares of the Fund convert to
Class A shares once the Plan has reached $5 million invested in
Applicable Investments, or 10 years after the date of the initial
purchase by a participant under the Plan--the Plan will receive a
Plan level share conversion.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the
Board, 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 IMI believes that a 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 a particular Fund or the Trust. IMI may
consider sales of shares of Ivy funds as a factor in the
selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and
execution.
As of the date of this SAI, the Fund had 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 accept
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
only accept securities delivered in proper form and will not
accept securities subject to legal restrictions on transfer. The
acceptance of securities by the Trust must comply with the
applicable laws of certain states.
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 Research
60 Concord Street Corp. (instruments and
Wilmington, MA 01887 controls); Director, Burr-
Age: 74 Brown Corp. (operational
amplifiers); Director,
Metritage Incorporated
(level measuring
instruments); Trustee of
Mackenzie Series Trust
(1992-1997).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present);
Age: 74 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 (1988-1997); Director
of The Mackenzie Funds Inc.
(1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency);
Chairman, Scott Management
Company (administrative
services for insurance
companies); President, The
Channick Group (consultants
to insurance companies and
national trade
associations); Trustee of
Mackenzie Series Trust
(1994-1997); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and
Vice Chairman, East
Tennessee Public
Communications Corp. (WSJK-
TV) (1984-present); Trustee
of Mackenzie Series Trust
(1985-1997); Director of
The Mackenzie Funds Inc.
(1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. and Officer and Director of
Suite 300 Chairman Mackenzie Investment
Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-
present); Chairman and
Director of Ivy Mackenzie
Distributors, Inc. (1994-
present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-
1994); Director and
President of The Mackenzie
Funds Inc. (1987-1995);
Trustee of Mackenzie Series
Trust (1987-1997);
President of Mackenzie
Series Trust (1987-1996);
Chairman of Mackenzie
Series Trust (1996-
present).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1997); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director,
Boston Children's Museum;
Director, Brimmer and May
School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally
sensitive packaging
company); Director of
Polyglass LTD.; Director,
The Mackenzie Funds Inc.
(1992-1995); Trustee of
Mackenzie Series Trust
(1992-1997).
Keith J. Carlson Trustee Senior Vice President of
700 South Federal Hwy. and Mackenzie Investment
Suite 300 President Management, Inc. (1996
Boca Raton, FL 33432 -present); Senior Vice
Age: 41 President and Director of
[*Deemed to be an Mackenzie Investment
"interested person" Management, Inc. (1994
of the Trust, as -1996); Senior Vice
defined under the President and Treasurer of
1940 Act.] Mackenzie Investment
Management, Inc. (1989-
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);
Senior Vice President and
Director, Ivy Mackenzie
Services Corp. (1996-
present); President and
Director of Ivy Mackenzie
Services Corp. (1993-1996);
Trustee and President of
Mackenzie Series Trust
(1996-1997); Vice President
of Mackenzie Series Trust
(1994-1996); Treasurer of
Mackenzie Series Trust
(1985-1994); President,
Chief Executive Officer and
Director of Ivy Mackenzie
Distributors, Inc. (1994-
present); Executive Vice
President and Director of
Ivy Mackenzie Distributors,
Inc. (1993-1994).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-
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); Vice President,
Finance/Administration and
Compliance Officer of Ivy
Management Inc. (1992-
1994); Senior Vice
President, Secretary/
Treasurer and Director of
Ivy Mackenzie Distributors,
Inc. (1994-present);
Secretary/Treasurer and
Director of Ivy Mackenzie
Distributors, Inc. (1993-
1994); President and
Director of Ivy Mackenzie
Services Corp. (1996-
present); Secretary/
Treasurer and Director of
Ivy Mackenzie Services
Corp. (1993-1996);
Secretary/Treasurer of The
Mackenzie Funds Inc. (1993-
1995); Secretary/Treasurer
of Mackenzie Series Trust
(1994-1997).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director
and Senior Vice President,
Mackenzie Investment
Management Inc. (1995-
present); Senior Vice
President, Mackenzie
Investment Management Inc.
(1990-1995).
As of the date of this SAI, the Officers and Trustees of the
Trust as a group owned no Fund shares.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal securities
transactions, subject to the requirements and restrictions set
forth in IMI's Code of Ethics. The Code of Ethics is designed to
identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the Fund. Among other things, the Code
of Ethics, which generally complies with standards recommended by
the Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, applies to portfolio managers, traders, research
analysts and others involved in the investment advisory process,
and imposes time periods during which personal transactions may
not be made in certain securities, and requires the submission of
duplicate broker confirmations and monthly reporting of
securities transactions. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular
circumstances after review by appropriate personnel.
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1997)
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS ESTIMATED TRUST AND
AGGREGATE ACCRUED AS ANNUAL FUND COM-
COMPENSA- PART OF BENEFITS PLEX PAID
NAME, TION FUND UPON TO
POSITION FROM TRUST EXPENSES RETIREMENT TRUSTEES
[*]
John S. $13,722 N/A N/A $15,000
Anderegg, Jr.
(Trustee)
Paul H. $13,722 N/A N/A $15,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $13,722 N/A N/A $15,000
Channick
(Trustee)
Frank W. $13,722 N/A N/A $15,000
DeFriece, Jr.
(Trustee)
Roy J. $13,722 N/A N/A $15,000
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. $13,722 N/A N/A $15,000
Rosenthal
(Trustee)
Richard N. $13,722 N/A N/A $15,000
Silverman
(Trustee)
J. Brendan $13,722 N/A N/A $15,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/Treasurer)
[*] During the year ended December 31, 1997, the fund complex
consisted of the Trust, which had 17 funds at year end, and
Mackenzie Series Trust, an open-end, management investment
company comprised of 4 funds that were reorganized into a
series of unaffiliated investment companies on September 5,
1997.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory
services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Agreement"). The Agreement was
approved by the sole shareholder of the Fund on March 25, 1998.
Prior to shareholder approval, the Agreement was approved by the
Board (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 or in any related agreement (the "Independent
Trustees")) on February 7, 1998 with respect to the Fund.
IMI is a wholly owned subsidiary of MIMI. MIMI, a Delaware
corporation, has approximately 10% of its outstanding common stock
listed for trading on the Toronto Stock Exchange ("TSE"). MIMI is a
subsidiary of Mackenzie Financial Corporation ("MFC"), 150 Bloor
Street West, Toronto, Ontario, Canada, a public corporation
organized under the laws of Ontario and registered in Ontario as a
mutual fund dealer whose shares are listed for trading on the TSE.
MFC provides investment advisory services to certain of the Ivy
funds.
IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the 1940
Act: Ivy China Region Fund, Ivy Global Fund, Ivy International
Fund, Ivy South America Fund, Ivy Developing Nations Fund, Ivy
Global Science & Technology Fund, Ivy International Small Companies
Fund, Ivy International Fund II, Ivy Asia Pacific Fund, Ivy Pan-
Europe Fund, Ivy Growth Fund, Ivy US Emerging Growth Fund, Ivy
Growth with Income Fund, Ivy Bond Fund and Ivy Money Market 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
Prospectus, the 1940 Act and the provisions of the Code relating to
regulated investment companies, subject to policy decisions adopted
by the Board. 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 that are not performed by employees or other agents
engaged by the Fund or by IMI acting in some other capacity pursuant
to a separate agreement or arrangements with the Fund; (5) maintain
or supervise the maintenance by third parties of such books and
records of the Trust as may be required by applicable Federal or
state law; (6) authorize and permit IMI's directors, officers and
employees who may be elected or appointed as trustees or officers of
the Trust to serve in such capacities; and (7) take such other
action with respect to the Trust, after approval by the Trust as may
be required by applicable law, including without limitation the
rules and regulations of the Securities and Exchange Commission (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
0.75% of its average net assets.
Advisory fee information is not available for the Fund as of
the date of this SAI.
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.
IMI currently limits the Fund's total operating expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage commissions,
litigation, class-specific expenses, indemnification expenses, and
extraordinary expenses) to an annual rate of 0.85% of the Fund's
average net assets, which 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 its expenses may increase and its
yield may be reduced.
The initial term of the Agreement between IMI and the Fund,
which commenced on March 25, 1998, will run for a period of two
years from the date of commencement. The Agreement will continue in
effect with respect to the Fund from year to year, or for more than
the initial period, as the case may be, only so long as the
continuance is specifically approved at least annually (i) by the
vote of a majority of the Independent Trustees and (ii) either (a)
by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or (b) by the vote of a
majority of the entire Board. If the question of continuance of the
Agreement (or adoption of any new agreement) is presented to
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, 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
IMDI, a wholly owned subsidiary of MIMI, serves as the
exclusive distributor of Ivy Fund's shares pursuant to an Amended
and Restated Distribution Agreement with the Trust dated October 23,
1991, as amended from time to time (the "Distribution Agreement").
The Distribution Agreement was last approved by the Board on August
25, 1996. At a meeting held on February 7, 1998, the Board approved
the Distribution Agreement on behalf of the Fund. IMDI distributes
shares of the Fund through broker-dealers who are members of the
National Association of Securities Dealers, Inc. and who have
executed dealer agreements with IMDI. IMDI distributes shares of
the Fund on a continuous basis, but reserves the right to suspend or
discontinue distribution on that basis. IMDI is not obligated to
sell any specific amount of Fund shares.
Pursuant to the Distribution Agreement, IMDI is entitled to
deduct a commission on all Class A Fund shares sold equal to the
difference, if any, between the public offering price, as set forth
in the Fund's then-current prospectus, and the net asset value on
which such price is based. Out of that commission, IMDI may reallow
to dealers such concession as IMDI may determine from time to time.
In addition, IMDI is entitled to deduct a CDSC on the redemption of
Class A shares sold without an initial sales charge and Class B and
Class C shares in accordance with, and in the manner set forth in,
the Prospectus.
Under the Distribution Agreement, the Fund bears, among other
expenses, the expenses of registering and qualifying its shares for
sale under Federal and state securities laws and preparing and
distributing to existing shareholders periodic reports, proxy
materials and prospectuses.
As of the date of this SAI, IMDI had not received any payments
under the Distribution Agreement with respect to the Fund.
The Distribution Agreement will continue in effect for
successive one-year periods, provided that such continuance is
specifically approved at least annually by the vote of a majority
of the Independent Trustees, cast in person at a meeting called for
that purpose and by the vote of either a majority of the entire
Board or a majority of the outstanding voting securities of the
Fund. The Distribution Agreement may be terminated with respect to
the Fund at any time, without payment of any penalty, by IMDI on 60
days' written notice to the Fund or by the Fund by vote of either a
majority of the outstanding voting securities of the Fund or a
majority of the Independent Trustees on 60 days' written notice to
IMDI. The Distribution Agreement shall terminate automatically in
the event of its assignment.
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule
18f-3 under the 1940 Act, which permits a registered open-end
investment company to issue multiple classes of shares in accordance
with a written plan approved by the investment company's board of
directors/trustees and filed with the SEC. At a meeting held on
February 7, 1998, the Board adopted 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 fund; and (iii) the Fund's Class B shares will convert
automatically into Class A shares of the Fund after a period of
eight years, based on the relative net asset value of such shares at
the time of conversion.
RULE 12B-1 DISTRIBUTION PLANS. The Trust has adopted on behalf
of the Fund, in accordance with Rule 12b-1 under the 1940 Act,
separate Rule 12b-1 distribution plans pertaining to the Fund's
Class A, Class B and Class C shares (each, a "Plan"). In adopting
each Plan, a majority of the Independent Trustees concluded in
accordance with the requirements of Rule 12b-1 that there is a
reasonable likelihood that each Plan will benefit the Fund and its
shareholders. The Trustees of the Trust believe that the Plans
should result in greater sales and/or fewer redemptions of the
Fund's shares, although it is impossible to know for certain the
level of sales and redemptions of the Fund's shares in the absence
of a Plan or under an alternative distribution arrangement.
Under each Plan, the Fund pays IMDI a service fee, accrued
daily and paid monthly, at the annual rate of up to 0.25% of the
average daily net assets attributable to its Class A, Class B or
Class C shares, as the case may be. The services for which service
fees may be paid include, among other things, advising clients or
customers regarding the purchase, sale or retention of shares of the
Fund, answering routine inquiries concerning the Fund and assisting
shareholders in changing options or enrolling in specific plans.
Pursuant to each Plan, service fee payments made out of or charged
against the assets attributable to the Fund's Class A, Class B or
Class C shares must be in reimbursement for services rendered for or
on behalf of the affected class. The expenses not reimbursed in any
one month may be reimbursed in a subsequent month. The Class A Plan
does not provide for the payment of interest or carrying charges as
distribution expenses.
Under the Fund's Class B and Class C Plans, the Fund also pays
IMDI a distribution fee, accrued daily and paid monthly, at the
annual rate of 0.75% of the average daily net assets attributable to
its Class B or Class C shares. IMDI may reallow to dealers all or a
portion of the service and distribution fees as IMDI may determine
from time to time. The distribution fee compensates IMDI for expenses
incurred in connection with activities primarily intended
to result in the sale of the Fund's Class B or Class C shares,
including the printing of prospectuses and reports for persons other
than existing shareholders and the preparation, printing and
distribution of sales literature and advertising materials.
Pursuant to each Class B and Class C Plan, IMDI may include
interest, carrying or other finance charges in its calculation of
distribution expenses, if not prohibited from doing so pursuant to
an order of or a regulation adopted by the SEC.
Among other things, each Plan provides that (1) IMDI will
submit to the Board at least quarterly, and the Trustees will
review, written reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made;
(2) each Plan will continue in effect only so long as such
continuance is approved at least annually, and any material
amendment thereto is approved, by the votes of a majority of the
Board, including the Independent Trustees, cast in person at a
meeting called for that purpose; (3) payments by the Fund under each
Plan shall not be materially increased without the affirmative vote
of the holders of a majority of the outstanding shares of the
relevant class; and (4) while each Plan is in effect, the selection
and nomination of 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.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may
include the management fees paid by the Fund. IMDI also may make
payments (such as the service fee payments described above) to
unaffiliated broker-dealers for services rendered in the
distribution of the Fund's shares. To qualify for such payments,
shares may be subject to a minimum holding period. However, no such
payments will be made to any dealer or broker if at the end of each
year the amount of shares held does not exceed a minimum amount.
The minimum holding period and minimum level of holdings will be
determined from time to time by IMDI.
A report of the amount expended pursuant to each Plan, and the
purposes for which such expenditures were incurred, must be made to
the Board for its review at least quarterly.
As of the date of this SAI, no payments had been made under the
Plans with respect to the Fund.
Each Plan may be amended at any time with respect to the class
of shares of the Fund to which the Plan relates by vote of the
Trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for the purpose of considering such
amendment. Each Plan may be terminated at any time with respect to
the class of shares of the Fund to which the Plan relates, without
payment of any penalty, by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding voting
securities of that class.
If the Distribution Agreement or the Distribution Plans are
terminated (or not renewed) with respect to any of the Ivy funds (or
class of shares thereof), each may continue in effect with respect
to any other fund (or Class of shares thereof) as to which they
have not been terminated (or have been renewed).
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown
Brothers Harriman & Co. (the "Custodian"), a private bank and member
of the principal securities exchanges, located at 40 Water Street,
Boston, Massachusetts 02109, maintains custody of the assets of the
Fund held in the United States. Rules adopted under the 1940 Act
permit the Trust to maintain its foreign securities and cash in the
custody of certain eligible foreign banks and securities
depositories. Pursuant to those rules, the Custodian has entered
into subcustodial agreements for the holding of the Fund's foreign
securities. The Custodian may receive, as partial payment for its
services to the Fund, a portion of the Trust's brokerage business,
subject to its ability to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI provides
certain accounting and pricing services for the Fund. As
compensation for those services, the Fund pays MIMI a monthly fee
plus out-of-pocket expenses as incurred. The monthly fee is based
upon the net assets of the Fund at the preceding month end at the
following rates: $1,250 when net assets are $10 million and under;
$2,500 when net assets are over $10 million to $40 million; $5,000
when net assets are over $40 million to $75 million; and $6,500 when
net assets are over $75 million.
As of the date of this SAI, no payments had been made with
respect to the provision of these services for the Fund.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service
Agreement, IMSC, a wholly owned subsidiary of MIMI, is the transfer
agent for the Fund. The Fund (except with respect to its Class I
shares) pays a monthly fee at an annual rate of $20.00 for each open
Class A, Class B and Class C account. The Fund pays $10.25 per open
Class I account. In addition, the Fund pays a monthly fee at an
annual rate of $4.48 per account that is closed plus certain out-of-
pocket expenses. As of the date of this SAI, no payments had been
made by the Fund for transfer agency services. Certain broker-
dealers that maintain shareholder accounts with the Fund through an
omnibus account provide transfer agent and other shareholder-related
services that would otherwise be provided by IMSC if the individual
accounts that comprise the omnibus account were opened by their
beneficial owners directly. IMSC pays such broker-dealers a per
account fee for each open account within the omnibus account, or a
fixed rate (e.g., .10%) fee, based on the average daily net asset
value of the omnibus account (or a combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI provides
certain administrative services to the Fund. As compensation for
these services, the Fund (except with respect to its Class I shares)
pays MIMI a monthly fee at the annual rate of .10% of the Fund's
average daily net assets. The Fund pays MIMI a monthly fee at the
annual rate of .01% of its average daily net assets for Class I. As
of the date of this SAI, no payments had been made by the Fund under
the Administrative Services Agreement.
Outside of providing administrative services to the Trust, as
described above, MIMI may also act on behalf of IMDI in paying
commissions to broker-dealers with respect to sales of Class B and
Class C shares of the Fund.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public
accountants, 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 funds' 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 eighteen series, each of which represents a fund. The
Trustees have further authorized the issuance of Class A, Class B,
and Class C shares for Ivy International Fund and Class A, Class B,
Class C and Advisor Class shares for Ivy Asia Pacific Fund, Ivy Bond
Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy US Emerging Growth
Fund, Ivy Global Fund, Ivy Global Natural Resources Fund, Ivy Global
Science & Technology Fund, Ivy Growth Fund, Ivy Growth with Income
Fund, Ivy International Fund II, Ivy High Yield Fund, Ivy South
America Fund, Ivy Money Market Fund, Ivy Developing Nations Fund and
Ivy Pan-Europe Fund, as well as Class I shares for Ivy Bond Fund,
Ivy Global Science & Technology Fund, Ivy International Fund II, Ivy
International Fund, Ivy High Yield Fund and Ivy International Small
Companies Fund, and Class D shares for Ivy Growth with Income Fund.
[FN][The Class D shares of Ivy Growth with Income Fund were
initially issued as "Ivy Growth with Income Fund -- Class C" to
shareholders of Mackenzie Growth & Income Fund, a former series of
the Company, in connection with the reorganization between that fund
and Ivy Growth with Income Fund and not offered for sale to the
public. On February 29, 1996, the Trustees of the Trust resolved by
written consent to establish a new class of shares designated as
"Class C" for all Ivy Fund portfolios and to redesignate the shares
of beneficial interest of "Ivy Growth with Income Fund--Class C" as
shares of beneficial interest of "Ivy Growth with Income Fund--Class
D," which establishment and redesignation, respectively, became
effective on April 30, 1996. The voting, dividend, liquidation and
other rights, preferences, powers, restrictions, limitations,
qualifications, terms and conditions of the Class D shares of Ivy
Growth with Income Fund, as set forth in Ivy Fund's Declaration of
Trust, as amended from time to time, will not be changed by this
redesignation.]
Shareholders have the right to vote for the election of
Trustees of the Trust and on any and all matters on which they may
be entitled to vote by law or by the provisions of the Trust's By-
Laws. The Trust is not required to hold a regular annual meeting of
shareholders, and it does not intend to do so. Shares of each class
of the Fund entitle their holders to one vote per share (with
proportionate voting for fractional shares). Shareholders of the
Fund are entitled to vote alone on matters that only affect the
Fund. All classes of shares of the Fund will vote together, except
with respect to the distribution plan applicable to the Fund's
Class A, Class B or Class C shares or when a class vote is required
by the 1940 Act. On matters relating to all funds of the Trust, but
affecting 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 a fund, then the shareholders of that fund
will not be entitled to vote on that matter. Matters that affect
the Trust in general, such as ratification of the selection of
independent public accountants, will be voted upon collectively by
the shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority
vote of the outstanding shares" of the Fund means the vote of the
lesser of: (1) 67% of the shares of the Fund (or of the Trust)
present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more
than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a matter
requiring separate voting by 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, in which case the holders of the
remaining shares would not be able to elect any Trustees.
As of the date of this SAI, there were no Fund shares
outstanding other than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could, under
certain circumstances, be held personally liable for the obligations
of the Trust. However, the 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 the
Fund held personally liable for the obligations of the Fund. The
risk of a shareholder of the Trust incurring financial loss on
account of shareholder liability is limited to circumstances in
which the Trust itself would be unable to meet its obligations and,
thus, should be considered remote. No series of the Trust is liable
for the obligations of any other series of the Trust.
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 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 The Nasdaq Stock Market Inc. ("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. Money market instruments of the Fund are valued at
amortized cost, which approximates money market value.
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, Martin
Luther King, Jr.'s Birthday, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
On those days when either or both of the Fund's Custodian or the
Exchange close early as a result of such day being a partial
holiday or otherwise, the Trust reserves the right to advance the time on
that day by which purchase and redemption requests must be
received.
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.
Valuation 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 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. A change in securities held by the Fund
is known as "portfolio turnover" and may involve the payment by the
Fund of dealer markup or underwriting commission and other
transaction costs on the sale of securities, as well as on the
reinvestment of the proceeds in other securities. The Fund's
portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the most recently
completed fiscal year by the monthly average of the value of the
portfolio securities owned by the Fund during that year. For
purposes of determining the Fund's portfolio turnover rate, all
securities whose maturities at the time of acquisition were one
year or less are excluded. It is estimated that the portfolio
turnover rate for the Fund's initial fiscal year will not exceed 100%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value
next determined after a proper redemption request has been received by
IMSC, less any applicable CDSC.
Unless a shareholder requests that the proceeds of any
redemption be wired to his or her bank account, payment for
shares tendered for redemption is made by check within seven days after
tender in proper form, except that the Trust reserves the right
to suspend the right of redemption or to postpone the date of
payment upon redemption beyond seven days, (i) for any period during
which the Exchange is closed (other than customary weekend and holiday
closings) or during which trading on the Exchange is restricted,
(ii) for any period during which an emergency exists as
determined by the SEC as a result of which disposal of securities owned by
the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net
assets, or (iii) for such other periods as the SEC may by order
permit for the protection of shareholders of the Fund.
Under unusual circumstances, when the Board 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.
The Trust may redeem those accounts of shareholders who have
maintained an investment, including sales charges paid, of less
than $1,000 in the Fund for a period of more than 12 months. All
accounts below that minimum will be redeemed simultaneously when
MIMI deems it advisable. The $1,000 balance will be determined
by actual dollar amounts invested by the shareholder, unaffected by
market fluctuations. The Trust will notify any such shareholder
by certified mail of its intention to redeem such account, and the
shareholder shall have 60 days from the date of such letter to
invest such additional sums as shall raise the value of such
account above that minimum. Should the shareholder fail to forward such
sum within 60 days of the date of the Trust's letter of notification,
the Trust will redeem the shares held in such account and
transmit the redemption in value thereof to the shareholder. However,
those shareholders who are investing pursuant to the Automatic
Investment Method will not be redeemed automatically unless they have ceased
making payments pursuant to the plan for a period of at least six
consecutive months, and these shareholders will be given six
months' notice by the Trust before such redemption. Shareholders in a
qualified retirement, pension or profit sharing plan who wish to
avoid tax consequences must "rollover" any sum so redeemed into
another qualified plan within 60 days. The Trustees of the Trust
may change the minimum account size.
If a shareholder has given authorization for telephonic
redemption privilege, shares can be redeemed and proceeds sent by
Federal wire to a single previously designated bank account.
Delivery of the proceeds of a wire redemption request of $250,000
or more may be delayed by the Fund for up to seven days if deemed
appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the
telephonic redemption privilege without prior notice. The Trust
cannot be responsible for the efficiency of the Federal wire system
of the shareholder's dealer of record or bank. The shareholder is
responsible for any charges by the shareholder's bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange
instructions communicated by telephone to confirm that such
instructions are genuine. In the absence of such instructions, the
Fund may be liable for any losses due to unauthorized or fraudulent
telephone instructions.
CONVERSION OF CLASS B SHARES
As described in the Prospectus, Class B shares of the Fund will
automatically convert to Class A shares of the 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 adviser about the tax consequences to them of investing in
the Fund.
The Fund intends to be taxed as a regulated investment company
under Subchapter M of the Code. Accordingly, the Fund must, among
other things, (a) derive in each taxable year at least 90% of its
gross income from dividends, interest, payments with respect to
certain securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to its business of investing in such
stock, securities or currencies; and (b) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the
market value of the Fund's assets is represented by cash, U.S.
Government securities, the securities of other regulated investment
companies and other securities, with such other securities limited,
in respect of any one issuer, to an amount not greater than 5% of
the value of the Fund's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities and the securities of
other regulated investment companies).
As a regulated investment company, the Fund generally will
not be subject to U.S. Federal income tax on its income and gains
that it distributes to shareholders, if at least 90% of its investment
company taxable income (which includes, among other items,
dividends, interest and the excess of any short-term capital
gains over long-term capital losses) for the taxable year is
distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with
a calendar year distribution requirement are subject to a
nondeductible 4% excise tax at the Fund level. To avoid the tax,
the Fund must distribute during each calendar year, (1) at least
98% of its ordinary income (not taking into account any capital gains
or losses) for the calendar year, (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for
previous years that were not distributed during such years. To
avoid application of the excise tax, the Fund intends to make
distributions in accordance with the calendar year distribution
requirements. A distribution will be treated as paid on December
31 of the current calendar year if it is declared by the Fund in
October, November or December of the year with a record date in
such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the
calendar year the distributions are declared, rather than the calendar
year in which the distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt
securities is governed by Code section 1234. Pursuant to Code
section 1234, the premium received by the Fund for selling a put
or call option is not included in income at the time of receipt. If
the option expires, the premium is short-term capital gain to the
Fund. If the Fund enters into a closing transaction, the
difference between the amount paid to close out its position and the premium
received is short-term capital gain or loss. If a call option
written by the Fund is exercised, thereby requiring the Fund to
sell the underlying security, the premium will increase the amount
realized upon the sale of such security and any resulting gain or
loss will be a capital gain or loss, and will be long-term or
short-term depending upon the holding period of the security. With
respect to a put or call option that is purchased by the Fund, if
the option is sold, any resulting gain or loss will be a capital
gain or loss, and will be long-term or short-term, depending upon
the holding period of the option. If the option expires, the
resulting loss is a capital loss and is long-term or short-term,
depending upon the holding period of the option. If the option is
exercised, the cost of the option, in the case of a call option, is
added to the basis of the purchased security and, in the case of a
put option, reduces the amount realized on the underlying security
in determining gain or loss.
Some of the options, futures and foreign currency forward
contracts in which the Fund may invest may be "section 1256
contracts." Gains (or losses) on these contracts generally are
considered to be 60% long-term and 40% short-term capital gains or
losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary in
character. Also, section 1256 contracts held by the Fund at the end
of each taxable year (and on certain other dates prescribed in the
Code) are "marked-to-market" with the result that unrealized gains
or losses are treated as though they were realized.
The transactions in options, futures and forward contracts
undertaken by the Fund may result in "straddles" for Federal income
tax purposes. The straddle rules may affect the character of gains
or losses realized by the Fund. In addition, losses realized by
the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such
losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the consequences of
such transactions to the Fund are not entirely clear. The straddle
rules may increase the amount of short-term capital gain realized by
the Fund, which is taxed as ordinary income when distributed to
shareholders.
The Fund may make one or more of the elections available
under the Code which are applicable to straddles. If the Fund makes
any of the elections, the amount, character and timing of the
recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or
losses from the affected straddle positions.
Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to shareholders as ordinary
income or long-term capital gain may be increased or decreased
substantially as compared to a fund that did not engage in such
transactions.
Notwithstanding any of the foregoing, the Fund may recognize
gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward
contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial
positions subject to this constructive sale treatment are interests
(including options, futures and forward contracts and short sales) in stock,
partnership interests, certain actively traded trust instruments
and certain debt instruments. Constructive sale treatment of
appreciated financial positions does not apply to certain
transactions closed in the 90-day period ending with the 30th day
after the close of the Fund's taxable year, if certain conditions
are met.
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.
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 a Fund held
the PFIC shares. The Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years and an interest factor will be added to the tax, as
if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC
shares are treated as excess distributions. Excess distributions
are characterized as ordinary income even though, absent application
of the PFIC rules, certain excess distributions might have been
classified as capital gain.
The Fund may be eligible to elect alternative tax treatment
with respect to PFIC shares. The Fund may elect to mark to
market its PFIC shares, resulting in the shares being treated as sold at
fair market value on the last business day of each taxable year.
Any resulting gain would be reported as ordinary income; any
resulting loss and any loss from an actual disposition of the shares
would be reported as ordinary loss to the extent of any net gains
reported in prior years. Under another election that currently is
available in some circumstances, the Fund generally would be
required to include in its gross income its share of the earnings of
a PFIC on a current basis, regardless of whether distributions are
received from the PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of more
than one year from the date of issuance) that may be acquired by the
Fund may be treated as debt securities that are issued originally at
a discount. Generally, the amount of the original issue discount
("OID") is treated as interest income and is included in income over
the term of the debt security, even though payment of that amount is
not received until a later time, usually when the debt security
matures.
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.
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 at the applicable mid-term or long-term capital gains rate,
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. Shareholders should be careful to
consider the tax implications of buying shares just prior to a
distribution. The price of shares purchased at this time may
reflect the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will receive a distribution
which generally will be taxable to them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a
shareholder will realize a taxable gain or loss depending upon his
or her basis in the shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the
shareholder's hands and, if so, may be eligible for reduced federal
tax rates, 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, except in the case of certain electing individual
taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income, a credit
for foreign taxes is subject to the limitation that it may not
exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the Fund makes
the election described in the preceding paragraph, the source of
the Fund's income flows through to its shareholders. With respect to
the Fund, gains from the sale of securities generally will be
treated as derived from U.S. sources and section 988 gains will be
treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to
foreign source passive income, including foreign source passive
income received from the Fund. In addition, the foreign tax credit
may offset only 90% of the revised alternative minimum tax imposed
on corporations and individuals. Furthermore, the foreign tax
credit is eliminated with respect to foreign taxes withheld on
dividends if the dividend-paying shares or the shares of the Fund
are held by the Fund or the shareholder, as the case may be, for
less than 16 days (46 days in the case of preferred shares) during
the 30-day period (90-day period for preferred shares) beginning 15
days (45 days for preferred shares) before the shares become ex-
dividend.
The foregoing is only a general description of the foreign
tax credit under current law. Because application of the credit
depends on the particular circumstances of each shareholder, shareholders
are advised to consult their own tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue
Service ("IRS") all taxable distributions as well as gross proceeds
from the redemption of the Fund's shares, except in the case of
certain exempt shareholders. All such distributions and proceeds
will be subject to withholding of Federal income tax at a rate of
31% ("backup withholding") in the case of non-exempt shareholders if
(1) the shareholder fails to furnish the Fund with and to certify
the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest
and dividend income to the IRS and to respond to notices to that
effect, or (3) when required to do so, the shareholder fails to
certify that he or she is not subject to backup withholding. If the
withholding provisions are applicable, any such distributions or
proceeds, whether reinvested in additional shares or taken in cash,
will be reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation. Non-U.S. shareholders may be subject to U.S. tax rules
that differ significantly from those summarized above. This
discussion does not purport to deal with all of the tax consequences
applicable to the Fund or shareholders. Shareholders are advised to
consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the Fund may be
compared, in reports and promotional literature, to: (i) the S&P
500 Index, the Dow Jones Industrial Average ("DJIA"), or other
unmanaged indices so that investors may compare the Fund's results
with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general;
(ii) other groups of mutual funds tracked by Lipper Analytical
Services, a widely used independent research firm that ranks mutual
funds by overall performance, investment objectives and assets, or
tracked by other services, companies, publications or other
criteria; and (iii) the Consumer Price Index (measure for inflation)
to assess the real rate of return from an investment in the Fund.
Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions or administrative and management
costs and expenses. Performance rankings are based on historical
information and are not intended to indicate future performance.
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, Class C 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 shares, Class C shares and Class I
shares) on the last day of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized
average annual total return ("Standardized Return") for a specific
class of shares of the Fund will be expressed in terms of the
average annual compounded rate of return that would cause a
hypothetical investment in that class of the Fund made on the first
day of a designated period to equal the ending redeemable value
("ERV") of such hypothetical investment on the last day of the
designated period, according to the following formula:
P(1 + T){superscript n} = ERV
Where: P = a hypothetical initial payment of $1,000 to
purchase shares of a specific class
T = the average annual total return of shares of
that class
n = the number of years
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
period.
For purposes of the above computation for the Fund, it is
assumed that all dividends and capital gains distributions made by
the Fund are reinvested at net asset value in additional Fund shares
during the designated period. Standardized Return quotations for
the Fund do not take into account any required payments for Federal
or state income taxes. Standardized Return quotations are determined
to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective
investors total return data that are not calculated according to the
formula set forth above ("Non-Standardized Return").
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.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The
foregoing computation methods are prescribed for advertising and
other communications subject to SEC Rule 482. Communications not
subject to this rule may contain a number of different measures of
performance, computation methods and assumptions, including but not
limited to: historical total returns; results of actual or
hypothetical investments; changes in dividends, distributions or
share values; or any graphic illustration of such data. These data
may cover any period of the Trust's existence and may or may not
include the impact of sales charges, taxes or other factors.
Performance quotations for the Fund will vary from time to time
depending on market conditions, the composition of the Fund's
portfolio and operating expenses of the Fund. These factors and
possible differences in the methods used in calculating performance
quotations should be considered when comparing performance
information regarding the Fund's shares with information published
for other investment companies and other investment vehicles.
Performance quotations should also be considered relative to changes
in the value of the Fund's shares and the risks associated with the
Fund's investment objectives and policies. At any time in the
future, performance quotations may be higher or lower than past
performance quotations and there can be no assurance that any
historical performance quotation will continue in the future.
The Fund may also cite endorsements or use for comparison their
performance rankings and listings reported in such newspapers or
business or consumer publications as, among others: AAII Journal,
Barron's, Boston Business Journal, Boston Globe, Boston Herald,
Business Week, Consumer's Digest, Consumer Guide Publications,
Changing Times, Financial Planning, Financial World, Forbes,
Fortune, Growth Fund Guide, Houston Post, Institutional Investor,
International Fund Monitor, Investor's Daily, Los Angeles Times,
Medical Economics, Miami Herald, Money Mutual Fund Forecaster,
Mutual Fund Letter, Mutual Fund Source Book, Mutual Fund Values,
National Underwriter, Nelson's Directory of Investment Managers, New
York Times, Newsweek, No Load Fund Investor, No Load Fund* X,
Oakland Tribune, Pension World, Pensions and Investment Age,
Personal Investor, Rugg and Steele, Time, U.S. News and World
Report, USA Today, The Wall Street Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities as of March 25,
1998 and the Notes thereto are attached hereto as Appendix B.
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 Investors
Service, New York, 1994), and "Standard & Poor's Municipal Ratings
Handbook," October 1997 Issue (McGraw Hill, New York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by
Moody's to be of the best quality, carrying the smallest degree of
investment risk. Interest payments are protected by a large or
exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Bonds rated Aa are judged by
Moody's to be of high quality by all standards. Aa bonds are rated
lower than Aaa bonds because margins of protection may not be as
large as those of Aaa bonds, or fluctuations of protective elements
may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than those
applicable to Aaa securities. Bonds which are rated A by Moody's
possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Bonds rated Baa by Moody's are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be
considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments of or
maintenance of other terms of the contract over any long period of
time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect
to principal or interest. Bonds which are rated Ca represent
obligations which are speculative in a high degree. Such issues are
often in default or have other marked shortcomings. Bonds which are
rated C are the lowest rated class of bonds and issues so rated can
be regarded as having extremely poor prospects of ever attaining any
real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest
commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following: (1)
evaluation of the management of the issuer; (2) economic evaluation
of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and
customer acceptance; (4) liquidity; (5) amount and quality of long-
term debt; (6) trend of earnings over a period of ten years; (7)
financial strength of a parent company and the relationships which
exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations.
Issuers within this Prime category may be given ratings 1, 2 or 3,
depending on the relative strengths of these factors. The
designation of Prime-1 indicates the highest quality repayment
capacity of the rated issue. Issuers rated Prime-2 are deemed to
have a strong ability for repayment while issuers voted Prime-3 are
deemed to have an acceptable ability for repayment. Issuers rated
Not Prime do not fall within any of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a
current assessment of the creditworthiness of an obligor with
respect to a specific obligation. The ratings are based on current
information furnished by the issuer or obtained by S&P from other
sources it considers reliable. The ratings described below may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Debt rated AA is judged by S&P to have a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree. Debt rated A by S&P has a strong
capacity to pay interest and repay principal, although it is
somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated
categories.
Debt rated BBB by S&P is regarded by S&P as having an adequate
capacity to pay interest and repay principal. Although such bonds
normally exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal than debt in
higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed by
large uncertainties or exposures to adverse conditions. Debt rated
BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BBB- rating. Debt rated B has a greater vulnerability to default
but currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BB or BB- rating. Debt rated CCC has a currently
identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, it is not
likely to have the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating. The
rating CC typically is applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating. The rating
C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
The rating CI is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating
category is used when interest payments or principal payments are
not made on the date due, even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a
current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market.
The commercial paper rating A-1 by S&P indicates that the
degree of safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety characteristics are
denoted with a plus sign (+) designation. For commercial paper with
an A-2 rating, the capacity for timely payment on issues is
satisfactory, but not as high as for issues designated A-1. Issues
rated A-3 have adequate capacity for timely payment, but are more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying higher designations.
Issues rated B are regarded as having only speculative capacity
for timely payment. The C rating is assigned to short-term debt
obligations with a doubtful capacity for payment. Debt rated D is
in payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes
such payments will be made during such grace period.
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 25, 1998
AND REPORT OF INDEPENDENT ACCOUNTANTS
IVY HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 25, 1998
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . $ 50
Deferred organization expenses . . . . . . . 64,772
Prepaid blue sky fees. . . . . . . . . . . . 47,500
---------
Total Assets. . . . . . . . . . . . . . . 112,322
---------
LIABILITIES
Due to affiliate . . . . . . . . . . . . . . 112,272
---------
NET ASSETS . . . . . . . . . . . . . . . . . . $ 50
========
CLASS A:
Net asset value and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
Maximum offering price
per share
($10.00 x 100 / 95.25)* . . . . . . . . . $ 10.61
=========
CLASS B:
Net asset value and
offering price per share
($10 / 1 share outstanding)** . . . . . . $ 10.00
=========
CLASS C:
Net asset value and
offering price per share
($10 / 1 share outstanding)***. . . . . . $ 10.00
=========
CLASS I:
Net asset value, offering and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
ADVISOR CLASS:
Net asset value, offering and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
<PAGE>
NET ASSETS CONSISTS OF:
Capital paid-in. . . . . . . . . . . . . . . $ 50
=========
* On sales of more than $100,000 the offering price is reduced.
** Redemption price per share is equal to the net asset value
per share less any applicable contingent deferred sales
charge, up to a maximum of 5%.
*** Redemption price per share is equal to the net asset value per
share less any applicable contingent deferred sales charge, up
to a maximum of 1%.
(See Notes to Financial Statement)
<PAGE>
IVY HIGH YIELD FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 25, 1998
1. ORGANIZATION: Ivy High Yield Fund is a diversified series of
shares of Ivy Fund. The shares of beneficial interest are
assigned no par value and an unlimited number of shares of Class A, Class
B, Class C, Class I and Advisor Class are authorized. Ivy Fund was
organized as a Massachusetts business trust under a Declaration of
Trust dated December 21, 1983 and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
The Fund will commence operations on April 6, 1998. As of the date
of this report, operations have been limited to organizational
matters and the issuance of initial shares to Mackenzie Investment
Management Inc. (MIMI).
2. ORGANIZATION COSTS AND PREPAID BLUE SKY FEES: Organization
expenses are being amortized over a five year period from April 6,
1998, the commencement date of operations. Blue sky fees are being
amortized over a one year period from April 6, 1998. Such
organizational expenses and blue sky fees have been paid by MIMI and
will be reimbursed by the Fund.
3. TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a
wholly owned subsidiary of MIMI, is the Manager and Investment
Adviser of the Fund. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage
commissions, interest, litigation and indemnification expenses, and
any other extraordinary expenses) to an annual rate of .85% of its
average net assets.
MIMI provides certain administrative, accounting and pricing
services for the Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary
of MIMI, is the underwriter and distributor of the Fund's shares,
and as such, purchases shares from the Fund at net asset value to
settle orders from investment dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of
MIMI, is the transfer and shareholder servicing agent for the Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI,
IMDI and IMSC. Such individuals are not compensated by the Fund for
services in their capacity as officers of Ivy Fund. Trustees of Ivy
Fund who are not affiliated with MIMI or IMI receive compensation
from the Fund.
<PAGE>
[Coopers & Lybrand letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Ivy High Yield Fund (the "Fund"):
We have audited the accompanying Statement of Assets and
Liabilities of the Fund as of March 25, 1998. This financial statement is
the responsibility of the Fund's management. Our responsibility is
to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the Statement of Assets and Liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement
of Assets and Liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
Statement of Assets and Liabilities. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial position of the
Fund as of March 25, 1998, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 25, 1998
<PAGE>
IVY HIGH YIELD FUND
series of
IVY FUND
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
STATEMENT OF ADDITIONAL INFORMATION
ADVISOR CLASS SHARES
April 6, 1998
_________________________________________________________________
Ivy Fund (the "Trust") is an open-end management investment
company that currently consists of eighteen fully managed
portfolios, each of which (except for Ivy South America Fund) is
diversified. This Statement of Additional Information ("SAI")
relates to the Advisor Class shares of Ivy High Yield Fund (the
"Fund"). The other seventeen portfolios of the Trust are
described in separate prospectuses and statements of additional
information.
This SAI is not a prospectus and should be read in
conjunction with the prospectus for the Fund dated April 6, 1998
(the "Prospectus"), which may be obtained upon request and
without charge from the Trust at the Distributor's address and
telephone number listed below. Advisor Class shares are only
offered to certain investors (see the Prospectus). The Fund also
offers Class A, Class B, Class C and Class I shares, which are
described in a separate prospectus and statement of additional
information that may be obtained from the Distributor.
INVESTMENT MANAGER
Ivy Management, Inc. ("IMI")
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 777-6472
DISTRIBUTOR
Ivy Mackenzie Distributors, Inc.
Via Mizner Financial Plaza, Suite 300
700 South Federal Highway
Boca Raton, Florida 33432
Telephone: (800) 456-5111
TABLE OF CONTENTS
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . 4
DEVELOPMENT OF THE HIGH YIELD BOND MARKET . . . . . . . . 4
HIGH YIELD BONDS-PORTFOLIO DIVERSIFICATION. . . . . . . . 4
HIGH YIELD/HIGH RISK SECURITIES . . . . . . . . . . . . . 5
U.S. GOVERNMENT SECURITIES. . . . . . . . . . . . . . . . 6
COMMERCIAL PAPER. . . . . . . . . . . . . . . . . . . . . 7
CONVERTIBLE SECURITIES. . . . . . . . . . . . . . . . . . 8
REPURCHASE AGREEMENTS . . . . . . . . . . . . . . . . . . 9
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS . . . . 9
FOREIGN SECURITIES. . . . . . . . . . . . . . . . . . . . 10
FOREIGN CURRENCIES. . . . . . . . . . . . . . . . . . . . 11
FORWARD FOREIGN CURRENCY CONTRACTS. . . . . . . . . . . . 12
DEBT SECURITIES, IN GENERAL . . . . . . . . . . . . . . . 13
INTERNATIONAL BOND MARKETS. . . . . . . . . . . . . . . . 13
SMALL COMPANIES . . . . . . . . . . . . . . . . . . . . . 13
WHEN-ISSUED PURCHASES AND FIRM COMMITMENT AGREEMENTS. . . 14
ZERO COUPON BONDS . . . . . . . . . . . . . . . . . . . . 15
ILLIQUID SECURITIES . . . . . . . . . . . . . . . . . . . 15
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. . . . 16
GENERAL. . . . . . . . . . . . . . . . . . . . . . . 16
INTEREST RATE FUTURES CONTRACTS. . . . . . . . . . . 18
OPTIONS ON INTEREST RATE FUTURES CONTRACTS . . . . . 19
FOREIGN CURRENCY FUTURES CONTRACTS AND RELATED
OPTIONS . . . . . . . . . . . . . . . . . . . . 19
RISKS ASSOCIATED WITH FUTURES AND RELATED OPTIONS. . 20
COMBINED TRANSACTIONS . . . . . . . . . . . . . 21
BORROWING . . . . . . . . . . . . . . . . . . . . . . . . 22
INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 22
ADDITIONAL RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 24
ADDITIONAL RIGHTS AND PRIVILEGES . . . . . . . . . . . . . . . 25
AUTOMATIC INVESTMENT METHOD . . . . . . . . . . . . . . . 25
EXCHANGE OF SHARES. . . . . . . . . . . . . . . . . . . . 26
RETIREMENT PLANS. . . . . . . . . . . . . . . . . . . . . 27
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . 27
QUALIFIED PLANS. . . . . . . . . . . . . . . . . . . 29
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND
CHARITABLE ORGANIZATIONS ("403(B)(7)
ACCOUNT") . . . . . . . . . . . . . . . . . . . 30
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS . . . . . . 30
SIMPLE PLANS . . . . . . . . . . . . . . . . . . . . 30
SYSTEMATIC WITHDRAWAL PLAN. . . . . . . . . . . . . . . . 31
GROUP SYSTEMATIC INVESTMENT PROGRAM . . . . . . . . . . . 31
BROKERAGE ALLOCATION . . . . . . . . . . . . . . . . . . . . . 32
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . 34
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI. . . . . . . . . 38
COMPENSATION TABLE . . . . . . . . . . . . . . . . . . . . . . 39
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . 41
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES. . . 41
DISTRIBUTION SERVICES . . . . . . . . . . . . . . . . . . 43
RULE 18F-3 PLAN. . . . . . . . . . . . . . . . . . . 44
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . 44
FUND ACCOUNTING SERVICES. . . . . . . . . . . . . . . . . 45
TRANSFER AGENT AND DIVIDEND PAYING AGENT. . . . . . . . . 45
ADMINISTRATOR . . . . . . . . . . . . . . . . . . . . . . 45
AUDITORS. . . . . . . . . . . . . . . . . . . . . . . . . 46
CAPITALIZATION AND VOTING RIGHTS . . . . . . . . . . . . . . . 46
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . 48
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . 50
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 50
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD
CONTRACTS. . . . . . . . . . . . . . . . . . . . . . 53
CURRENCY FLUCTUATIONS -- "SECTION 988" GAINS OR
LOSSES . . . . . . . . . . . . . . . . . . . . . . . 54
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. . . . 55
DEBT SECURITIES ACQUIRED AT A DISCOUNT. . . . . . . . . . 55
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . 56
DISPOSITION OF SHARES . . . . . . . . . . . . . . . . . . 57
FOREIGN WITHHOLDING TAXES . . . . . . . . . . . . . . . . 58
BACKUP WITHHOLDING. . . . . . . . . . . . . . . . . . . . 59
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . 59
YIELD. . . . . . . . . . . . . . . . . . . . . . . . 60
AVERAGE ANNUAL TOTAL RETURN. . . . . . . . . . . . . 61
CUMULATIVE TOTAL RETURN. . . . . . . . . . . . . . . 61
OTHER QUOTATIONS, COMPARISONS AND GENERAL
INFORMATION . . . . . . . . . . . . . . . . . . 62
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 62
APPENDIX A
DESCRIPTION OF STANDARD & POOR'S CORPORATION ("S&P")
AND MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
CORPORATE BOND AND COMMERCIAL PAPER RATINGS . . . . . . . 63
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES AS OF MARCH 25,
1998 AND REPORT OF INDEPENDENT ACCOUNTANTS. . . . . . . . 63
INVESTMENT OBJECTIVES AND POLICIES
The Fund has its own investment objectives and policies,
which are described in the Prospectus under the captions
"Investment Objectives and Policies" and "Risk Factors and
Investment Techniques." Additional information regarding the
characteristics and risks associated with the Fund's investment
techniques is set forth below.
DEVELOPMENT OF THE HIGH YIELD BOND MARKET
Over the course of this decade, the market for higher
yielding domestic debt securities has changed dramatically. U.S.
high yield bonds now total over $350 billion, about a quarter of
the entire U.S. corporate bond market.
In the early 1970s high yield bonds emerged as a way for new
companies, companies with troubled credit histories, or any
company without access to more traditional financing to raise
capital. The category grew and changed from a small, illiquid
market for special circumstances, to a larger, more liquid market
offering an alternative way to raise capital to companies of
every size and structure.
As the economy strengthened throughout the 1980s, some
companies began to replace more and more of the equity in their
capital structure with high yield debt. In the late 1980s, many
companies had little equity supporting the outstanding debt.
Those who had anticipated continuing growth and increasing cash
flows to contribute to debt service found that as the economy
slowed, they were unable to pay their creditors. This led to
defaults and the high yield bond market nearly collapsed under
the weight of several factors including a recession, the
bankruptcy of a major high yield bond underwriter, and the forced
withdrawal of thrifts from this market.
Expanding companies are now turning to the high yield bond
market for financing real growth. The average quality of the
overall high yield bond category has improved. There are many
opportunities to buy the debt of growing companies or companies
that may not yet have the track record necessary to utilize more
traditional sources of financing. The conditions of these
borrowing companies can improve over time, and as the quality of
the debt improves, the prospect for price appreciation adds to
the return from income.
HIGH YIELD BONDS-PORTFOLIO DIVERSIFICATION
The benefits of investing in high yield debt securities
include the potential for superior yields and also portfolio
diversification which may result in enhanced total returns with
the potential for reduced overall portfolio risk.
High yield bonds show a relatively low correlation with both
stocks and investment-grade bonds. Due to this low correlation,
high yield bonds offer diversification benefits to both equity
and income portfolios.
HIGH YIELD/HIGH RISK SECURITIES
The Fund invests in debt securities rated Ba or lower by
Moody's Investors Service, Inc. ("Moody's") or BB or lower by
Standard & Poor's Corporation ("S&P") and comparable unrated
securities. 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. Below investment-grade securities (rated Ba
or below by Moody's and BB or below by S&P) or unrated securities
of equivalent quality in which the Fund may invest carry a high
degree of risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve
greater volatility of price and risk of principal and income, and
may be less liquid, than securities in the higher rating
categories and are considered speculative. (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 objectives may, to the extent of
its investment in low-rated debt securities, be more dependent
upon IMI's credit analysis than would be the case if the Fund was
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.
Economic downturns may disrupt the high yield market and
impair the ability of issuers to repay principal and interest.
Also, an increase in interest rates would likely have an adverse
impact on the value of such obligations. During an economic
downturn or period of rising interest rates, highly leveraged
issuers may experience financial stress which could adversely
affect their ability to service their principal and interest
payment obligations. Prices and yields of high yield securities
will fluctuate over time and, during periods of economic
uncertainty, volatility of high yield securities may adversely
affect the Fund's net asset value. In addition, investments in
high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and
may be subject to greater fluctuations in value due to changes in
interest rates.
The trading market for high yield securities may be thin to
the extent that there is no established retail secondary market
or because of a decline in the value of such securities. A thin
trading market may limit the ability of the Fund to accurately
value high yield securities in the Fund's portfolio, could
adversely affect the price at which the Fund could sell such
securities, and cause large fluctuations in the daily net asset
value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may
decrease the value and liquidity of low-rated debt securities,
especially in a thinly traded market. When secondary markets for
high yield securities become relatively less liquid, it may be
more difficult to value the securities, requiring additional
research and elements of judgment. These securities may also
involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties.
Credit quality in the high yield securities market can
change suddenly and unexpectedly, and even recently issued credit
ratings may not fully reflect the actual risks posed by a
particular high-yield security. For these reasons, it is the
policy of IMI not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such
ratings with its own independent and on-going review of credit
quality. The achievement of the Fund's investment objectives by
investment in such securities may be more dependent on IMI's
credit analysis than is the case for higher quality bonds.
Should the rating of a portfolio security be downgraded, IMI will
determine whether it is in the best interest of the Fund to
retain or dispose of such security.
Prices for high yield securities may be affected by
legislative and regulatory developments. For example, federal
rules require savings and loan institutions to gradually reduce
their holdings of this type of security. Also, Congress has from
time to time considered legislation which would restrict or
eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such
legislation may significantly depress the prices of outstanding
securities of this type.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities.
Securities guaranteed by the U.S. Government include: (1) direct
obligations of the U.S. Treasury (such as Treasury bills, notes,
and bonds) and (2) Federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA
certificates, which are mortgage-backed securities). When such
securities are held to maturity, the payment of principal and
interest is unconditionally guaranteed by the U.S. Government,
and thus they are of the highest possible credit quality. U.S.
Government securities that are not held to maturity are subject
to variations in market value due to fluctuations in interest
rates.
Mortgage-backed securities are securities representing part
ownership of a pool of mortgage loans. For example, GNMA
certificates are such securities in which the timely payment of
principal and interest is guaranteed by the full faith and credit
of the U.S. Government. Although the mortgage loans in the pool
will have maturities of up to 30 years, the actual average life
of the loans typically will be substantially less because the
mortgages will be subject to principal amortization and may be
prepaid prior to maturity. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of
falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the security.
Conversely, rising interest rates tend to decrease the rate of
prepayments, thereby lengthening the actual average life of the
security (and increasing the security's price volatility).
Accordingly, it is not possible to predict accurately the average
life of a particular pool. Reinvestment of prepayment may occur
at higher or lower rates than the original yield on the
certificates. Due to the prepayment feature and the need to
reinvest prepayments of principal at current rates, mortgage-
backed securities can be less effective than typical bonds of
similar maturities at "locking in" yields during periods of
declining interest rates. Such securities may appreciate or
decline in market value during periods of declining or rising
interest rates, respectively.
Securities issued by U.S. Government instrumentalities and
certain federal agencies are neither direct obligations of nor
guaranteed by the U.S. Treasury; however, they involve Federal
sponsorship in one way or another. Some are backed by specific
types of collateral, some are supported by the issuer's right to
borrow from the Treasury, some are supported by the discretionary
authority of the Treasury to purchase certain obligations of the
issuer, others are supported only by the credit of the issuing
government agency or instrumentality. These agencies and
instrumentalities include, but are not limited to, Federal Land
Banks, Farmers Home Administration, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Federal Home
Loan Banks, Federal National Mortgage Association, Federal Home
Loan Mortgage Association, and Student Loan Marketing
Association.
COMMERCIAL PAPER
Commercial paper represents short-term unsecured promissory
notes issued in bearer form by bank holding companies,
corporations and finance companies. The Fund's investments are
not limited to a particular Moody's or S&P rating category. The
lower an issuer's rating, however, the greater the perceived risk
of its inability for repayment. An issuer's rating depends on
its ability to repay its short-term obligations as measured by
factors such as market position, capitalization characteristics,
earnings and profitability levels, and access to sources of
alternate liquidity.
CONVERTIBLE SECURITIES
Because convertible securities can be converted into equity
securities, their values will normally vary in some proportion
with those of the underlying equity securities. Convertible
securities usually provide a higher yield than the underlying
equity, however, so that the price decline of a convertible
security may sometimes be less substantial than that of the
underlying equity security.
The Fund may invest in convertible securities, such as
corporate bonds, notes, debentures and other securities that may
be converted into common stock. Investments in convertible
securities can provide income through interest and dividend
payments as well as an opportunity for capital appreciation by
virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest
include dividend-paying preferred stock that may be converted or
exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any
particular convertible security may be adjusted from time to time
due to stock splits, dividends, spin-offs, other corporate
distributions or scheduled changes in the exchange ratio.
Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both
debt and equity securities. Although to a lesser extent than
with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and,
conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the
market value of convertible securities typically changes as the
market value of the underlying common stock changes, and,
therefore, also tends to follow movements in the general market
for equity securities. When the market price of the underlying
common stock increases, the price of a convertible security tends
to rise as a reflection of the value of the underlying common
stock, although typically not as much as the price of the
underlying common stock. While no securities investments are
without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same
issuer.
As debt securities, convertible securities are investments
which provide for a stream of income. Of course, like all debt
securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may
default on their obligations. Convertible securities generally
offer lower yields than non-convertible securities of similar
quality because of their conversion or exchange features.
Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer,
although convertible bonds, as corporate debt obligations, are
senior in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the
same issuer. However, convertible bonds and convertible
preferred stock typically have lower coupon rates than similar
non-convertible securities. Convertible securities may be issued
as fixed income obligations that pay current income.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the Fund
buys a money market instrument and obtains a simultaneous
commitment from the seller to repurchase the instrument at a
specified time and at an agreed-upon yield. Under guidelines
approved by the Board, the Fund is permitted to enter into
repurchase agreements only if the repurchase agreements are at
least fully collateralized with U.S. Government securities or
other securities that IMI has approved for use as collateral for
repurchase agreements and the collateral must be marked-to-market
daily. The Fund will enter into repurchase agreements only with
banks and broker-dealers deemed to be creditworthy by IMI under
the above-referenced guidelines. In the unlikely event of
failure of the executing bank or broker-dealer, the Fund could
experience some delay in obtaining direct ownership of the
underlying collateral and might incur a loss if the value of the
security should decline, as well as costs in disposing of the
security.
BANKING INDUSTRY AND SAVINGS AND LOAN OBLIGATIONS
Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank (meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument at
maturity). In addition to investing in certificates of deposit
and bankers' acceptances, the Fund may invest in time deposits in
banks or savings and loan associations. Time deposits are
generally similar to certificates of deposit, but are
uncertificated. The Fund's investments in certificates of
deposit, time deposits, and bankers' 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 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. The Fund's investments in
certificates of deposit of savings associations are limited to
obligations of Federal and state-chartered institutions whose
total assets exceed $1 billion and whose deposits are insured by
the FDIC.
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, which are not
typically associated with investing in United States securities
and which may affect the Fund's performance favorably or
unfavorably.
The risks of investing in foreign securities are likely to
be intensified in the case of investments in issuers domiciled or
doing substantial business in countries with emerging or
developing economies ("emerging markets"). For example,
countries with emerging markets may have relatively unstable
governments and therefore be susceptible to sudden adverse
government action (such as nationalization of businesses,
restrictions on foreign ownership or prohibitions against
repatriation of assets). Security prices in emerging markets can
also be significantly more volatile than in the more developed
nations of the world, and communications between the U.S. and
emerging market countries may be unreliable, increasing the risk
of delayed settlements of portfolio transactions or loss of
certificates for portfolio securities. Delayed settlements could
cause the Fund to miss attractive investment opportunities or
impair its ability to dispose of portfolio securities, resulting
in a loss if the value of the securities subsequently declines.
In addition, many emerging markets have experienced and continue
to experience especially high rates of inflation. In certain
countries, inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate
environment and sharply eroding the value of outstanding
financial assets in those countries.
In recent years, many emerging market countries around the
world have undergone political changes that have reduced
government's role in economic and personal affairs and have
stimulated investment and growth. In order for these emerging
economies to continue to expand and develop industry,
infrastructure and currency reserves, continued influx of capital
is essential. Historically, there is a strong direct correlation
between economic growth and stock market returns. While this is
no guarantee of future performance, IMI believes that investment
opportunities (particularly in the energy, environmental
services, natural resources, basic materials, power,
telecommunications and transportation industries) may result
within the evolving economies of emerging market countries from
which the Fund and its shareholders will benefit. IMI believes
that similar investment opportunities will be created for
companies involved in providing consumer goods and services
(e.g., food, beverages, autos, housing, tourism and leisure and
merchandising).
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 the 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.
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 or liquid 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.
DEBT SECURITIES, IN GENERAL
Investment in debt securities involves both interest rate
and credit risk. Generally, the value of debt instruments rises
and falls inversely with fluctuations in interest rates. As
interest rates decline, the value of debt securities generally
increases. Conversely, rising interest rates tend to cause the
value of debt securities to decrease. Bonds with longer
maturities generally are more volatile than bonds with shorter
maturities. The market value of debt securities also varies
according to the relative financial condition of the issuer. In
general, lower-quality bonds offer higher yields due to the
increased risk that the issuer will be unable to meet its
obligations on interest or principal payments at the time called
for by the debt instrument.
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.
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. 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.
SMALL COMPANIES
Investing in smaller company stocks involves certain special
considerations and risks that are not usually associated with
investing in larger, more established companies. For example,
the securities of small or new companies may be subject to more
abrupt or erratic market movements because they tend to be thinly
traded and are subject to a greater degree to changes in the
issuer's earnings and prospects. Small companies also tend to
have limited product lines, markets or financial resources.
Transaction costs associated with trading in smaller company
stocks may be higher than those of larger companies.
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 or liquid 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 or liquid securities of an
aggregate value sufficient to make payment for the securities.
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.
ILLIQUID SECURITIES
The Fund may purchase securities other than in the open
market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open
market, the securities so purchased are often "restricted
securities" or "not readily marketable," i.e., securities which
cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the
availability of an exemption from registration (such as Rule
144A) or because they are subject to other legal or contractual
delays in or restrictions on resale. This investment practice,
therefore, could have the effect of increasing the level of
illiquidity of the Fund. It is the Fund's policy that illiquid
securities (including repurchase agreements of more than seven
days duration, certain restricted securities, and other
securities which are not readily marketable) may not constitute,
at the time of purchase, more than 15% of the value of the Fund's
net assets. The Trust's Board of Trustees has approved
guidelines for use by IMI in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i)
only to qualified institutional buyers; (ii) in a privately
negotiated transaction to a limited number of purchasers; (iii)
in limited quantities after they have been held for a specified
period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for
which a registration statement is in effect under the 1933 Act.
Issuers of restricted securities may not be subject to the
disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. If
adverse market conditions were to develop during the period
between the Fund's decision to sell a restricted or illiquid
security and the point at which the Fund is permitted or able to
sell such security, the Fund might obtain a price less favorable
than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted
securities, the Fund may be required to bear all or part of the
registration expenses. The Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund
may be liable to purchasers of such securities if the
registration statement prepared by the issuer is materially
inaccurate or misleading.
Since it is not possible to predict with assurance that the
market for securities eligible for resale under Rule 144A will
continue to be liquid, IMI will monitor such restricted
securities subject to the supervision of the Board of Trustees.
Among the factors IMI may consider in reaching liquidity
decisions relating to Rule 144A securities are: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the market for the security (i.e., the time
needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer).
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
GENERAL. The Fund may enter into futures contracts and
options on futures contracts for hedging purposes. A futures
contract provides for the future sale by one party and purchase
by another party of a specified quantity of a commodity at a
specified price and time. When a purchase or sale of a futures
contract is made by the Fund, the Fund is required to deposit
with its Custodian (or broker, if legally permitted) a specified
amount of cash or 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 in a segregated account (and mark-to-market on a
daily basis) cash or liquid securities that, when added to the
amounts deposited with an FCM as margin, are equal to the market
value of the instruments underlying the contract. Alternatively,
the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures
contract, a portfolio with a volatility substantially similar to
that of the index on which the futures contract is based), or by
holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the
contract written by that Fund (or at a higher price if the
difference is maintained in liquid assets with the Fund's
Custodian).
When selling a call option on a futures contract, the Fund
will maintain with its Custodian in a segregated account (and
mark-to-market on a daily basis) cash or liquid securities that,
when added to the amounts deposited with an FCM as margin, equal
the total market value of the futures contract underlying the
call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by
owning the instruments underlying the futures contract, or by
holding a separate call option permitting the Fund to purchase
the same futures contract at a price not higher than the strike
price of the call option sold by that 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 the Fund's ability to act upon
economic events occurring in foreign markets during non-business
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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 the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its
component transactions. Although combined transactions are
normally entered into based on IMI's judgment that the combined
strategies will reduce risk or otherwise more effectively achieve
the desired portfolio management goal, it is possible that the
combination will instead increase such risks or hinder
achievement of the management objective.
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."
BORROWING
Borrowing may exaggerate the effect on the Fund's net asset
value of any increase or decrease in the value of the Fund's
portfolio securities. Money borrowed will be subject to interest
costs (which may include commitment fees and/or the cost of
maintaining minimum average balances). Although the principal of
the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus
increasing exposure to capital risk. All borrowings will be
repaid before any additional investments are made.
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 the 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 the Fund's portfolio securities in
accordance with applicable guidelines established by
the SEC and any guidelines established by the Trust's
Trustees, or (c) the entry into repurchase agreements
with banks or broker-dealers;
(vi) Borrow amounts in excess of 20% 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 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, except to the
extent that, in connection with the sale of
securities, it may be deemed to be an underwriter
under applicable securities laws;
(x) Make short sales of securities or maintain a short
position;
(xi) 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
(xii) 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.
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) invest more than 15% 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 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 or to other factors, is liquid;
or
(iv) 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, as amended (the "1940 Act") and
rules thereunder.
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 and (except as noted below) bears the cost
of providing to investors the following rights and privileges.
The Trust reserves the right to amend or terminate any one or
more of these rights and privileges. Notice of amendments to or
terminations of rights and privileges will be provided to
shareholders in accordance with applicable law.
Certain of the rights and privileges described below refer
to funds, other than the Fund, whose shares are also distributed
by Ivy Mackenzie Distributors, Inc. ("IMDI"). These funds are:
Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy US Emerging Growth Fund, Ivy Global Fund, Ivy
Global Natural Resources Fund, Ivy Global Science & Technology
Fund, Ivy Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Fund II, Ivy International
Small Companies Fund, Ivy South America Fund, Ivy Developing
Nations Fund, Ivy Pan-Europe Fund, and Ivy Money Market Fund (the
other seventeen series of the Trust). Shareholders should obtain
a current prospectus before exercising any right or privilege
that may relate to these funds.
AUTOMATIC INVESTMENT METHOD
The Automatic Investment Method, which enables a Fund
shareholder to have specified amounts automatically drawn each
month from his or her bank for investment in Fund shares, is
available for all classes of shares, except Class I. The minimum
initial and subsequent investment under this method is $250 per
month (except in the case of a tax qualified retirement plan for
which the minimum initial and subsequent investment is $25 per
month). A shareholder may terminate the Automatic Investment
Method at any time upon delivery to Ivy Mackenzie Services Corp.
("IMSC") of telephone instructions or written notice from the
shareholder. See "Automatic Investment Method" in the
Prospectus. To begin the plan, complete Sections 6A and 7B of
the Account Application.
EXCHANGE OF SHARES
As described in the Prospectus, Advisor Class shareholders
of the Fund have an exchange privilege with certain other Ivy
funds (except Ivy International Fund). Before effecting an
exchange, shareholders should obtain and read the currently
effective prospectus for the Ivy fund into which the exchange is
to be made.
Advisor Class shareholders may exchange their outstanding
Advisor Class shares for Advisor Class shares of another Ivy fund
on the basis of the relative net asset value per Advisor Class
share. The minimum amount of Advisor Class shares that may be
exchanged into an Ivy fund in which shares are not already held
is $10,000. No exchange out of the Fund (other than by a
complete exchange of all Fund shares) may be made if it would
reduce the shareholder's interest in the Advisor Class shares of
the Fund to less than $10,000. 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 Ivy Fund next computed
following receipt by IMSC of telephone instructions by IMSC or a
properly executed request. Exchanges, whether written or
telephonic, must be received by IMSC by the close of regular
trading on the New York Stock Exchange, Inc. (the "Exchange")
(normally 4:00 p.m., eastern time) to receive the price computed
on the day of receipt. Exchange requests received after that
time will receive the price next determined following receipt of
the request. The exchange privilege may be modified or
terminated at any time, upon at least 60 days' notice to the
extent required by applicable law. See "Redemptions."
An exchange of shares between any of the Ivy funds will
result in a taxable gain or loss. Generally, this will be a
capital gain or loss (long-term or short-term, depending on the
holding period of the shares) in the amount of the difference
between the net asset value of the shares surrendered and the
shareholder's tax basis for those shares. However, in certain
circumstances, shareholders will be ineligible to take sales
charges into account in computing taxable gain or loss on an
exchange. See "Taxation."
With limited exceptions, gain realized by a tax-deferred
retirement plan will not be taxable to the plan and will not be
taxed to the participant until distribution. Each investor
should consult his or her tax adviser regarding the tax
consequences of an exchange transaction.
RETIREMENT PLANS
Shares may be purchased in connection with several types of
tax-deferred retirement plans. Shares of more than one fund
distributed by IMDI may be purchased in a single application
establishing a single plan account, and shares held in such an
account may be exchanged among the funds of Ivy Fund 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 Ivy Fund, 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 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 IMSC, who may impose a
charge for establishing the account. Individuals should consult
their tax advisers before investing IRA assets in an Ivy 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. For years after 1996, the result is similar even if
one spouse has no earned income; if the joint earned income of
the spouses is at least $4,000, a contribution of up to $2,000
may be made to each spouse's IRA. For years before 1997,
however, if one spouse has (or elects to be treated as having) no
earned income for IRA purposes for a year, 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 governmental 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 who are active
participants 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, or, for years
after 1996, amounts withdrawn and used to pay for deductible
medical expenses and amounts withdrawn by certain unemployed
individuals not in excess of amounts paid for certain health
insurance premiums. 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 (other than 1997, 1998 or 1999)
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 of Ivy Fund
through a qualified retirement plan, a Custodial Agreement and a
Retirement Plan are available from IMSC. The Retirement Plan may
be adopted as a profit sharing plan or a money purchase pension
plan. A profit sharing plan permits an annual contribution to be
made in an amount determined each year by the self-employed
individual within certain limits prescribed by law. A money
purchase pension plan requires annual contributions at the level
specified in the Custodial Agreement. There is no set-up fee for
qualified plans and the annual maintenance fee is $20.00 per
account.
In general, if a self-employed individual has any common law
employees, employees who have met certain minimum age and service
requirements must be covered by the Retirement Plan. A self-
employed individual generally must contribute the same percentage
of income for common law employees as for himself or herself.
A self-employed individual may contribute up to the lesser
of $30,000 or 25% of compensation or earned income to a money
purchase pension plan or to a combination profit sharing and
money purchase pension plan arrangement each year on behalf of
each participant. To be deductible, total contributions to a
profit sharing plan generally may not exceed 15% of the total
compensation or earned income of all participants in the plan,
and total contributions to a combination money purchase-profit
sharing arrangement generally may not exceed 25% of the total
compensation or earned income of all participants. The amount of
compensation or earned income of any one participant that may be
included in computing the deduction is limited (generally to
$150,000 for benefits accruing in plan years beginning after
1993, with annual inflation adjustments). A self-employed
individual's contributions to a retirement plan on his or her own
behalf must be deducted in computing his or her earned income.
Corporate employers may also adopt the Custodial Agreement
and Retirement Plan for the benefit of their eligible employees.
Similar contribution and deduction rules apply to corporate
employers.
Distributions from the Retirement Plan generally are made
after a participant's separation from service. A 10% penalty tax
generally applies to distributions to an individual before he or
she reaches age 59-1/2, unless the individual (1) has reached age
55 and separated from service; (2) dies; (3) becomes disabled;
(4) uses the withdrawal to pay tax-deductible medical expenses;
(5) takes the withdrawal as part of a series of substantially
equal payments over his or her life expectancy or the joint life
expectancy of himself or herself and a designated beneficiary; or
(6) rolls over the distribution.
The Transfer Agent will arrange for Investors Bank & Trust
to furnish custodial services to the employer and any
participating employees.
DEFERRED COMPENSATION FOR PUBLIC SCHOOLS AND CHARITABLE
ORGANIZATIONS ("403(B)(7) ACCOUNT"): Section 403(b)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"), permits
public school systems and certain charitable organizations to use
mutual fund shares held in a custodial account to fund deferred
compensation arrangements with their employees. A custodial
account agreement is available for those employers whose
employees wish to purchase shares of the Trust in conjunction
with such an arrangement. The special application for a
403(b)(7) Account is available from IMSC.
Distributions from the 403(b)(7) Account may be made only
following death, disability, separation from service, attainment
of age 59-1/2, or incurring a financial hardship. A 10% penalty
tax generally applies to distributions to an individual before he
or she reaches age 59-1/2, unless the individual (1) has reached
age 55 and separated from service; (2) dies or becomes disabled;
(3) uses the withdrawal to pay tax-deductible medical expenses;
(4) takes the withdrawal as part of a series of substantially
equal payments over his or her life expectancy or the joint life
expectancy of himself or herself and a designated beneficiary; or
(5) rolls over the distribution. There is no set-up fee for
403(b)(7) Accounts and the annual maintenance fee is $20.00 per
account.
SIMPLIFIED EMPLOYEE PENSION ("SEP") IRAS: An employer may
deduct contributions to a SEP up to the lesser of $30,000 or 15%
of compensation. SEP accounts generally are subject to all rules
applicable to IRA accounts, except the deduction limits, and are
subject to certain employee participation requirements. No new
salary reduction SEPs ("SARSEPs") may be established after 1996,
but existing SARSEPs may continue to be maintained, and non-
salary reduction SEPs may continue to be established as well as
maintained after 1996.
SIMPLE PLANS: An employer may establish a SIMPLE IRA or a
SIMPLE 401(k) for years after 1996. An employee can make pre-tax
salary reduction contributions to a SIMPLE Plan, up to $6,000 a
year. Subject to certain limits, the employer will either match
a portion of employee contributions, or will make a contribution
equal to 2% of each employee's compensation without regard to the
amount the employee contributes. An employer cannot maintain a
SIMPLE Plan for its employees if any contributions or benefits
are credited to those employees under any other qualified
retirement plan maintained by the employer.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan (a
"Withdrawal Plan"), by telephone instructions or by delivery to
IMSC of a written election to have his or her shares withdrawn
periodically, accompanied by a surrender to IMSC of all share
certificates then outstanding in such shareholder's name,
properly endorsed by the shareholder. To be eligible to elect a
Withdrawal Plan, a shareholder must continually maintain an
account balance of at least $10,000 in his or her account. A
Withdrawal Plan may not be established if the investor is
currently participating in the Automatic Investment Method.
Additional investments made by investors participating in a
Withdrawal Plan must equal at least $250 each while the
Withdrawal Plan is in effect. A Withdrawal Plan may not be
established if the investor is currently participating in the
Automatic Investment Method. A Withdrawal Plan may involve the
depletion of a shareholder's principal, depending on the amount
withdrawn.
A redemption under a Withdrawal Plan is a taxable event.
Shareholders contemplating participating in a Withdrawal Plan
should consult their tax advisers.
An investor may terminate his or her participation in the
Withdrawal Plan at any time by delivering written notice to IMSC.
If all shares held by the investor are liquidated at any time,
participation in the Withdrawal Plan will terminate
automatically. The Trust or IMSC may terminate the Withdrawal
Plan option at any time after reasonable notice to shareholders.
GROUP SYSTEMATIC INVESTMENT PROGRAM
Shares may be purchased in connection with investment
programs established by employee or other groups using systematic
payroll deductions or other systematic payment arrangements. The
Trust does not itself organize, offer or administer any such
programs. However, it may, depending upon the size of the
program, waive the minimum initial and additional investment
requirements for purchases by individuals in conjunction with
programs organized and offered by others. Unless shares of the
Fund are purchased in conjunction with IRAs (see "How to Buy
Shares" in the Prospectus), such group systematic investment
programs are not entitled to special tax benefits under the Code.
The Trust reserves the right to refuse purchases at any time or
suspend the offering of shares in connection with group
systematic investment programs, and to restrict the offering of
shareholder privileges, such as check writing, simplified
redemptions and other optional privileges, as described in the
Prospectus, to shareholders using group systematic investment
programs.
With respect to each shareholder account established on or
after September 15, 1972 under a group systematic investment
program, the Trust and IMI each currently charge a maintenance
fee of $3.00 (or portion thereof) for each twelve-month period
(or portion thereof) that the account is maintained. The Trust
may collect such fee (and any fees due to IMI) through a
deduction from distributions to the shareholders involved or by
causing on the date the fee is assessed a redemption in each such
shareholder account sufficient to pay such fee. The Trust
reserves the right to change these fees from time to time without
advance notice.
BROKERAGE ALLOCATION
Subject to the overall supervision of the President and the
Board, 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 IMI believes that a 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 a particular Fund or the Trust. IMI may
consider sales of shares of Ivy funds as a factor in the
selection of broker-dealers and may select broker-dealers who
provide it with research services. IMI will not, however,
execute brokerage transactions other than at the best price and
execution.
As of the date of this SAI, the Fund had 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 accept
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
only accept securities delivered in proper form and will not
accept securities subject to legal restrictions on transfer. The
acceptance of securities by the Trust must comply with the
applicable laws of certain states.
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 Research
60 Concord Street Corp. (instruments and
Wilmington, MA 01887 controls); Director, Burr-
Age: 74 Brown Corp. (operational
amplifiers); Director,
Metritage Incorporated
(level measuring
instruments); Trustee of
Mackenzie Series Trust
(1992-1997).
Paul H. Broyhill Trustee Chairman, BMC Fund, Inc.
800 Hickory Blvd. (1983-present); Chairman,
Golfview Park-Box 500 Broyhill Family Foundation,
Lenoir, NC 28645 Inc. (1983-Present);
Age: 74 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 (1988-1997); Director
of The Mackenzie Funds Inc.
(1988-1995).
Stanley Channick Trustee President and Chief
11 Bala Avenue Executive Officer, The
Bala Cynwyd, PA 19004 Whitestone Corporation
Age: 75 (insurance agency);
Chairman, Scott Management
Company (administrative
services for insurance
companies); President, The
Channick Group (consultants
to insurance companies and
national trade
associations); Trustee of
Mackenzie Series Trust
(1994-1997); Director of
The Mackenzie Funds Inc.
(1994-1995).
Frank W. DeFriece, Jr. Trustee Director, Manager and Vice
The Landmark Centre President, Director and
113 Landmark Lane, Fund Manager, Massengill-
Suite B DeFriece Foundation
Bristol, TN 37620-2285 (charitable organization)
Age: 77 (1950-present); Trustee and
Vice Chairman, East
Tennessee Public
Communications Corp. (WSJK-
TV) (1984-present); Trustee
of Mackenzie Series Trust
(1985-1997); Director of
The Mackenzie Funds Inc.
(1987-1995).
Roy J. Glauber Trustee Mallinckrodt Professor of
Lyman Laboratory Physics, Harvard
of Physics University (1974-present);
Harvard University Trustee of Mackenzie Series
Cambridge, MA 02138 Trust (1994-1997).
Age: 72
Michael G. Landry Trustee President, Chief Executive
700 South Federal Hwy. and Officer and Director of
Suite 300 Chairman Mackenzie Investment
Raton, FL 33432 Management Inc. (1987-
Age: 51 present); President,
[*Deemed to be an Director and Chairman of
"interested person" Ivy Management Inc. (1992-
of the Trust, as present); Chairman and
defined under the Director of Ivy Mackenzie
1940 Act.] Services Corp.(1993-
present); Chairman and
Director of Ivy Mackenzie
Distributors, Inc. (1994-
present); Director and
President of Ivy Mackenzie
Distributors, Inc. (1993-
1994); Director and
President of The Mackenzie
Funds Inc. (1987-1995);
Trustee of Mackenzie Series
Trust (1987-1997);
President of Mackenzie
Series Trust (1987-1996);
Chairman of Mackenzie
Series Trust (1996-
present).
Joseph G. Rosenthal Trustee Chartered Accountant
110 Jardin Drive (1958-present); Trustee of
Unit #12 Mackenzie Series Trust
Concord, Ontario Canada (1985-1997); Director of
L4K 2T7 The Mackenzie Funds Inc.
Age: 63 (1987-1995).
Richard N. Silverman Trustee Director, Newton-Wellesley
18 Bonnybrook Road Hospital; Director, Beth
Waban, MA 02168 Israel Hospital; Director,
Age: 74 Boston Ballet; Director,
Boston Children's Museum;
Director, Brimmer and May
School.
J. Brendan Swan Trustee President, Airspray
4701 North Federal Hwy. International, Inc.;
Suite 465 Joint Managing Director,
Pompano Beach, FL 33064 Airspray International
Age: 67 B.V. (an environmentally
sensitive packaging
company); Director of
Polyglass LTD.; Director,
The Mackenzie Funds Inc.
(1992-1995); Trustee of
Mackenzie Series Trust
(1992-1997).
Keith J. Carlson Trustee Senior Vice President of
700 South Federal Hwy. and Mackenzie Investment
Suite 300 President Management, Inc. (1996
Boca Raton, FL 33432 -present); Senior Vice
Age: 41 President and Director of
[*Deemed to be an Mackenzie Investment
"interested person" Management, Inc. (1994
of the Trust, as -1996); Senior Vice
defined under the President and Treasurer of
1940 Act.] Mackenzie Investment
Management, Inc. (1989-
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);
Senior Vice President and
Director, Ivy Mackenzie
Services Corp. (1996-
present); President and
Director of Ivy Mackenzie
Services Corp. (1993-1996);
Trustee and President of
Mackenzie Series Trust
(1996-1997); Vice President
of Mackenzie Series Trust
(1994-1996); Treasurer of
Mackenzie Series Trust
(1985-1994); President,
Chief Executive Officer and
Director of Ivy Mackenzie
Distributors, Inc. (1994-
present); Executive Vice
President and Director of
Ivy Mackenzie Distributors,
Inc. (1993-1994).
C. William Ferris Secretary/ Senior Vice President,
700 South Federal Hwy. Treasurer Chief Financial Officer
Suite 300 and Secretary/Treasurer
Boca Raton, FL 33432 of Mackenzie Investment
Age: 53 Management Inc. (1995-
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); Vice President,
Finance/Administration and
Compliance Officer of Ivy
Management Inc. (1992-
1994); Senior Vice
President, Secretary/
Treasurer and Director of
Ivy Mackenzie Distributors,
Inc. (1994-present);
Secretary/Treasurer and
Director of Ivy Mackenzie
Distributors, Inc. (1993-
1994); President and
Director of Ivy Mackenzie
Services Corp. (1996-
present); Secretary/
Treasurer and Director of
Ivy Mackenzie Services
Corp. (1993-1996);
Secretary/Treasurer of The
Mackenzie Funds Inc. (1993-
1995); Secretary/Treasurer
of Mackenzie Series Trust
(1994-1997).
James W. Broadfoot Vice Executive Vice President,
700 South Federal Hwy. President Ivy Management Inc. (1996-
Suite 300 present); Senior Vice
Boca Raton, FL 33432 President, Ivy Management,
Age: 56 Inc. (1992-1996); Director
and Senior Vice President,
Mackenzie Investment
Management Inc. (1995-
present); Senior Vice
President, Mackenzie
Investment Management Inc.
(1990-1995).
As of the date of this SAI, the Officers and Trustees of the
Trust as a group owned no Fund shares.
PERSONAL INVESTMENTS BY EMPLOYEES OF IMI
Employees of IMI are permitted to make personal securities
transactions, subject to the requirements and restrictions set
forth in IMI's Code of Ethics. The Code of Ethics is designed to
identify and address certain conflicts of interest between
personal investment activities and the interests of investment
advisory clients such as the Fund. Among other things, the Code
of Ethics, which generally complies with standards recommended by
the Investment Company Institute's Advisory Group on Personal
Investing, prohibits certain types of transactions absent prior
approval, applies to portfolio managers, traders, research
analysts and others involved in the investment advisory process,
and imposes time periods during which personal transactions may
not be made in certain securities, and requires the submission of
duplicate broker confirmations and monthly reporting of
securities transactions. Exceptions to these and other
provisions of the Code of Ethics may be granted in particular
circumstances after review by appropriate personnel.
COMPENSATION TABLE
IVY FUND
(FISCAL YEAR ENDED DECEMBER 31, 1997)
TOTAL
PENSION OR COMPENSA-
RETIREMENT TION FROM
BENEFITS ESTIMATED TRUST AND
AGGREGATE ACCRUED AS ANNUAL FUND COM-
COMPENSA- PART OF BENEFITS PLEX PAID
NAME, TION FUND UPON TO
POSITION FROM TRUST EXPENSES RETIREMENT
TRUSTEES[*]
John S. $13,722 N/A N/A $15,000
Anderegg, Jr.
(Trustee)
Paul H. $13,722 N/A N/A $15,000
Broyhill
(Trustee)
Keith J. $0 N/A N/A $0
Carlson
(Trustee and
President)
Stanley $13,722 N/A N/A $15,000
Channick
(Trustee)
Frank W. $13,722 N/A N/A $15,000
DeFriece, Jr.
(Trustee)
Roy J. $13,722 N/A N/A $15,000
Glauber
(Trustee)
Michael G. $0 N/A N/A $0
Landry
(Trustee and
Chairman of
the Board)
Joseph G. $13,722 N/A N/A $15,000
Rosenthal
(Trustee)
Richard N. $13,722 N/A N/A $15,000
Silverman
(Trustee)
J. Brendan $13,722 N/A N/A $15,000
Swan
(Trustee)
C. William $0 N/A N/A $0
Ferris
(Secretary/Treasurer)
[*] During the year ended December 31, 1997, the fund complex
consisted of the Trust, which had 17 funds at year end, and
Mackenzie Series Trust, an open-end, management investment
company comprised of 4 funds that were reorganized into
series of unaffiliated investment companies on September 5,
1997.
INVESTMENT ADVISORY AND OTHER SERVICES
BUSINESS MANAGEMENT AND INVESTMENT ADVISORY SERVICES
IMI provides business management and investment advisory
services to the Fund pursuant to a Business Management and
Investment Advisory Agreement (the "Agreement"). The Agreement
was approved by the sole shareholder of the Fund on March 25,
1998. Prior to shareholder approval, the Agreement was approved
by the Board (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 or in any related agreement
(the "Independent Trustees")) on February 7, 1998 with respect to
the Fund.
IMI is a wholly owned subsidiary of MIMI. MIMI, a Delaware
corporation, has approximately 10% of its outstanding common
stock listed for trading on the Toronto Stock Exchange ("TSE").
MIMI is a subsidiary of Mackenzie Financial Corporation ("MFC"),
150 Bloor Street West, Toronto, Ontario, Canada, a public
corporation organized under the laws of Ontario and registered in
Ontario as a mutual fund dealer whose shares are listed for
trading on the TSE. MFC provides investment advisory services to
certain of the Ivy funds.
IMI currently acts as manager and investment adviser to the
following additional investment companies registered under the
1940 Act: Ivy China Region Fund, Ivy Global Fund, Ivy
International Fund, Ivy South America Fund, Ivy Developing
Nations Fund, Ivy Global Science & Technology Fund, Ivy
International Small Companies Fund, Ivy International Fund II,
Ivy Asia Pacific Fund, Ivy Pan-Europe Fund, Ivy Growth Fund, Ivy
US Emerging Growth Fund, Ivy Growth with Income Fund, Ivy Bond
Fund and Ivy Money Market 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 Prospectus, the 1940 Act and the provisions of the Code
relating to regulated investment companies, subject to policy
decisions adopted by the Board. 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 that are not performed by employees or other
agents engaged by the Fund or by IMI acting in some other
capacity pursuant to a separate agreement or arrangements with
the Fund; (5) maintain or supervise the maintenance by third
parties of such books and records of the Trust as may be required
by applicable Federal or state law; (6) authorize and permit
IMI's directors, officers and employees who may be elected or
appointed as trustees or officers of the Trust to serve in such
capacities; and (7) take such other action with respect to the
Trust, after approval by the Trust as may be required by
applicable law, including without limitation the rules and
regulations of the Securities and Exchange Commission (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
0.75% of its average net assets.
Advisory fee information is not available for the Fund as of
the date of this SAI.
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.
IMI currently limits the Fund's total operating expenses
(excluding Rule 12b-1 fees, interest, taxes, brokerage
commissions, litigation, class-specific expenses, indemnification
expenses, and extraordinary expenses) to an annual rate of 0.85%
of the Fund's average net assets, which 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 its
expenses may increase and its yield may be reduced.
The initial term of the Agreement between IMI and the Fund,
which commenced on March 25, 1998, will run for a period of two
years from the date of commencement. The Agreement will continue
in effect with respect to the Fund from year to year, or for more
than the initial period, as the case may be, only so long as 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. 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 the vote of a
majority of the Board, or by a vote of a majority of the
outstanding voting securities of the Fund, on 60 days' written
notice to IMI, or by IMI on 60 days' written notice to the Trust.
The Agreement shall terminate automatically in the event of its
assignment.
DISTRIBUTION SERVICES
IMDI, a wholly owned subsidiary of MIMI, serves as the
exclusive distributor of Ivy Fund's shares pursuant to an Amended
and Restated Distribution Agreement with the Trust dated October
23, 1991, as amended from time to time (the "Distribution
Agreement"). The Distribution Agreement was last approved by the
Board on August 25, 1996. At a meeting held on February 7, 1998,
the Board approved the Distribution Agreement on behalf of the
Fund. IMDI distributes shares of the Fund through broker-dealers
who are members of the National Association of Securities
Dealers, Inc. and who have executed dealer agreements with IMDI.
IMDI distributes shares of the Fund on a continuous basis, but
reserves the right to suspend or discontinue distribution on that
basis. IMDI is not obligated to sell any specific amount of Fund
shares.
Under the Distribution Agreement, the Fund bears, among
other expenses, the expenses of registering and qualifying its
shares for sale under Federal and state securities laws and
preparing and distributing to existing shareholders periodic
reports, proxy materials and prospectuses.
As of the date of this SAI, IMDI had not received any
payments under the Distribution Agreement with respect to the
Fund.
The Distribution Agreement will continue in effect for
successive one-year periods, provided that such continuance is
specifically approved at least annually by the vote of a majority
of the Independent Trustees, cast in person at a meeting called
for that purpose and by the vote of either a majority of the
entire Board or a majority of the outstanding voting securities
of the Fund. The Distribution Agreement may be terminated with
respect to the Fund at any time, without payment of any penalty,
by IMDI on 60 days' written notice to the Fund or by the Fund by
vote of either a majority of the outstanding voting securities of
the Fund or a majority of the Independent Trustees on 60 days'
written notice to IMDI. The Distribution Agreement shall
terminate automatically in the event of its assignment.
IMDI may make payments for distribution assistance and for
administrative and accounting services from resources that may
include the management fees paid by the Fund. IMDI also may make
payments to unaffiliated broker-dealers for services rendered in
the distribution of the Fund's shares. To qualify for such
payments, shares may be subject to a minimum holding period.
However, no such payments will be made to any dealer or broker if
at the end of each year the amount of shares held does not exceed
a minimum amount. The minimum holding period and minimum level
of holdings will be determined from time to time by IMDI.
If the Distribution Agreement is terminated (or not renewed)
with respect to any of the Ivy funds (or class of shares
thereof), each may continue in effect with respect to any other
fund (or Class of shares thereof) as to which it has not been
terminated (or have been renewed).
RULE 18F-3 PLAN. On February 23, 1995, the SEC adopted Rule
18f-3 under the 1940 Act, which permits a registered open-end
investment company to issue multiple classes of shares in
accordance with a written plan approved by the investment
company's board of directors/trustees and filed with the SEC. At
a meeting held on February 7, 1998, the Board adopted 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 fund; and (iii) the Fund's Class B shares will
convert automatically into Class A shares of the Fund after a
period of eight years, based on the relative net asset value of
such shares at the time of conversion.
CUSTODIAN
Pursuant to a Custodian Agreement with the Trust, Brown
Brothers Harriman & Co. (the "Custodian"), a private bank and
member of the principal securities exchanges, located at 40 Water
Street, Boston, Massachusetts 02109, maintains custody of the
assets of the Fund held in the United States. Rules adopted
under the 1940 Act permit the Trust to maintain its foreign
securities and cash in the custody of certain eligible foreign
banks and securities depositories. Pursuant to those rules, the
Custodian has entered into subcustodial agreements for the
holding of the Fund's foreign securities. The Custodian may
receive, as partial payment for its services to the Fund, a
portion of the Trust's brokerage business, subject to its ability
to provide best price and execution.
FUND ACCOUNTING SERVICES
Pursuant to a Fund Accounting Services Agreement, MIMI
provides certain accounting and pricing services for the Fund.
As compensation for those services, the Fund pays MIMI a monthly
fee plus out-of-pocket expenses as incurred. The monthly fee is
based upon the net assets of the Fund at the preceding month end
at the following rates: $1,250 when net assets are $10 million
and under; $2,500 when net assets are over $10 million to $40
million; $5,000 when net assets are over $40 million to $75
million; and $6,500 when net assets are over $75 million.
As of the date of this SAI, no payments had been made with
respect to the provision of these services for the Fund.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Pursuant to a Transfer Agency and Shareholder Service
Agreement, IMSC, a wholly owned subsidiary of MIMI, is the
transfer agent for the Fund. For these services, the Fund pays a
monthly fee at an annual rate of $20.00 for each open Advisor
Class account. In addition, the Fund pays a monthly fee at an
annual rate of $4.48 per account that is closed plus certain out-
of-pocket expenses. As of the date of this SAI, no payments had
been made by the Fund for transfer agency services. Certain
broker-dealers that maintain shareholder accounts with the Fund
through an omnibus account provide transfer agent and other
shareholder-related services that would otherwise be provided by
IMSC if the individual accounts that comprise the omnibus account
were opened by their beneficial owners directly. IMSC pays such
broker-dealers a per account fee for each open account within the
omnibus account, or a fixed rate (e.g., .10%) fee, based on the
average daily net asset value of the omnibus account (or a
combination thereof).
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, MIMI
provides certain administrative services to the Fund. As
compensation for these services, the Fund (except with respect to
its Class I shares) pays MIMI a monthly fee at the annual rate of
.10% of the average daily net assets of its Advisor Class shares.
As of the date of this SAI, no payments had been made by the Fund
under the Administrative Services Agreement.
AUDITORS
Coopers & Lybrand L.L.P., independent certified public
accountants, 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 funds' 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 eighteen series, each of which represents a fund.
The Trustees have further authorized the issuance of Class A,
Class B, and Class C shares for Ivy International Fund and Class
A, Class B, Class C and Advisor Class for Ivy Asia Pacific Fund,
Ivy Bond Fund, Ivy Canada Fund, Ivy China Region Fund, Ivy US
Emerging Growth Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science & Technology Fund, Ivy Growth
Fund, Ivy Growth with Income Fund, Ivy International Fund II, Ivy
High Yield Fund, Ivy South America Fund, Ivy Money Market Fund,
Ivy Developing Nations Fund and Ivy Pan-Europe Fund, as well as
Class I shares for Ivy Bond Fund, Ivy Global Science & Technology
Fund, Ivy International Fund II, Ivy International Fund, Ivy High
Yield Fund and Ivy International Small Companies Fund, and
Class D shares for Ivy Growth with Income Fund. [FN][The Class D
shares of Ivy Growth with Income Fund were initially issued as
"Ivy Growth with Income Fund -- Class C" to shareholders of
Mackenzie Growth & Income Fund, a former series of the Company,
in connection with the reorganization between that fund and Ivy
Growth with Income Fund and not offered for sale to the public.
On February 29, 1996, the Trustees of the Trust resolved by
written consent to establish a new class of shares designated as
"Class C" for all Ivy Fund portfolios and to redesignate the
shares of beneficial interest of "Ivy Growth with Income Fund--
Class C" as shares of beneficial interest of "Ivy Growth with
Income Fund--Class D," which establishment and redesignation,
respectively, became effective on April 30, 1996. The voting,
dividend, liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and conditions
of the Class D shares of Ivy Growth with Income Fund, as set
forth in Ivy Fund's Declaration of Trust, as amended from time to
time, will not be changed by this redesignation.]
Shareholders have the right to vote for the election of
Trustees of the Trust and on any and all matters on which they
may be entitled to vote by law or by the provisions of the
Trust's By-Laws. The Trust is not required to hold a regular
annual meeting of shareholders, and it does not intend to do so.
Shares of each class of the Fund entitle their holders to one
vote per share (with proportionate voting for fractional shares).
Shareholders of the Fund are entitled to vote alone on matters
that only affect the Fund. All classes of shares of the Fund
will vote together, except with respect to the distribution plan
applicable to the Fund's Class A, Class B or Class C shares or
when a class vote is required by the 1940 Act. On matters
relating to all funds of the Trust, but affecting 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 a fund, then the shareholders of that fund will
not be entitled to vote on that matter. Matters that affect the
Trust in general, such as ratification of the selection of
independent public accountants, will be voted upon collectively
by the shareholders of all funds of the Trust.
As used in this SAI and the Prospectus, the phrase "majority
vote of the outstanding shares" of the Fund means the vote of the
lesser of: (1) 67% of the shares of the Fund (or of the Trust)
present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more
than 50% of the outstanding shares of the Fund (or of the Trust).
With respect to the submission to shareholder vote of a
matter requiring separate voting by 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, in which case the holders of
the remaining shares would not be able to elect any Trustees.
As of the date of this SAI, there were no Fund shares
outstanding other than those issued to the sole shareholder.
Under Massachusetts law, the Trust's shareholders could,
under certain circumstances, be held personally liable for the
obligations of the Trust. However, the 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 the Fund held personally liable
for the obligations of the Fund. The risk of a shareholder of
the Trust incurring financial loss on account of shareholder
liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and, thus, should be
considered remote. No series of the Trust is liable for the
obligations of any other series of the Trust.
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 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 The
Nasdaq Stock Market Inc. ("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.
Money market instruments of the Fund are valued at amortized
cost, which approximates money market value.
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, Martin Luther King, Jr.'s Birthday, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. On those days when either or
both of the Fund's Custodian or the Exchange close early as a
result of such day being a partial holiday or otherwise, the
Trust reserves the right to advance the time on that day by which
purchase and redemption requests must be received.
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 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 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. A change in securities
held by the Fund is known as "portfolio turnover" and may involve
the payment by the Fund of dealer markup or underwriting
commission and other transaction costs on the sale of securities,
as well as on the reinvestment of the proceeds in other
securities. The Fund's portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities
for the most recently completed fiscal year by the monthly
average of the value of the portfolio securities owned by the
Fund during that year. For purposes of determining the Fund's
portfolio turnover rate, all securities whose maturities at the
time of acquisition were one year or less are excluded. It is
estimated that the portfolio turnover rate for the Fund's initial
fiscal year will not exceed 100%.
REDEMPTIONS
Shares of the Fund are redeemed at their net asset value
next determined after a proper redemption request has been
received by IMSC, less any applicable CDSC.
Unless a shareholder requests that the proceeds of any
redemption be wired to his or her bank account, payment for
shares tendered for redemption is made by check within seven days
after tender in proper form, except that the Trust reserves the
right to suspend the right of redemption or to postpone the date
of payment upon redemption beyond seven days, (i) for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which trading on the Exchange is
restricted, (ii) for any period during which an emergency exists
as determined by the SEC as a result of which disposal of
securities owned by the Fund is not reasonably practicable or it
is not reasonably practicable for the Fund to fairly determine
the value of its net assets, or (iii) for such other periods as
the SEC may by order permit for the protection of shareholders of
the Fund.
Under unusual circumstances, when the Board 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.
The Trust may redeem those Advisor Class accounts of
shareholders who have maintained an investment, including sales
charges paid, of less than $10,000 in the Fund for a period of
more than 12 months. All Advisor Class accounts below that
minimum will be redeemed simultaneously when MIMI deems it
advisable. The $10,000 balance will be determined by actual
dollar amounts invested by the shareholder, unaffected by market
fluctuations. The Trust will notify any such shareholder by
certified mail of its intention to redeem such account, and the
shareholder shall have 60 days from the date of such letter to
invest such additional sums as shall raise the value of such
account above that minimum. Should the shareholder fail to
forward such sum within 60 days of the date of the Trust's letter
of notification, the Trust will redeem the shares held in such
account and transmit the redemption in value thereof to the
shareholder. However, those shareholders who are investing
pursuant to the Automatic Investment Method will not be redeemed
automatically unless they have ceased making payments pursuant to
the plan for a period of at least six consecutive months, and
these shareholders will be given six months' notice by the Trust
before such redemption. Shareholders in a qualified retirement,
pension or profit sharing plan who wish to avoid tax consequences
must "rollover" any sum so redeemed into another qualified plan
within 60 days. The Trustees of the Trust may change the minimum
account size.
If a shareholder has given authorization for telephonic
redemption privilege, shares can be redeemed and proceeds sent by
Federal wire to a single previously designated bank account.
Delivery of the proceeds of a wire redemption request of $250,000
or more may be delayed by the Fund for up to seven days if deemed
appropriate under then-current market conditions. The Trust
reserves the right to change this minimum or to terminate the
telephonic redemption privilege without prior notice. The Trust
cannot be responsible for the efficiency of the Federal wire
system of the shareholder's dealer of record or bank. The
shareholder is responsible for any charges by the shareholder's
bank.
The Fund employs reasonable procedures that require personal
identification prior to acting on redemption or exchange
instructions communicated by telephone to confirm that such
instructions are genuine. In the absence of such instructions,
the Fund may be liable for any losses due to unauthorized or
fraudulent telephone instructions.
TAXATION
The following is a general discussion of certain tax rules
thought to be applicable with respect to the Fund. It is merely
a summary and is not an exhaustive discussion of all possible
situations or of all potentially applicable taxes. Accordingly,
shareholders and prospective shareholders should consult a
competent tax adviser about the tax consequences to them of
investing in the Fund.
The Fund intends to be taxed as a regulated investment
company under Subchapter M of the Code. Accordingly, the Fund
must, among other things, (a) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale
or other disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least
50% of the market value of the Fund's assets is represented by
cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such
other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other
than U.S. Government securities and the securities of other
regulated investment companies).
As a regulated investment company, the Fund generally will
not be subject to U.S. Federal income tax on its income and gains
that it distributes to shareholders, if at least 90% of its
investment company taxable income (which includes, among other
items, dividends, interest and the excess of any short-term
capital gains over long-term capital losses) for the taxable year
is distributed. The Fund intends to distribute all such income.
Amounts not distributed on a timely basis in accordance with
a calendar year distribution requirement are subject to a
nondeductible 4% excise tax at the Fund level. To avoid the tax,
the Fund must distribute during each calendar year, (1) at least
98% of its ordinary income (not taking into account any capital
gains or losses) for the calendar year, (2) at least 98% of its
capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending
on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, the
Fund intends to make distributions in accordance with the
calendar year distribution requirements. A distribution will be
treated as paid on December 31 of the current calendar year if it
is declared by the Fund in October, November or December of the
year with a record date in such a month and paid by the Fund
during January of the following year. Such distributions will be
taxable to shareholders in the calendar year the distributions
are declared, rather than the calendar year in which the
distributions are received.
OPTIONS, FUTURES AND FOREIGN CURRENCY FORWARD CONTRACTS
The taxation of equity options and OTC options on debt
securities is governed by Code section 1234. Pursuant to Code
section 1234, the premium received by the Fund for selling a put
or call option is not included in income at the time of receipt.
If the option expires, the premium is short-term capital gain to
the Fund. If the Fund enters into a closing transaction, the
difference between the amount paid to close out its position and
the premium received is short-term capital gain or loss. If a
call option written by the Fund is exercised, thereby requiring
the Fund to sell the underlying security, the premium will
increase the amount realized upon the sale of such security and
any resulting gain or loss will be a capital gain or loss, and
will be long-term or short-term depending upon the holding period
of the security. With respect to a put or call option that is
purchased by the Fund, if the option is sold, any resulting gain
or loss will be a capital gain or loss, and will be long-term or
short-term, depending upon the holding period of the option. If
the option expires, the resulting loss is a capital loss and is
long-term or short-term, depending upon the holding period of the
option. If the option is exercised, the cost of the option, in
the case of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount
realized on the underlying security in determining gain or loss.
Some of the options, futures and foreign currency forward
contracts in which the Fund may invest may be "section 1256
contracts." Gains (or losses) on these contracts generally are
considered to be 60% long-term and 40% short-term capital gains
or losses; however, as described below, foreign currency gains or
losses arising from certain section 1256 contracts are ordinary
in character. Also, section 1256 contracts held by the Fund at
the end of each taxable year (and on certain other dates
prescribed in the Code) are "marked-to-market" with the result
that unrealized gains or losses are treated as though they were
realized.
The transactions in options, futures and forward contracts
undertaken by the Fund may result in "straddles" for Federal
income tax purposes. The straddle rules may affect the character
of gains or losses realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may
be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable
year in which such losses are realized. Because only a few
regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund
are not entirely clear. The straddle rules may increase the
amount of short-term capital gain realized by the Fund, which is
taxed as ordinary income when distributed to shareholders.
The Fund may make one or more of the elections available
under the Code which are applicable to straddles. If the Fund
makes any of the elections, the amount, character and timing of
the recognition of gains or losses from the affected straddle
positions will be determined under rules that vary according to
the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or
losses from the affected straddle positions.
Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the
recognition of gains or losses from the affected straddle
positions, the amount which must be distributed to shareholders
as ordinary income or long-term capital gain may be increased or
decreased substantially as compared to a fund that did not engage
in such transactions.
Notwithstanding any of the foregoing, the Fund may recognize
gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short
sale, offsetting notional principal contract, futures or forward
contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial
positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and
short sales) in stock, partnership interests, certain actively
traded trust instruments and certain debt instruments.
Constructive sale treatment of appreciated financial positions
does not apply to certain transactions closed in the 90-day
period ending with the 30th day after the close of the Fund's
taxable year, if certain conditions are met.
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.
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 a Fund held the
PFIC shares. The Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated
to prior Fund taxable years and an interest factor will be added
to the tax, as if the tax had been payable in such prior taxable
years. Certain distributions from a PFIC as well as gain from
the sale of PFIC shares are treated as excess distributions.
Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess
distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment
with respect to PFIC shares. The Fund may elect to mark to
market its PFIC shares, resulting in the shares being treated as
sold at fair market value on the last business day of each
taxable year. Any resulting gain would be reported as ordinary
income; any resulting loss and any loss from an actual
disposition of the shares would be reported as ordinary loss to
the extent of any net gains reported in prior years. Under
another election that currently is available in some
circumstances, the Fund generally would be required to include in
its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the
PFIC in a given year.
DEBT SECURITIES ACQUIRED AT A DISCOUNT
Some of the debt securities (with a fixed maturity date of
more than one year from the date of issuance) that may be
acquired by the Fund may be treated as debt securities that are
issued originally at a discount. Generally, the amount of the
original issue discount ("OID") is treated as interest income and
is included in income over the term of the debt security, even
though payment of that amount is not received until a later time,
usually when the debt security matures.
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.
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 at
the applicable mid-term or long-term capital gains rate, 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. Shareholders should be
careful to consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at this
time may reflect the amount of the forthcoming distribution.
Those purchasing just prior to a distribution will receive a
distribution which generally will be taxable to them.
DISPOSITION OF SHARES
Upon a redemption, sale or exchange of his or her shares, a
shareholder will realize a taxable gain or loss depending upon
his or her basis in the shares. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets
in the shareholder's hands and, if so, may be eligible for
reduced federal tax rates, 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, except in the case of certain electing individual
taxpayers who have limited creditable foreign taxes and no
foreign source income other than passive investment-type income,
a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or
her total foreign source taxable income. For this purpose, if
the Fund makes the election described in the preceding paragraph,
the source of the Fund's income flows through to its
shareholders. With respect to the Fund, gains from the sale of
securities generally will be treated as derived from U.S. sources
and section 988 gains will be treated as ordinary income derived
from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source passive income, including
foreign source passive income received from the Fund. In
addition, the foreign tax credit may offset only 90% of the
revised alternative minimum tax imposed on corporations and
individuals. Furthermore, the foreign tax credit is eliminated
with respect to foreign taxes withheld on dividends if the
dividend-paying shares or the shares of the Fund are held by the
Fund or the shareholder, as the case may be, for less than 16
days (46 days in the case of preferred shares) during the 30-day
period (90-day period for preferred shares) beginning 15 days (45
days for preferred shares) before the shares become ex-dividend.
The foregoing is only a general description of the foreign
tax credit under current law. Because application of the credit
depends on the particular circumstances of each shareholder,
shareholders are advised to consult their own tax advisers.
BACKUP WITHHOLDING
The Fund will be required to report to the Internal Revenue
Service ("IRS") all taxable distributions as well as gross
proceeds from the redemption of the Fund's shares, except in the
case of certain exempt shareholders. All such distributions and
proceeds will be subject to withholding of Federal income tax at
a rate of 31% ("backup withholding") in the case of non-exempt
shareholders if (1) the shareholder fails to furnish the Fund
with and to certify the shareholder's correct taxpayer
identification number or social security number, (2) the IRS
notifies the shareholder or the Fund that the shareholder has
failed to report properly certain interest and dividend income to
the IRS and to respond to notices to that effect, or (3) when
required to do so, the shareholder fails to certify that he or
she is not subject to backup withholding. If the withholding
provisions are applicable, any such distributions or proceeds,
whether reinvested in additional shares or taken in cash, will be
reduced by the amounts required to be withheld.
Distributions may also be subject to additional state, local
and foreign taxes depending on each shareholder's particular
situation. Non-U.S. shareholders may be subject to U.S. tax
rules that differ significantly from those summarized above.
This discussion does not purport to deal with all of the tax
consequences applicable to the Fund or shareholders.
Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an
investment in the Fund.
PERFORMANCE INFORMATION
Performance information for the classes of shares of the
Fund may be compared, in reports and promotional literature, to:
(i) the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"),
or other unmanaged indices so that investors may compare the
Fund's results with those of a group of unmanaged securities
widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by
Lipper Analytical Services, a widely used independent research
firm that ranks mutual funds by overall performance, investment
objectives and assets, or tracked by other services, companies,
publications or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return
from an investment in the Fund. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions
or administrative and management costs and expenses. Performance
rankings are based on historical information and are not intended
to indicate future performance.
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 Adviser Class 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 net asset
value per share 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 Advisor Class
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 net asset value per share on the
last day of the period.
AVERAGE ANNUAL TOTAL RETURN. Quotations of standardized
average annual total return ("Standardized Return") for Adviser
Class 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 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 Adviser Class shares
T = the average annual total return of Adviser
Class shares
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 Advisor Class
shares of the Fund, it is assumed that all dividends and capital
gains distributions made by the Fund are reinvested at net asset
value in additional Advisor Class shares of the Fund during the
designated period. Standardized Return quotations for the Fund
do not take into account any required payments for Federal or
state income taxes. Standardized Return quotations are
determined to the nearest 1/100 of 1%.
The Fund may, from time to time, include in advertisements,
promotional literature or reports to shareholders or prospective
investors total return data that are not calculated according to
the formula set forth above ("Non-Standardized Return").
CUMULATIVE TOTAL RETURN. Cumulative total return is the
cumulative rate of return on a hypothetical initial investment of
$1,000 in Advisor Class shares of the Fund for a specified
period. Cumulative total return quotations reflect changes in
the price of the Fund's Advisor Class shares and assume that all
dividends and capital gains distributions during the period were
reinvested in Advisor Class shares of the Fund. Cumulative total
return is calculated by computing the cumulative rates of return
of a hypothetical investment in Advisor Class 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 Advisor Class shares
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
OTHER QUOTATIONS, COMPARISONS AND GENERAL INFORMATION. The
foregoing computation methods are prescribed for advertising and
other communications subject to SEC Rule 482. Communications not
subject to this rule may contain a number of different measures
of performance, computation methods and assumptions, including
but not limited to: historical total returns; results of actual
or hypothetical investments; changes in dividends, distributions
or share values; or any graphic illustration of such data. These
data may cover any period of the Trust's existence and may or may
not include the impact of sales charges, taxes or other factors.
Performance quotations for the Fund will vary from time to
time depending on market conditions, the composition of the
Fund's portfolio and operating expenses of the Fund. These
factors and possible differences in the methods used in
calculating performance quotations should be considered when
comparing performance information regarding the Fund's shares
with information published for other investment companies and
other investment vehicles. Performance quotations should also be
considered relative to changes in the value of the Fund's shares
and the risks associated with the Fund's investment objectives
and policies. At any time in the future, performance quotations
may be higher or lower than past performance quotations and there
can be no assurance that any historical performance quotation
will continue in the future.
The Fund may also cite endorsements or use for comparison
their performance rankings and listings reported in such
newspapers or business or consumer publications as, among others:
AAII Journal, Barron's, Boston Business Journal, Boston Globe,
Boston Herald, Business Week, Consumer's Digest, Consumer Guide
Publications, Changing Times, Financial Planning, Financial
World, Forbes, Fortune, Growth Fund Guide, Houston Post,
Institutional Investor, International Fund Monitor, Investor's
Daily, Los Angeles Times, Medical Economics, Miami Herald, Money
Mutual Fund Forecaster, Mutual Fund Letter, Mutual Fund Source
Book, Mutual Fund Values, National Underwriter, Nelson's
Directory of Investment Managers, New York Times, Newsweek, No
Load Fund Investor, No Load Fund* X, Oakland Tribune, Pension
World, Pensions and Investment Age, Personal Investor, Rugg and
Steele, Time, U.S. News and World Report, USA Today, The Wall
Street Journal, and Washington Post.
FINANCIAL STATEMENTS
The Fund's Statement of Assets and Liabilities as of
March 25, 1998 and the Notes thereto are attached hereto as
Appendix B.
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
Investors Service, New York, 1994), and "Standard & Poor's
Municipal Ratings Handbook," October 1997 Issue (McGraw Hill, New
York, 1997).]
MOODY'S:
(a) CORPORATE BONDS. Bonds rated Aaa by Moody's are judged by
Moody's to be of the best quality, carrying the smallest degree
of investment risk. Interest payments are protected by a large
or exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues. Bonds rated Aa are
judged by Moody's to be of high quality by all standards. Aa
bonds are rated lower than Aaa bonds because margins of
protection may not be as large as those of Aaa bonds, or
fluctuations of protective elements may be of greater amplitude,
or there may be other elements present which make the long-term
risks appear somewhat larger than those applicable to Aaa
securities. Bonds which are rated A by Moody's possess many
favorable investment attributes and are to be considered as upper
medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Bonds rated Baa by Moody's are considered medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present, but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered well-assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments of or maintenance of other terms
of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with
respect to principal or interest. Bonds which are rated Ca
represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class
of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
(b) COMMERCIAL PAPER. The Prime rating is the highest
commercial paper rating assigned by Moody's. Among the factors
considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in
certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity;
(5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and
(8) recognition by management of obligations which may be present
or may arise as a result of public interest questions and
preparations to meet such obligations. Issuers within this Prime
category may be given ratings 1, 2 or 3, depending on the
relative strengths of these factors. The designation of Prime-1
indicates the highest quality repayment capacity of the rated
issue. Issuers rated Prime-2 are deemed to have a strong ability
for repayment while issuers rated Prime-3 are deemed to have an
acceptable ability for repayment. Issuers rated Not Prime do not
fall within any of the Prime rating categories.
S&P:
(a) CORPORATE BONDS. An S&P corporate debt rating is a
current assessment of the creditworthiness of an obligor with
respect to a specific obligation. The ratings are based on
current information furnished by the issuer or obtained by S&P
from other sources it considers reliable. The ratings described
below may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
Debt rated AA is judged by S&P to have a very strong capacity to
pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A by S&P has a
strong capacity to pay interest and repay principal, although it
is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated
categories.
Debt rated BBB by S&P is regarded by S&P as having an
adequate capacity to pay interest and repay principal. Although
such bonds normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay
principal than debt in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having
predominately speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates the
least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or exposures to
adverse conditions. Debt rated BB has less near-term
vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BBB- rating. Debt rated B has a greater vulnerability to default
but currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used
for debt subordinated to senior debt that is assigned an actual
or implied BB or BB- rating. Debt rated CCC has a currently
identifiable vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it
is not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
B or B- rating. The rating CC typically is applied to debt
subordinated to senior debt which is assigned an actual or
implied CCC debt rating. The rating C typically is applied to
debt subordinated to senior debt which is assigned an actual or
implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt
service payments are continued.
The rating CI is reserved for income bonds on which no
interest is being paid. Debt rated D is in payment default. The
D rating category is used when interest payments or principal
payments are not made on the date due, even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating
also will be used upon the filing of a bankruptcy petition if
debt service payments are jeopardized.
(b) COMMERCIAL PAPER. An S&P commercial paper rating is a
current assessment of the likelihood of timely payment of debt
considered short-term in the relevant market.
The commercial paper rating A-1 by S&P indicates that the
degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
For commercial paper with an A-2 rating, the capacity for timely
payment on issues is satisfactory, but not as high as for issues
designated A-1. Issues rated A-3 have adequate capacity for
timely payment, but are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying higher
designations.
Issues rated B are regarded as having only speculative
capacity for timely payment. The C rating is assigned to short-
term debt obligations with a doubtful capacity for payment. Debt
rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the
date due, even if the applicable grace period has not expired,
unless S&P believes such payments will be made during such grace
period.
APPENDIX B
STATEMENT OF ASSETS AND LIABILITIES
AS OF MARCH 25, 1998
AND REPORT OF INDEPENDENT ACCOUNTANTS
IVY HIGH YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 25, 1998
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . $ 50
Deferred organization expenses . . . . . . . 64,772
Prepaid blue sky fees. . . . . . . . . . . . 47,500
---------
Total Assets. . . . . . . . . . . . . . . 112,322
---------
LIABILITIES
Due to affiliate . . . . . . . . . . . . . . 112,272
---------
NET ASSETS . . . . . . . . . . . . . . . . . . $ 50
========
CLASS A:
Net asset value and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
Maximum offering price
per share
($10.00 x 100 / 95.25)* . . . . . . . . . $ 10.61
=========
CLASS B:
Net asset value and
offering price per share
($10 / 1 share outstanding)** . . . . . . $ 10.00
=========
CLASS C:
Net asset value and
offering price per share
($10 / 1 share outstanding)***. . . . . . $ 10.00
=========
CLASS I:
Net asset value, offering and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
ADVISOR CLASS:
Net asset value, offering and
redemption price per share
($10 / 1 share outstanding) . . . . . . . $ 10.00
=========
<PAGE>
NET ASSETS CONSISTS OF:
Capital paid-in. . . . . . . . . . . . . . . $ 50
=========
* On sales of more than $100,000 the offering price is
reduced.
** Redemption price per share is equal to the net asset
value per share less any applicable contingent deferred
sales charge, up to a maximum of 5%.
*** Redemption price per share is equal to the net asset value
per share less any applicable contingent deferred sales
charge, up to a maximum of 1%.
(See Notes to Financial Statement)
<PAGE>
IVY HIGH YIELD FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
MARCH 25, 1998
1.ORGANIZATION: Ivy High Yield Fund is a diversified series of
shares of Ivy Fund. The shares of beneficial interest are
assigned no par value and an unlimited number of shares of Class
A, Class B, Class C, Class I and Advisor Class are authorized.
Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered
under the Investment Company Act of 1940, as amended, as an open-
end management investment company.
The Fund will commence operations on April 6, 1998. As of the
date of this report, operations have been limited to
organizational matters and the issuance of initial shares to
Mackenzie Investment Management Inc. (MIMI).
2.ORGANIZATION COSTS AND PREPAID BLUE SKY FEES: Organization
expenses are being amortized over a five year period from April
6, 1998, the commencement date of operations. Blue sky fees are
being amortized over a one year period from April 6, 1998. Such
organizational expenses and blue sky fees have been paid by MIMI
and will be reimbursed by the Fund.
3.TRANSACTIONS WITH AFFILIATES: Ivy Management, Inc. (IMI), a
wholly owned subsidiary of MIMI, is the Manager and Investment
Adviser of the Fund. Currently, IMI voluntarily limits the
Fund's total operating expenses (excluding taxes, 12b-1 fees,
brokerage commissions, interest, litigation and indemnification
expenses, and any other extraordinary expenses) to an annual rate
of .85% of its average net assets.
MIMI provides certain administrative, accounting and pricing
services for the Fund.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned
subsidiary of MIMI, is the underwriter and distributor of the
Fund's shares, and as such, purchases shares from the Fund at net
asset value to settle orders from investment dealers.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary
of MIMI, is the transfer and shareholder servicing agent for the
Fund.
Officers of Ivy Fund are officers and/or employees of MIMI, IMI,
IMDI and IMSC. Such individuals are not compensated by the Fund
for services in their capacity as officers of Ivy Fund. Trustees
of Ivy Fund who are not affiliated with MIMI or IMI receive
compensation from the Fund.
<PAGE>
[Coopers & Lybrand letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Ivy High Yield Fund (the "Fund"):
We have audited the accompanying Statement of Assets and
Liabilities of the Fund as of March 25, 1998. This financial
statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the Statement of Assets and Liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement
of Assets and Liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
Statement of Assets and Liabilities. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial position
of the Fund as of March 25, 1998, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 25, 1998
<PAGE>
PART C. OTHER INFORMATION
Item 24: Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A: None
Included in Part B:
Statement of Assets and Liabilities as of March 25,
1998 and Report of Independent Accountants.
(b) Exhibits:
1. (a) Amended and Restated Declaration of Trust
dated December 10, 1992, filed with Post-
Effective Amendment No. 71 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(b) Amendment to Amended and Restated Declaration
of Trust, filed with Post-Effective Amendment
No. 73 to Registration Statement No. 2-17613
and incorporated by reference herein.
(c) Amendment to Amended and Restated Declaration
of Trust, filed with Post-Effective Amendment
No. 74 to Registration Statement No. 2-17613
and incorporated by reference herein.
(d) Establishment and Designation of Additional
Series (Ivy Emerging Growth Fund), filed with
Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Redesignation of Shares (Ivy Growth with
Income Fund--Class A) and Establishment and
Designation of Additional Class (Ivy Growth
with Income Fund--Class C), filed with Post-
Effective Amendment No. 73 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(f) Redesignation of Shares (Ivy Emerging Growth
Fund--Class A, Ivy Growth Fund--Class A and
Ivy International Fund--Class A), filed with
Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(g) Establishment and Designation of Additional
Series (Ivy China Region Fund), filed with
Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Establishment and Designation of Additional
Class (Ivy China Region Fund--Class B, Ivy
Emerging Growth Fund--Class B, Ivy Growth
Fund--Class B, Ivy Growth with Income Fund--
Class B and Ivy International Fund--Class B),
filed with Post-Effective Amendment No. 74
for Registration Statement No. 2-17613 and
incorporated by reference herein.
(i) Establishment and Designation of Additional
Class (Ivy International Fund--Class I),
filed with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Establishment and Designation of Series and
Classes (Ivy Latin American Strategy Fund--
Class A and Class B, Ivy New Century Fund--
Class A and Class B), filed with Post-
Effective Amendment No. 75 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(k) Establishment and Designation of Series and
Classes (Ivy International Bond Fund--Class A
and Class B), filed with Post-Effective
Amendment No. 76 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(l) Establishment and Designation of Series and
Classes (Ivy Bond Fund, Ivy Canada Fund, Ivy
Global Fund, Ivy Short-Term U.S. Government
Securities Fund (now known as Ivy Short-Term
Bond Fund) -- Class A and Class B), filed
with Post-Effective Amendment No. 77 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(m) Redesignation of Ivy Short-Term U.S.
Government Securities Fund as Ivy Short-Term
Bond Fund, filed with Post-Effective
Amendment No. 81 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(n) Redesignation of Shares (Ivy Money Market
Fund--Class A and Ivy Money Market Fund--
Class B), filed with Post-Effective Amendment
No. 84 to Registration Statement No. 2-17613
and incorporated by reference herein.
(o) Form of Establishment and Designation of
Additional Class (Ivy Bond Fund--Class C; Ivy
Canada Fund--Class C; Ivy China Region Fund--
Class C; Ivy Emerging Growth Fund--Class C;
Ivy Global Fund--Class C; Ivy Growth Fund--
Class C; Ivy Growth with Income Fund--Class
C; Ivy International Fund--Class C; Ivy Latin
America Strategy Fund--Class C; Ivy
International Bond Fund--Class C; Ivy Money
Market Fund--Class C; Ivy New Century Fund--
Class C), filed with Post-Effective Amendment
No. 84 to Registration Statement No. 2-17613
and incorporated by reference herein.
(p) Establishment and Designation of Series and
Classes (Ivy Global Science & Technology
Fund--Class A, Class B, Class C and Class I),
filed with Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Establishment and designation of Series and
Classes (Ivy Global Natural Resources Fund--
Class A, Class B and Class C; Ivy Asia
Pacific Fund--Class A, Class B and Class C;
Ivy International Small Companies Fund--Class
A, Class B, Class C and Class I), filed with
Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(r) Establishment and designation of Series and
Classes (Ivy Pan-Europe Fund--Class A, Class
B and Class C), filed with Post-Effective
Amendment No. 92 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(s) Establishment and designation of Series and
Classes (Ivy International Fund II--Class A,
Class B, Class C and Class I), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(t) Form of Establishment and Designation of
Additional Class (Ivy Asia Pacific Fund--
Advisor Class; Ivy Bond Fund--Advisor Class;
Ivy Canada Fund--Advisor Class; Ivy China
Region Fund--Advisor Class; Ivy Emerging
Growth Fund--Advisor Class; Ivy Global Fund--
Advisor Class; Ivy Global Natural Resources
Fund--Advisor Class; Ivy Global Science &
Technology Fund--Advisor Class; Ivy Growth
Fund--Advisor Class; Ivy Growth with Income
Fund--Advisor Class; Ivy International Bond
Fund--Advisor Class; Ivy International Fund
II--Advisor Class; Ivy International Small
Companies Fund--Advisor Class; Ivy Latin
America Strategy Fund--Advisor Class; Ivy New
Century Fund--Advisor Class; Ivy Pan-Europe
Fund--Advisor Class), filed with Post-
Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(u) Redesignations of Series and Classes (Ivy
Emerging Growth Fund redesignated as Ivy US
Emerging Growth Fund; Ivy New Century Fund
redesignated as Ivy Developing Nations Fund;
and, Ivy Latin America Strategy Fund
redesignated as Ivy South America Fund),
filed with Post-Effective Amendment No. 97 to
Registration Statement 2-17613 and
incorporated by reference herein.
(v) Redesignation of Series and Classes and
Establishment and Designation of Additional
Class (Ivy International Bond Fund
redesignated as Ivy High Yield Fund; Class I
shares of Ivy High Yield Fund established),
filed with this Post-Effective Amendment No.
98 to Registration Statement 2-17613.
2. By-Laws, as amended, filed with Post-Effective
Amendment No. 48 to Registration Statement No. 2-
17613 and incorporated by reference herein.
3. Not Applicable
4. (a) Specimen Securities for Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International
Fund and Ivy Money Market Fund, filed with
Post-Effective Amendment No. 49 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Specimen Security for Ivy Emerging Growth
Fund, filed with Post-Effective Amendment No.
70 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(c) Specimen Security for Ivy China Region Fund,
filed with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(d) Specimen Security for Ivy Latin American
Strategy Fund, filed with Post-Effective
Amendment No. 75 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(e) Specimen Security for Ivy New Century Fund,
filed with Post-Effective Amendment No. 75 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Specimen Security for Ivy International Bond
Fund, filed with Post-Effective Amendment No.
76 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(g) Specimen Securities for Ivy Bond Fund, Ivy
Canada Fund, Ivy Global Fund, and Ivy Short-
Term U.S. Government Securities Fund, filed
with Post-Effective Amendment No. 77 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
5. (a) Master Business Management and Investment
Advisory Agreement between Ivy Fund and Ivy
Management, Inc. and Supplements for Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund and Ivy Money Market Fund,
filed with Post-Effective Amendment No. 68 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Subadvisory Contract by and among Ivy Fund,
Ivy Management, Inc. and Boston Overseas
Investors, Inc., filed with Post-Effective
Amendment No. 68 to Registration Statement
No. 2-17613 and incorporated by the reference
herein.
(c) Assignment Agreement relating to Subadvisory
Contract, filed with Post-Effective Amendment
No. 74 to Registration Statement No. 2-17613
and incorporated by reference herein.
(d) Business Management and Investment Advisory
Agreement Supplement for Ivy Emerging Growth
Fund, filed with Post-Effective Amendment No.
74 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Business Management and Investment Advisory
Agreement Supplement for Ivy China Region
Fund, filed with Post-Effective Amendment No.
71 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Form of Business Management and Investment
Advisory Supplement for Ivy Latin America
Strategy Fund, filed with Post-Effective
Amendment No. 75 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(g) Form of Business Management and Investment
Advisory Agreement Supplement for Ivy New
Century Fund, filed with Post-Effective
Amendment No. 75 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(h) Form of Business Management and Investment
Advisory Agreement Supplement for Ivy
International Bond Fund, filed with Post-
Effective Amendment No. 76 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(i) Business Management and Investment Advisory
Agreement Supplement for Ivy Bond Fund, Ivy
Global Fund and Ivy Short-Term U.S.
Government Securities Fund, filed with Post-
Effective Amendment No. 81 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(j) Master Business Management Agreement between
Ivy Fund and Ivy Management, Inc., filed with
Post-Effective Amendment No. 81 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(k) Form of Supplement to Master Business
Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Canada Fund), filed
with Post-Effective Amendment No. 77 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(l) Form of Investment Advisory Agreement between
Ivy Fund and Mackenzie Financial Corporation,
filed with Post-Effective Amendment No. 77 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(m) Form of Supplement to Master Business
Management and Investment Advisory Agreement
between Ivy Fund and Ivy Management, Inc.
(Ivy Global Science & Technology Fund), filed
with Post-Effective Amendment No. 86 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(n) Form of Supplement to Master Business
Management and Investment Advisory Agreement
between Ivy Fund and Ivy Management, Inc.
(Ivy Asia Pacific Fund and Ivy International
Small Companies Fund), filed with Post-
Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(o) Form of Supplement to Master Business
Management Agreement between Ivy Fund and Ivy
Management, Inc. (Ivy Global Natural
Resources Fund), filed with Post-Effective
Amendment No. 89 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(p) Form of Supplement to Investment Advisory
Agreement between Ivy Fund and Mackenzie
Financial Corporation (Ivy Global Natural
Resources Fund), filed with Post-Effective
Amendment No. 89 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(q) Form of Supplement to Master Business
Management and Investment Advisory Agreement
between Ivy Fund and Ivy Management, Inc.
(Ivy Pan-Europe Fund), filed with Post-
Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(r) Form of Supplement to Master Business
Management and Investment Advisory Agreement
between Ivy Fund and Ivy Management, Inc.
(Ivy International Fund II), filed with Post-
Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(s) Addendum to Master Business Management and
Investment Advisory Agreement between Ivy
Fund and Ivy Management, Inc. (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US
Emerging Growth Fund), filed with this Post-
Effective Amendment No. 98 to Registration
Statement No. 2-17613.
(t) Supplement to Master Business Management and
Investment Advisory Agreement between Ivy
Fund and Ivy Management, Inc. (Ivy High Yield
Fund), filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
6. (a) Dealer Agreement, as amended and, filed with
Post-Effective Amendment No. 70 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Amended and Restated Distribution Agreement,
filed with Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(c) Addendum to Amended and Restated Distribution
Agreement, filed with Post-Effective
Amendment No. 73 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(d) Addendum to Amended and Restated Distribution
Agreement (Ivy Money Market Fund--Class A and
Class B), filed with Post-Effective Amendment
No. 84 to Registration Statement No. 2-17613
and incorporated by reference herein.
(e) Form of Addendum to Amended and Restated
Distribution Agreement (Class C), filed with
Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Science &
Technology Fund--Class A, Class B, Class C
and Class I), filed with Post-Effective
Amendment No. 86 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(g) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Global Natural
Resources Fund--Class A, Class B and Class C;
Ivy Asia Pacific Fund--Class A, Class B and
Class C; Ivy International Small Companies
Fund--Class A, Class B, Class C, and Class
I), filed with Post-Effective Amendment No.
89 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy Pan-Europe Fund--
Class A, Class B and Class C), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(i) Form of Addendum to Amended and Restated
Distribution Agreement (Ivy International
Fund II--Class A, Class B, Class C and Class
I), filed with Post-Effective Amendment No.
94 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Form of Addendum to Amended and Restated
Distribution Agreement (Advisor Class), filed
with Post-Effective Amendment No. 96 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(k) Addendum to Amended and Restated Distribution
Agreement (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth
Fund), filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
(l) Addendum to Amended and Restated Distribution
Agreement (Ivy High Yield Fund), filed with
this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
7. Not Applicable
8. Custodian Agreement between Ivy Fund and Brown
Brothers Harriman & Co., filed with Post-Effective
Amendment No. 74 to Registration No. 2-17613 and
incorporated by reference herein.
9. (a) Master Administrative Services Agreement
between Ivy Fund and Mackenzie Investment
Management Inc. and Supplements for Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund and Ivy Money Market Fund,
filed with Post-Effective Amendment No. 68 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Addendum to Administrative Services Agreement
Supplement for Ivy International Fund, filed
with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(c) Administrative Services Agreement Supplement
for Ivy Emerging Growth Fund, filed with
Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(d) Administrative Services Agreement Supplement
for Ivy China Region Fund, filed with Post-
Effective Amendment No. 73 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(e) Administrative Services Agreement Supplement
for Class I Shares of Ivy International Fund,
filed with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(f) Master Fund Accounting Services Agreement
between Ivy Fund and Mackenzie Investment
Management Inc. and Supplements for Ivy
Growth Fund, Ivy Emerging Growth Fund and Ivy
Money Market Fund, filed with Post-Effective
Amendment No. 73 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(g) Fund Accounting Services Agreement Supplement
for Ivy Growth with Income Fund, filed with
Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(h) Fund Accounting Services Agreement Supplement
for Ivy China Region Fund, filed with Post-
Effective Amendment No. 73 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(i) Transfer Agency and Shareholder Services
Agreement between Ivy Fund and Ivy
Management, Inc., filed with Post-Effective
Amendment No. 71 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(j) Addendum to Transfer Agency and Shareholder
Services Agreement, filed with Post-Effective
Amendment No. 73 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(k) Assignment Agreement relating to Transfer
Agency and Shareholder Services Agreement,
filed with Post-Effective Amendment No. 74 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(l) Form of Administrative Services Agreement
Supplement for Ivy Latin America Strategy
Fund, filed with Post-Effective Amendment No.
75 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(m) Form of Administrative Services Agreement
Supplement for Ivy New Century Fund, filed
with Post-Effective Amendment No. 75 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(n) Form of Fund Accounting Services Agreement
Supplement for Ivy Latin America Strategy
Fund, filed with Post-Effective Amendment No.
75 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(o) Form of Fund Accounting Services Agreement
Supplement for Ivy New Century Fund, filed
with Post-Effective Amendment No. 75 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(p) Form of Administrative Services Agreement
Supplement for Ivy International Bond Fund,
filed with Post-Effective Amendment No. 76 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Form of Fund Accounting Services Agreement
Supplement for International Bond Fund,
filed with Post-Effective Amendment No. 76 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(r) Addendum to Transfer Agency and Shareholder
Services Agreement, filed with Post-Effective
Amendment No. 76 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(s) Addendum to Transfer Agency and Shareholder
Services Agreement, filed with Post-Effective
Amendment No. 77 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(t) Administrative Services Agreement Supplement
for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund,
filed with Post-Effective Amendment No. 81 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(u) Fund Accounting Services Agreement Supplement
for Ivy Bond Fund, Ivy Global Fund and Ivy
Short-Term U.S. Government Securities Fund,
filed with Post-Effective Amendment No. 81 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(v) Form of Administrative Services Agreement
Supplement (Class C) for Ivy Bond Fund, Ivy
Canada Fund, Ivy China Region Fund, Ivy
Emerging Growth Fund, Ivy Global Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund, Ivy International Bond
Fund, Ivy Latin America Strategy Fund, Ivy
Money Market Fund and Ivy New Century Fund,
filed with Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(w) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Class C),
filed with Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(x) Form of Administrative Services Agreement
Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective
Amendment No. 86 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(y) Form of Fund Accounting Services Agreement
Supplement for Ivy Global Science &
Technology Fund, filed with Post-Effective
Amendment No. 86 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(z) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global
Science & Technology Fund, filed with Post-
Effective Amendment No. 86 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(aa) Form of Administrative Services Agreement
Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund, filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(bb) Form of Fund Accounting Services Agreement
Supplement for Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund, filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(cc) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Global
Natural Resources Fund, Ivy Asia Pacific Fund
and Ivy International Small Companies Fund,
filed with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(dd) Form of Administrative Services Agreement
Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(ee) Form of Fund Accounting Services Agreement
Supplement for Ivy Pan-Europe Fund, filed
with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(ff) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy Pan-
Europe Fund, filed with Post-Effective
Amendment No. 94 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(gg) Form of Administrative Services Agreement
Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(hh) Form of Fund Accounting Services Agreement
Supplement for Ivy International Fund II,
filed with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(ii) Form of Addendum to Transfer Agency and
Shareholder Services Agreement for Ivy
International Fund II, filed with Post-
Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(jj) Form of Administrative Services Agreement
Supplement (Advisor Class) for Ivy Asia
Pacific Fund, Ivy Bond Fund, Ivy Canada Fund,
Ivy China Region Fund, Ivy Emerging Growth
Fund, Ivy Global Fund, Ivy Global Natural
Resources Fund, Ivy Global Science &
Technology Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Bond
Fund, Ivy International Fund II, Ivy
International Small Companies Fund, Ivy Latin
America Strategy Fund, Ivy New Century Fund
and Ivy Pan-Europe Fund, filed with Post-
Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(kk) Form of Addendum to Transfer Agency and
Shareholder Services Agreement (Advisor
Class), filed with Post-Effective Amendment
No. 96 to Registration Statement No. 2-17613
and incorporated by reference herein.
(ll) Addendum to Administrative Services Agreement
(Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund),
filed with this Post-Effective Amendment No.
98 to Registration Statement No. 2-17613.
(mm) Addendum to Fund Accounting Services
Agreement (Ivy Developing Nations Fund, Ivy
South America Fund, Ivy US Emerging Growth
Fund), filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
(nn) Addendum to Transfer Agency and Shareholder
Services Agreement (Ivy Developing Nations
Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund, Ivy High Yield Fund), filed with
this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
(oo) Addendum to Fund Accounting Services
Agreement (Ivy High Yield Fund), filed with
this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
(pp) Addendum to Administrative Services Agreement
(Ivy High Yield Fund), filed with this Post-
Effective Amendment No. 98 to Registration
Statement No. 2-17613.
10. Opinion and consent of counsel with respect to
Registrant's Ivy High Yield Fund filed with this
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613.
11. (a) Consent of independent accountants filed with
this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
(b) Report of independent accountants filed with
this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. (a) Amended and Restated Distribution Plan for
Class A shares of Ivy China Region Fund, Ivy
Growth Fund, Ivy Growth with Income Fund, Ivy
International Fund and Ivy Emerging Growth
Fund, filed with Post-Effective Amendment No.
73 to Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Distribution Plan for Class B shares of Ivy
China Region Fund, Ivy Growth Fund, Ivy
Growth with Income Fund, Ivy International
Fund and Ivy Emerging Growth Fund, filed with
Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(c) Distribution Plan for Class C Shares of Ivy
Growth with Income Fund, filed with Post-
Effective Amendment No. 73 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(d) Form of Rule 12b-1 Related Agreement, filed
with Post-Effective Amendment No. 73 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(e) Supplement to Master Amended and Restated
Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment
No. 76 to Registration Statement No. 2-17613
and incorporated by reference herein.
(f) Supplement to Distribution Plan for Ivy Fund
Class B Shares, filed with Post-Effective
Amendment No. 76 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(g) Supplement to Master Amended and Restated
Distribution Plan for Ivy Fund Class A
Shares, filed with Post-Effective Amendment
No. 77 to Registration Statement No. 2-17613
and incorporated by reference herein.
(h) Supplement to Distribution Plan for Ivy Fund
Class B Shares, filed with Post-Effective
Amendment No. 77 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(i) Form of Supplement to Distribution Plan for
Ivy Growth with Income Fund Class C Shares
(Redesignation as Class D Shares), filed with
Post-Effective Amendment No. 84 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(j) Form of Distribution Plan for Class C shares
of Ivy Bond Fund, Ivy Canada Fund, Ivy China
Region Fund, Ivy Emerging Growth Fund, Ivy
Global Fund, Ivy Growth Fund, Ivy Growth with
Income Fund, Ivy International Fund, Ivy
International Bond Fund, Ivy Latin America
Strategy Fund and Ivy New Century Fund, filed
with Post-Effective Amendment No. 85 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(k) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class
A Shares (Ivy Global Science & Technology
Fund), filed with Post-Effective Amendment
No. 87 to Registration Statement No. 2-17613
and incorporated by reference herein.
(l) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective
Amendment No. 87 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(m) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy Global Science &
Technology Fund), filed with Post-Effective
Amendment No. 87 to Registration Statement
No. 2-17613 and incorporated by reference
herein.
(n) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class
A Shares (Ivy Global Natural Resources Fund,
Ivy Asia Pacific Fund and Ivy International
Small Companies Fund), filed with Post-
Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(o) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(p) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy Global Natural
Resources Fund, Ivy Asia Pacific Fund and Ivy
International Small Companies Fund), filed
with Post-Effective Amendment No. 89 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(q) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class
A Shares (Ivy Pan-Europe Fund), filed with
Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(r) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy Pan-Europe
Fund), filed with Post-Effective Amendment
No. 94 to Registration Statement No. 2-17613
and incorporated by reference herein.
(s) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy Pan-Europe
Fund), filed with Post-Effective Amendment
No. 94 to Registration Statement No. 2-17613
and incorporated by reference herein.
(t) Form of Supplement to Master Amended and
Restated Distribution Plan for Ivy Fund Class
A Shares (Ivy International Fund II), filed
with Post-Effective Amendment No. 94 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(u) Form of Supplement to Distribution Plan for
Ivy Fund Class B Shares (Ivy International
Fund II), filed with Post-Effective Amendment
No. 94 to Registration Statement No. 2-17613
and incorporated by reference herein.
(v) Form of Supplement to Distribution Plan for
Ivy Fund Class C Shares (Ivy International
Fund II), filed with Post-Effective Amendment
No. 94 to Registration Statement No. 2-17613
and incorporated by reference herein.
(w) Amendment to Master Amended and Restated
Distribution Plan for Ivy Fund Class A Shares
(Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund),
filed with this Post-Effective Amendment No.
98 to Registration Statement No. 2-17613.
(x) Amendment to Distribution Plan for Ivy Fund
Class B Shares (Ivy Developing Nations Fund,
Ivy South America Fund, Ivy US Emerging
Growth Fund), filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
(y) Amendment to Distribution Plan for Ivy Fund
Class C Shares (Ivy Developing Nations Fund,
Ivy South America Fund, Ivy US Emerging
Growth Fund), filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
(z) Supplement to Master Amended and Restated
Distribution Plan for Ivy Fund Class A Shares
(Ivy High Yield Fund), filed with this Post-
Effective Amendment No. 98 to Registration
Statement No. 2-17613.
(aa) Supplement to Distribution Plan for Ivy Fund
Class B Shares (Ivy High Yield Fund), filed
with this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
(bb) Supplement to Distribution Plan for Ivy Fund
Class C Shares (Ivy High Yield Fund), filed
with this Post-Effective Amendment No. 98 to
Registration Statement No. 2-17613.
16. Schedule of Computation of Standardized
Performance Quotations, filed with Post-Effective
Amendment No. 71 to Registration Statement No. 2-
17613 and incorporated by reference herein.
17. Not applicable.
18. (a) Plan adopted pursuant to Rule 18f-3 under the
Investment Company Act of 1940, filed with
Post-Effective Amendment No. 83 to
Registration Statement No. 2-17613 and
incorporated by reference herein.
(b) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 85 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(c) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 87 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(d) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 89 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(e) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 92 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(f) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 94 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(g) Form of Amended and Restated Plan adopted
pursuant to Rule 18f-3 under the Investment
Company Act of 1940, filed with Post-
Effective Amendment No. 96 to Registration
Statement No. 2-17613 and incorporated by
reference herein.
(h) Amended and Restated Plan adopted pursuant to
Rule 18f-3 under the Investment Company Act
of 1940, filed with this Post-Effective
Amendment No. 98 to Registration Statement
No. 2-17613.
25. Not applicable
26. Number of Holders of Securities
Fund: Date Class Record Holders
Ivy Asia Pacific 02/28/98 Class A 135
Fund Class B 89
Class C 124
Advisor Class 0
Ivy Bond Fund 02/28/98 Class A 4,776
Class B 758
Class C 110
Class I 0
Advisor Class 7
Ivy Canada Fund 02/28/98 Class A 1,644
Class B 146
Class C 22
Advisor Class 0
Ivy China Region 02/28/98 Class A 2,079
Fund Class B 1,135
Class C 106
Advisor Class 1
Ivy Developing 02/28/98 Class A 869
Nations Fund Class B 808
Class C 224
Advisor Class 0
Ivy Global Fund 02/28/98 Class A 1,388
Class B 806
Class C 370
Advisor Class 0
Ivy Global Natural 02/28/98 Class A 198
Resources Fund Class B 172
Class C 14
Advisor Class 0
Ivy Global Science 02/28/98 Class A 890
& Technology Fund Class B 735
Class C 370
Class I 0
Advisor Class 0
Ivy Growth Fund 02/28/98 Class A 26,904
Class B 309
Class C 17
Advisor Class 0
Ivy Growth with 02/28/98 Class A 6,104
Income Fund Class B 1,391
Class C 134
Class D 0
Advisor Class 0
Ivy High Yield 02/28/98 Class A 0
Fund Class B 0
Class C 0
Class I 0
Advisor Class 0
Ivy International 02/28/98 Class A 27,928
Fund Class B 21,416
Class C 3,631
Class I 400
Advisor Class 0
Ivy International 02/28/98 Class A 1,100
Fund II Class B 1,910
Class C 564
Class I 0
Advisor Class 1
Ivy International 02/28/98 Class A 110
Small Companies Fund Class B 94
Class C 32
Class I 0
Advisor Class 0
Ivy Money Market 02/28/98 Class A 2,276
Fund Class B 203
Class C 21
Ivy Pan-Europe 02/28/98 Class A 35
Fund Class B 25
Class C 3
Advisor Class 0
Ivy South America 02/28/98 Class A 398
Fund Class B 219
Class C 18
Advisor Class 0
Ivy US Emerging 02/28/98 Class A 5,393
Growth Fund Class B 3,747
Class C 434
Advisor Class 1
27. Indemnification
A policy of insurance covering Ivy Management, Inc. and the
Registrant will insure the Registrant's trustees and officers and
others against liability arising by reason of an actual or
alleged breach of duty, neglect, error, misstatement, misleading
statement, omission or other negligent act.
Reference is made to Article VIII of the Registrant's Amended and
Restated Declaration of Trust, dated December 10, 1992, filed
with Post-Effective Amendment No. 71 to Registration Statement
No. 2-17613 and incorporated by reference herein.
28. Business and Other Connections of Investment Adviser
Information Regarding Adviser and Subadviser Under Advisory
Arrangements. Reference is made to the Form ADV of each of Ivy
Management, Inc., the adviser to the Trust, Mackenzie Financial
Corporation, the adviser to Ivy Canada Fund, and Northern Cross
Investments Limited (the successor to Boston Overseas Investors,
Inc.), the subadviser to Ivy International Fund.
The list required by this Item 28 of officers and directors of
Ivy Management, Inc. and Northern Cross Investments Limited,
together with information as to any other business profession,
vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated
by reference to Schedules A and D of each firm's respective Form
ADV.
29. Principal Underwriters
(a)Ivy Mackenzie Distribution, Inc. ("IMDI"), formerly Mackenzie
Ivy Funds Distributors, Inc., Via Mizner Financial Plaza, 700
South Federal Highway, Suite 300, Boca Raton, Florida 33432,
Registrant's distributor, is a subsidiary of Mackenzie Investment
Management Inc. ("MIMI"), Via Mizner Financial Plaza, 700 South
Federal Highway, Suite 300, Boca Raton, Florida 33432. IMDI is
the successor to MIMI's distribution activities.
(b) The information required by this Item 29 regarding each
director, officer or partner of IMDI is incorporated by
reference to Schedule A of Form BD filed by IMDI
pursuant to the Securities Exchange Act of 1934.
(c) Not applicable
30. Location of Accounts and Records
The information required by this item is incorporated by
reference to Item 7 of Part II of Post-Effective Amendment
No. 46 to Registration Statement No. 2-17613.
31. Not applicable
32. Undertakings
(a) Not applicable
(b) Registrant undertakes to file a post-effective
amendment, using financial statements which need not be
certified, within four to six months from the effective
date of Registrant's 1933 Act registration statement.
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's
latest annual report to shareholders, upon request and
without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and
the Investment Company Act of 1940, the Registrant certifies that
it meets all of the requirements for effectiveness of this Post-
Effective Amendment No. 98 to its Registration Statement pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly
caused
this Post-Effective Amendment No. 98 to its Registration
Statement
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of
Massachusetts, on the 30th day of March, 1998.
IVY FUND
By: Keith J. Carlson**
By: JOSEPH R. FLEMING President
Attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 98 to the Registration
Statement
has been signed below by the following persons in the capacities
and on the dates indicated.
SIGNATURES TITLE DATE
MICHAEL G. LANDRY* Trustee and Chairman 3/30/98
(Chief Executive Officer)
JOHN S. ANDEREGG, JR.* Trustee 3/30/98
PAUL H. BROYHILL* Trustee 3/30/98
STANLEY CHANNICK* Trustee 3/30/98
FRANK W. DEFRIECE, JR.* Trustee 3/30/98
ROY J. GLAUBER* Trustee 3/30/98
KEITH J. CARLSON** Trustee and President 3/30/98
JOSEPH G. ROSENTHAL* Trustee 3/30/98
RICHARD N. SILVERMAN* Trustee 3/30/98
J. BRENDAN SWAN* Trustee 3/30/98
C. WILLIAM FERRIS* Treasurer (Chief 3/30/98
Financial Officer)
By: JOSEPH R. FLEMING
Attorney-in-fact
* Executed pursuant to powers of attorney filed with
Post-Effective Amendments Nos. 69, 73, 74, 84 and 89 to
Registration Statement No. 2-17613.
** Executed pursuant to power of attorney filed with
Post-Effective Amendment No. 89 to Registration Statement
No.
2-17613.
<PAGE>
EXHIBIT INDEX
1(v) Redesignation of Series and Classes and Establishment
and Designation of Additional Class (Ivy International
Bond Fund redesignated as Ivy High Yield Fund; Class I
shares of Ivy High Yield Fund established)
5(s) Addendum to Master Business Management and Investment
Advisory Agreement between Ivy Fund and Ivy
Management,
Inc. (Ivy Developing Nations Fund, Ivy South America
Fund, Ivy US Emerging Growth Fund)
5(t) Supplement to Master Business Management and
Investment
Advisory Agreement between Ivy Fund and Ivy
Management,
Inc. (Ivy High Yield Fund)
6(k) Addendum to Amended and Restated Distribution
Agreement
(Ivy Developing Nations Fund, Ivy South America Fund,
Ivy US Emerging Growth Fund)
6(l) Addendum to Amended and Restated Distribution
Agreement
(Ivy High Yield Fund)
9(ll) Addendum to Administrative Services Agreement (Ivy
Developing Nations Fund, Ivy South America Fund, Ivy
US
Emerging Growth Fund)
9(mm) Addendum to Fund Accounting Services Agreement (Ivy
Developing Nations Fund, Ivy South America Fund, Ivy
US
Emerging Growth Fund)
9(nn) Addendum to Transfer Agency and Shareholder Services
Agreement (Ivy Developing Nations Fund, Ivy South
America Fund, Ivy US Emerging Growth Fund, Ivy High
Yield Fund)
9(oo) Addendum to Fund Accounting Services Agreement (Ivy
High Yield Fund)
9(pp) Addendum to Administrative Services Agreement (Ivy
High
Yield Fund)
10 Opinion and consent of counsel with respect to
Registrant's Ivy High Yield Fund
11(a) Consent of independent accountants filed with this
Post-Effective Amendment No. 98 to Registration
Statement No. 2-17613.
11(b) Report of independent accountants filed with this
Post-
Effective Amendment No. 98 to Registration Statement
No. 2-17613.
15(w) Amendment to Master Amended and Restated Distribution
Plan for Ivy Fund Class A Shares (Ivy Developing
Nations Fund, Ivy South America Fund, Ivy US Emerging
Growth Fund)
15(x) Amendment to Distribution Plan for Ivy Fund Class B
Shares (Ivy Developing Nations Fund, Ivy South America
Fund, Ivy US Emerging Growth Fund)
15(y) Amendment to Distribution Plan for Ivy Fund Class C
Shares (Ivy Developing Nations Fund, Ivy South America
Fund, Ivy US Emerging Growth Fund)
15(z) Supplement to Master Amended and Restated Distribution
Plan for Ivy Fund Class A Shares (Ivy High Yield Fund)
15(aa) Supplement to Distribution Plan for Ivy Fund Class B
Shares (Ivy High Yield Fund)
15(bb) Supplement to Distribution Plan for Ivy Fund Class C
Shares (Ivy High Yield Fund)
18(h) Amended and Restated Plan adopted pursuant to Rule
18f-
3 under the Investment Company Act of 1940
Exhibit 1(v)
IVY FUND
Ivy International Bond Fund
Redesignation of Series of Shares of Beneficial Interest,
Redesignation of Classes of Shares of Beneficial Interest,
and Establishment and Designation of Additional Class of
Shares of Beneficial Interest, No Par Value Per Share
I, Michael G. Landry, being a duly elected, qualified and
acting Trustee of Ivy Fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, DO
HEREBY CERTIFY that, by a written consent dated as of January 28,
1998, the Trustees of the Trust (the "Trustees"), pursuant to
Article III and Article IV of the Agreement and Declaration of
Trust of the Trust dated December 21, 1983, as amended and
restated December 10, 1992 and filed with The Commonwealth of
Massachusetts December 28, 1992 (the "Declaration of Trust"),
duly approved, adopted and consented to the following resolutions
as actions of the Trustees of the Trust:
WHEREAS, acting pursuant to Article III of the Trust's
Declaration of Trust, the Trustees established Ivy International
Bond Fund (the "Fund") as an additional series of the Trust
pursuant to an Establishment and Designation of Additional Series
dated September 21, 1994 (the "Designation"), which Fund
currently has an unlimited number of authorized and unissued
shares of beneficial interest designated as "Ivy International
Bond Fund - Class A" ("Class A"), "Ivy International Bond Fund -
Class B" ("Class B"), "Ivy International Bond Fund - Class C"
("Class C") and "Ivy International Bond Fund - Advisor Class"
("Advisor Class") shares (each a "Class" and, collectively, the
"Classes");
WHEREAS, the Trustees, acting pursuant to Article III of the
Declaration of Trust and Section 4 of the Designation, now desire
to redesignate the Ivy International Bond Fund series of the
Trust as Ivy High Yield Fund and to change the name of each
Class; and
WHEREAS, the Trustees have decided to divide the shares of
beneficial interest of the Fund into an additional class, no par
value per share;
NOW, THEREFORE, IT IS HEREBY:
RESOLVED, that "Ivy International Bond Fund" be, and it
hereby is, redesignated as "Ivy High Yield Fund";
FURTHER RESOLVED, that the name of each of the Fund's
Class A, Class B, Class C and Advisor Class shares be,
and it hereby is, redesignated as "Ivy High Yield Fund
- Class A", "Ivy High Yield Fund - Class B", "Ivy High
Yield Fund - Class C", and "Ivy High Yield Fund -
Advisor Class", respectively;
FURTHER RESOLVED, that the shares of beneficial
interest of the Fund are hereby divided into one
additional class, no par value per share, to be
designated as "Ivy High Yield Fund - Class I" ("Class
I"), of which there shall hereby be designated an
unlimited number of authorized and unissued shares of
beneficial interest (the "Class I shares");
FURTHER RESOLVED, that each Class I share of the Fund shall
be redeemable, shall represent a pro rata beneficial
interest in the assets attributable to Class I, and shall be
entitled to receive its pro rata share of net assets
attributable to Class I upon liquidation of the Fund, all as
provided in or not inconsistent with the Declaration of
Trust. Each Class I share shall have the voting, dividend,
liquidation and other rights, preferences, powers,
restrictions, limitations, qualifications, terms and
conditions as each other share of the Trust, as set forth in
the Declaration of Trust;
FURTHER RESOLVED, that each Class I share of the Fund shall
be entitled to one vote (or fraction thereof in the case of
a fractional share) on matters on which such shares shall be
entitled to vote. Shareholders of the Fund shall vote
together on any matter, except to the extent otherwise
required by the 1940 Act or when the Trustees have
determined that the matter affects only the interest of
shareholders of one or more classes, in which case only the
shareholders of that class (or classes) shall be entitled to
vote thereon. Any matter shall be deemed to have been
effectively acted upon with respect to the Fund if acted
upon in accordance with Rule 18f-2 under the 1940 Act (or
any successor rule) and the Declaration of Trust;
FURTHER RESOLVED, that any liabilities, expenses, costs,
charges or reserves that should be properly allocated to the
Fund's Class I may, in accordance with a plan previously
adopted by the Trustees pursuant to Rule 18f-3 under the
1940 Act (the "Rule 18f-3 Plan"), or such similar rule under
or provision or interpretation of the 1940 Act, be charged
to and borne solely by Class I, and the expenses so borne by
Class I may be appropriately reflected and cause differences
in the net asset value attributable to, and the dividend,
redemption and liquidation rights of, the shares of Class I,
the other classes of the Fund, and the other series of the
Trust; and
FURTHER RESOLVED, that the preceding resolutions shall
constitute an Amendment to the Declaration of Trust,
effective as of the date that the Registration Statement
pertaining to Ivy High Yield Fund is filed with the
Securities and Exchange Commission pursuant to Rule 485(a)
under the Securities Act of 1933.
IN WITNESS WHEREOF, I have signed this Amendment this 30th
day of January, 1998.
MICHEAL G. LANDRY
Michael G. Landry, as Trustee
The above signature is the true and correct signature of Michael
G. Landry, Trustee of the Trust.
C. WILLIAM FERRIS
C. William Ferris, Secretary/Treasurer
Mackenzie Investment Management Inc.
Exhibit 5(s)
IVY FUND
ADDENDUM TO
MASTER BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
AGREEMENT
Ivy Developing Nations Fund
Ivy South America Fund
Ivy US Emerging Growth Fund
AGREEMENT made as of the 20th day of January, 1998 by and
between Ivy Fund (the "Trust") and Ivy Management, Inc. (the
"Manager").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Business Management
and Investment Advisory Agreement dated December 31, 1991 (the
"Master Agreement"), pursuant to which the Trust has appointed
the Manager to provide the business management and investment
advisory services specified in that Master Agreement; and
WHEREAS, the Trustees of the Trust, by written consent dated
January 15, 1998, duly approved an amendment to the Trust's
Agreement and Declaration of Trust to redesignate each of Ivy
Emerging Growth Fund, Ivy New Century Fund and Ivy Latin America
Strategy Fund (each a "Fund" and, collectively, the "Funds") as
Ivy US Emerging Growth Fund, Ivy Developing Nations Fund and Ivy
South America Fund, respectively, and to change the names of each
Fund's classes to reflect such redesignations.
NOW THEREFORE, the Trust and the Manager hereby agree as
follows:
Effective as of January 20, 1998, the date
that supplements to the Registration
Statement pertaining to the redesignation of
the Funds were filed with the Securities and
Exchange Commission pursuant to Rule 497(e)
under the Securities Act of 1933, all
references to Ivy Emerging Growth Fund, Ivy
New Century Fund and Ivy Latin America
Strategy Fund in the Master Agreement and any
addenda, amendments or supplements thereto
shall hereafter apply to Ivy US Emerging
Growth Fund, Ivy Developing Nations Fund and
Ivy South America Fund, respectively.
IN WITNESS WHEREOF, the Trust and the Manager have adopted this
Addendum as of the date first set forth above.
IVY FUND
By: KEITH J. CARLSON, President
IVY MANAGEMENT, INC.
By: MICHAEL G. LANDRY, President
Exhibit 5(t)
IVY FUND
MASTER BUSINESS MANAGEMENT AND INVESTMENT ADVISORY
AGREEMENT SUPPLEMENT
Ivy High Yield Fund
AGREEMENT made as of the 25th day of March, 1998, by and
between Ivy Fund (the "Trust") and Ivy Management, Inc. (the
"Manager").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Business Management
and Investment Advisory Agreement dated December 31, 1991 (the
"Master Agreement"), pursuant to which the Trust has appointed
the Manager to provide the business management and investment
advisory services specified in that Master Agreement; and
WHEREAS, Ivy High Yield Fund (the "Fund") is a separate
investment portfolio of the Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the
following actions, subject to the conditions set forth:
1. As provided for in the Master Agreement, the Trust
hereby adopts the Master Agreement with respect to the Fund, and
the Manager hereby acknowledges that the Master Agreement shall
pertain to the Fund, the terms and conditions of such Master
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio" as used in the Master Agreement
shall, for purposes of this Supplement, pertain to the Fund.
3. As provided in the Master Agreement and subject to
further conditions as set forth therein, the Fund shall pay the
Manager a monthly fee on the first business day of each month
based upon the average daily value (as determined on each
business day at the time set forth in the Prospectus of the Fund
for determining net asset value per share) of the net assets of
the Fund during the preceding month at the annual rate of 0.75%.
4. This Supplement and the Master Agreement (together, the
"Agreement") shall become effective with respect to the Fund as
of the date specified above, and unless sooner terminated as
hereinafter provided, the Agreement shall remain in effect with
respect to the Fund for a period of more than two (2) years from
such date only so long as the continuance is specifically
approved at least annually (a) by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) or
by the Trust's entire Board of Trustees and (b) by the vote, cast
in person at a meeting called for that purpose, of a majority of
the Trust's Independent Trustees. This Agreement may be
terminated with respect to the Fund at any time, without payment
of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by vote of
a majority of the Trust's entire Board of Trustees on sixty (60)
days' written notice to the Manager or by the Manager on sixty
(60) days' written notice to the Trust. This Agreement shall
terminate automatically in the event of its assignment (as
defined in the 1940 Act).
IVY FUND, on behalf of
Ivy High Yield Fund
By: KEITH J. CARLSON, President
IVY MANAGEMENT, INC.
By: MICHAEL G. LANDRY, President
Exhibit 6(k)
IVY FUND
ADDENDUM TO
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
Ivy Developing Nations Fund
Ivy South America Fund
Ivy US Emerging Growth Fund
AGREEMENT made as of the 20th day of January, 1998 by and
between Ivy Fund (the "Trust") and Ivy Mackenzie Distributors,
Inc. ("IMDI").
WHEREAS, the Trust is registered as an open-end investment
company under the Investment Company Act of 1940, as amended, and
consists of one or more separate investment portfolios as may be
designated from time to time; and
WHEREAS, IMDI serves as the Trust's distributor pursuant to
an Amended and Restated Distribution Agreement dated October 23,
1993 (the "Agreement"); and
WHEREAS, the Trustees of the Trust, by written consent dated
January 15, 1998, duly approved an amendment to the Trust's
Agreement and Declaration of Trust to redesignate each of Ivy
Emerging Growth Fund, Ivy New Century Fund and Ivy Latin America
Strategy Fund (each a "Fund" and, collectively, the "Funds") as
Ivy US Emerging Growth Fund, Ivy Developing Nations Fund and Ivy
South America Fund, respectively, and to change the names of each
Fund's classes to reflect such redesignations.
NOW THEREFORE, the Trust and IMDI hereby agree as follows:
Effective as of January 20, 1998, the date
that supplements to the Registration
Statement pertaining to the redesignation of
the Funds were filed with the Securities and
Exchange Commission pursuant to Rule 497(e)
under the Securities Act of 1933, all
references to Ivy Emerging Growth Fund, Ivy
New Century Fund and Ivy Latin America
Strategy Fund in the Agreement and any
addenda, amendments or supplements thereto
shall hereafter apply to Ivy US Emerging
Growth Fund, Ivy Developing Nations Fund and
Ivy South America Fund, respectively.
IN WITNESS WHEREOF, the Trust and IMDI have adopted this
Addendum as of the date first set forth above.
IVY FUND
By: KEITH J. CARLSON, President
IVY MACKENZIE DISTRIBUTORS, INC.
By: KEITH J. CARLSON, President
Exhibit 6(l)
IVY FUND
ADDENDUM TO
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
Ivy High Yield Fund
Class A, Class B, Class C , Class I and Advisor Class Shares
AGREEMENT made as of the 25th day of March, 1998, by and
between Ivy Fund (the "Trust") and Ivy Mackenzie Distributors,
Inc. ("IMDI").
WHEREAS, the Trust is registered as an open-end investment
company under the Investment Company Act of 1940, as amended, and
consists of one or more separate investment portfolios, as may be
designated from time to time; and
WHEREAS, IMDI serves as the Trust's distributor pursuant to
an Amended and Restated Distribution Agreement dated October 23,
1993 (the "Agreement"); and
WHEREAS, the Trustees of the Trust, at a meeting held on
February 7, 1998, duly approved an amendment to the Agreement to
include the Class A, Class B, Class C, Class I and Advisor Class
shares (the "Shares") of Ivy High Yield Fund (the "Fund").
WHEREAS, the Shares were established and designated by the
Board of Trustees of the Trust by written consent made effective
as of the date that the Registration Statement for the Fund was
filed with the Securities and Exchange Commission in accordance
with Rule 485(a)(1) under the Securities Act of 1933.
NOW THEREFORE, the Trust and IMDI hereby agree as follows:
Effective as of the date of this Addendum,
the Agreement shall relate in all respects to
the Shares, in addition to the classes of
shares of any other series of the Trust
specifically identified in Paragraph 1 of the
Agreement and any other Addenda thereto.
IN WITNESS WHEREOF, the Trust and IMDI have adopted this
Addendum as of the date first set forth above.
IVY FUND
By: KEITH J. CARLSON, President
IVY MACKENZIE DISTRIBUTORS, INC.
By: KEITH J. CARLSON, President
Exhibit 9(ll)
IVY FUND
ADDENDUM TO
ADMINISTRATIVE SERVICES AGREEMENT
Ivy Developing Nations Fund
Ivy South America Fund
Ivy US Emerging Growth Fund
AGREEMENT made as of the 20th day of January, 1998 by and
between Ivy Fund (the "Trust") and Mackenzie Investment
Management Inc. ("MIMI").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Administrative
Services Agreement dated September 1, 1992 (the "Master Services
Agreement"), pursuant to which the Trust has appointed MIMI to
provide the administrative services specified in the Master
Services Agreement; and
WHEREAS, the Trustees of the Trust, by written consent dated
January 15, 1998, duly approved an amendment to the Trust's
Agreement and Declaration of Trust to redesignate each of Ivy
Emerging Growth Fund, Ivy New Century Fund and Ivy Latin America
Strategy Fund (each a "Fund" and, collectively, the "Funds") as
Ivy US Emerging Growth Fund, Ivy Developing Nations Fund and Ivy
South America Fund, respectively, and to change the names of each
Fund's classes to reflect such redesignations.
NOW THEREFORE, the Trust and MIMI hereby agree as follows:
Effective as of January 20, 1998, the date
that supplements to the Registration
Statement pertaining to the redesignation of
the Funds were filed with the Securities and
Exchange Commission pursuant to Rule 497(e)
under the Securities Act of 1933, all
references to Ivy Emerging Growth Fund, Ivy
New Century Fund and Ivy Latin America
Strategy Fund in the Master Services
Agreement and any addenda, amendments or
supplements thereto shall hereafter apply to
Ivy US Emerging Growth Fund, Ivy Developing
Nations Fund and Ivy South America Fund,
respectively.
IN WITNESS WHEREOF, the Trust and MIMI have adopted this Addendum
as of the date first set forth above.
IVY FUND
By: KEITH J. CARLSON, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: MICHAEL G. LANDRY, President
Exhibit 9(mm)
IVY FUND
ADDENDUM TO
FUND ACCOUNTING SERVICES AGREEMENT
Ivy Developing Nations Fund
Ivy South America Fund
Ivy US Emerging Growth Fund
AGREEMENT made as of the 20th day of January, 1998 by and
between Ivy Fund (the "Trust") and Mackenzie Investment
Management Inc. (the "Agent").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Fund Accounting
Services Agreement dated January 25, 1993 (the "Master
Agreement"), pursuant to which the Trust has appointed the Agent
to provide the fund accounting services specified in the Master
Agreement; and
WHEREAS, the Trustees of the Trust, by written consent dated
January 15, 1998, duly approved an amendment to the Trust's
Agreement and Declaration of Trust to redesignate each of Ivy
Emerging Growth Fund, Ivy New Century Fund and Ivy Latin America
Strategy Fund (each a "Fund" and, collectively, the "Funds") as
Ivy US Emerging Growth Fund, Ivy Developing Nations Fund and Ivy
South America Fund, respectively, and to change the names of each
Fund's classes to reflect such redesignations.
NOW THEREFORE, the Trust and the Agent hereby agree as
follows:
Effective as of January 20, 1998, the date
that supplements to the Registration
Statement pertaining to the redesignation of
the Funds were filed with the Securities and
Exchange Commission pursuant to Rule 497(e)
under the Securities Act of 1933, all
references to Ivy Emerging Growth Fund, Ivy
New Century Fund and Ivy Latin America
Strategy Fund in the Master Agreement and any
addenda, amendments or supplements thereto
shall hereafter apply to Ivy US Emerging
Growth Fund, Ivy Developing Nations Fund and
Ivy South America Fund, respectively.
IN WITNESS WHEREOF, the Trust and the Agent have adopted this
Addendum as of the date first set forth above.
IVY FUND
By: KEITH J. CARLSON, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: MICHAEL G. LANDRY, President
Exhibit 9(nn)
ADDENDUM TO TRANSFER AGENCY AND
SHAREHOLDER SERVICES AGREEMENT
IVY FUND
The Transfer Agency and Shareholder Services Agreement, made
as of the 1st day of January, 1992 between Ivy Fund and Ivy
Management, Inc. ("IMI"), of which the duties of IMI thereunder
were assigned on October 1, 1993 to Ivy Mackenzie Services Corp.
("IMSC"), is hereby revised as set forth below in this Addendum.
Schedule A of the Agreement is revised in its entirety to read as
follows:
SCHEDULE A
IVY FEES:
The transfer agency and shareholder service fees are based
on an annual per account fee. These fees are payable on a
monthly basis at the rate of 1/12 of the annual fee and are
charged with respect to all open accounts.
A. PER ACCOUNT FEES
Classes Class Advisor
Fund Name A, B, C I Class
Ivy Asia Pacific Fund $20.00 N/A $20.00
Ivy Bond Fund 20.75 10.25 20.75
Ivy Canada Fund 20.00 N/A 20.00
Ivy China Region Fund 20.00 N/A 20.00
Ivy Pan-Europe Fund 20.00 N/A 20.00
Ivy US Emerging Growth Fund 20.00 N/A 20.00
Ivy Global Fund 20.00 N/A 20.00
Ivy Global Natural Resources Fund 20.00 N/A 20.00
Ivy Global Science & Technology Fund 20.00 10.25 20.00
Ivy Growth Fund 20.00 N/A 20.00
Ivy Growth with Income Fund 20.00 N/A 20.00
Ivy High Yield Fund 20.00 10.25 20.00
Ivy International Fund 20.00 10.25 N/A
Ivy International Small Companies Fund 20.00 10.25 20.00
Ivy International Fund II 20.00 10.25 20.00
Ivy South America Fund 20.00 N/A 20.00
Ivy Money Market Fund 22.00 N/A N/A
Ivy Developing Nations Fund 20.00 N/A 20.00
In addition, in accordance with an agreement between IMSC
and First Data Investor Services Group, Inc. (formerly The
Shareholder Services Group, Inc.), each Fund will pay a fee of
$4.48 for each account that is closed, which fee may be increased
from time to time in accordance with the terms of that agreement.
B. SPECIAL SERVICES
Fees for activities of a non-recurring nature, such as
preparation of special reports, portfolio consolidations, or
reorganization, and extraordinary shipments will be subject to
negotiation.
This Addendum shall take effect as of the date that the
Registration Statement pertaining to Ivy High Yield Fund, filed
with the Securities and Exchange Commission on or about January
30, 1998, pursuant to Rule 485(a)(1) under the Securities Act of
1933, first becomes effective.
IN WITNESS WHEREOF, the parties hereto have caused this
Addendum to be executed on this 25th day of March, 1998.
IVY FUND
By: KEITH J. CARLSON, President
IVY MACKENZIE SERVICES CORP.
By: C. WILLIAM FERRIS, President
Exhibit 9(oo)
IVY FUND
FUND ACCOUNTING SERVICES AGREEMENT SUPPLEMENT
Ivy High Yield Fund
AGREEMENT made as of the 25th day of March, 1998, by and
between Ivy Fund (the "Trust") and Mackenzie Investment
Management Inc. (the "Agent").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Fund Accounting
Services Agreement dated January 25, 1993 (the "Master
Agreement"), pursuant to which the Trust has appointed the Agent
to provide the fund accounting services specified in the Master
Agreement; and
WHEREAS, Ivy High Yield Fund (the "Fund") is a separate
investment portfolio of the Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the
following actions, subject to the conditions set forth:
1. As provided for in the Master Agreement, the Trust
hereby adopts the Master Agreement with respect to the Fund, and
the Agent hereby acknowledges that the Master Agreement shall
pertain to the Fund, the terms and conditions of such Master
Agreement being hereby incorporated herein by reference.
2. The term "Portfolio" as used in the Master Agreement
shall, for purposes of this Supplement, pertain to the Fund.
3. As provided in the Master Agreement and subject to
further conditions as set forth therein, the Fund shall pay the
Agent a monthly fee based upon the rate(s) set forth in the Fee
Schedule attached hereto as Annex 1.
4. This Supplement and the Master Agreement (together, the
"Agreement") shall become effective with respect to the Fund as
of the date specified above, and unless sooner terminated as
hereinafter provided, the Agreement shall remain in effect with
respect to the Fund for a period of more than one (1) year from
such date only so long as the continuance is specifically
approved at least annually by the Trust's Board of Trustees,
including the vote or written consent of a majority of the
Trust's Independent Trustees (as defined in the Investment
Company Act of 1940, as amended). This Agreement may be
terminated with respect to the Fund, without payment of any
penalty, by the Fund upon at least ninety (90) days' prior
written notice to the Agent or by the Agent upon at least ninety
(90) days' prior written notice to the Fund; provided, that in
the case of termination by the Fund, such action shall have been
authorized by the Trust's Board of Trustees, including the vote
or written consent of a majority of the Trust's Independent
Trustees.
IVY FUND, on behalf of
Ivy High Yield Fund
By: KEITH J. CARLSON, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: MICHAEL G. LANDRY, President
<PAGE>
ANNEX 1
FUND ACCOUNTING SERVICES AGREEMENT
FEE SCHEDULE
Based upon assets under management (in millions):
$0-$10 >$10-$40 >$40-$75 Over $75
Ivy High Yield $1,250 $2,500 $5,000
$6,500
Fund
Exhibit 9(pp)
IVY FUND
ADMINISTRATIVE SERVICES AGREEMENT SUPPLEMENT
Ivy High Yield Fund
AGREEMENT made as of the 25th day of March, 1998 by and
between Ivy Fund (the "Trust") and Mackenzie Investment
Management Inc. ("MIMI").
WHEREAS, the Trust is an open-end investment company,
organized as a Massachusetts business trust, and consists of such
separate investment portfolios as have been or may be established
and designated by the Trustees of the Trust from time to time;
WHEREAS, several classes of shares are offered to investors
with respect to each investment portfolio of the Trust;
WHEREAS, the Trust has adopted a Master Administrative
Services Agreement dated September 1, 1992 (the "Master Services
Agreement"), pursuant to which the Trust has appointed MIMI to
provide the administrative services specified in the Master
Services Agreement; and
WHEREAS, Ivy High Yield Fund (the "Fund") is a separate
investment portfolio of the Trust.
NOW, THEREFORE, the Trustees of the Trust hereby take the
following actions, subject to the conditions set forth:
1. As provided for in the Master Services Agreement, the
Trust hereby adopts the Master Services Agreement with respect to
the Fund, and MIMI hereby acknowledges that the Master Services
Agreement shall pertain to the Fund, the terms and conditions of
such Master Services Agreement being incorporated herein by
reference.
2. The term "Fund" as used in the Master Services
Agreement shall, for purposes of this Supplement, pertain to the
Fund.
3. As provided in the Master Services Agreement and
subject to further conditions as set forth therein, the Fund
shall pay MIMI a monthly fee on the first business day of each
month based upon the average daily value (as determined on each
business day at the time set forth in the Fund's Prospectus for
determining net asset value per share) of the net assets of the
Fund during the preceding month at the annual rate of (i) 0.10%
with respect to the Fund's Class A, Class B, Class C and Advisor
Class shares, and (ii) 0.01%, with respect to the Fund's Class I
shares.
4. This Supplement and the Master Services Agreement
(together, the "Agreement") shall become effective with respect
to the Fund as of the date specified above, and unless sooner
terminated as hereinafter provided, the Agreement shall remain in
effect for a period of two years from that date. Thereafter, the
Agreement shall continue in effect with respect to the Fund from
year to year, provided such continuance with respect to the Fund
is approved at least annually by the Trust's Board of Trustees,
including the vote or written consent of a majority of the
Trust's Independent Trustees (as defined in the Investment
Company Act of 1940, as amended). This Agreement may be
terminated with respect to the Fund at any time, without payment
of any penalty, by MIMI upon at least sixty (60) days' prior
written notice to the Fund, or by the Fund upon at least sixty
(60) days' written notice to MIMI; provided, that in case of
termination by the Fund, such action shall have been authorized
by the Trust's Board of Trustees, including the vote or written
consent of a majority of the Trust's Independent Trustees.
IVY FUND, on behalf of
Ivy High Yield Fund
By: KEITH J. CARLSON, President
MACKENZIE INVESTMENT MANAGEMENT INC.
By: MICHAEL G. LANDRY, President
Exhibit 10
DECHERT PRICE & RHOADS
TEN POST OFFICE SQUARE -- SOUTH
SUITE 1230
BOSTON, MASSACHUSETTS 02109-4603
March 30, 1998
Ivy Fund
Via Mizner Financial Plaza
700 South Federal Highway
Suite 300
Boca Raton, Florida 33432
Dear Sirs:
As counsel for Ivy Fund (the "Trust"), we are familiar with
the registration of the Trust under the Investment Company Act of
1940, as amended (the "1940 Act") (File No. 811-1028), and the
prospectuses contained in Post-Effective Amendment No. 98 to the
Trust's registration statement relating to the shares of
beneficial interest of Ivy High Yield Fund (the "Shares") being
filed under the Securities Act of 1933, as amended (File No.
2-17613) ("Post-Effective Amendment No. 98"). We have also
examined such other records of the Trust, agreements, documents
and instruments as we deemed appropriate.
Based upon the foregoing, it is our opinion that the Shares
have been duly authorized and, when issued and sold at the public
offering price contemplated by the Prospectuses for Ivy High
Yield Fund and delivered by the Trust against receipt of the net
asset value of the Shares, will be issued as fully paid and
nonassessable shares of the Trust.
We consent to the filing of this opinion on behalf of the
Trust with the Securities and Exchange Commission in connection
with the filing of Post-Effective Amendment No. 98.
Very truly yours,
DECHERT PRICE & RHOADS
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Ivy Fund
We hereby consent to the inclusion in Post-Effective Amendment No.
98 to the Registration Statement on Form N-1A of Ivy Fund (File No.
2-17613, hereafter the "Registration Statement") of our report
dated March 25, 1998, on our audit of the Statement of Assets and
Liabilities as of March 25, 1998 of Ivy High Yield Fund appearing
in the Registration Statement. We also consent to the reference to
our Firm under the caption "Auditors" in the Prospectuses and the
Statements of Additional Information.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 27, 1998
Exhibit 11(b)
[Coopers & Lybrand letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Ivy High Yield Fund (the "Fund"):
We have audited the accompanying Statement of Assets and
Liabilities of the Fund as of March 25, 1998. This financial
statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
Statement of Assets and Liabilities is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Statement of
Assets and Liabilities. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
Statement of Assets and Liabilities. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the financial position of the
Fund as of March 25, 1998, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
March 25, 1998
Exhibit 15(w)
AMENDMENT TO
MASTER AMENDED AND RESTATED DISTRIBUTION PLAN
FOR IVY FUND CLASS A SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and consists of one or more separate investment
portfolios as may be established and designated from time to
time;
WHEREAS, the Board of Trustees of Ivy Fund (the "Board") has
adopted a Plan dated December 21, 1991 and amended and restated
on October 23, 1993 (the "Plan"), in accordance with the
requirements of Rule 12b-1 under the 1940 Act, and determined
that there is a reasonable likelihood that the Plan will benefit
Ivy Fund and its shareholders;
WHEREAS, the Board, by written consent dated January 15,
1998, duly approved an amendment to Ivy Fund's Agreement and
Declaration of Trust to redesignate each of Ivy Emerging Growth
Fund, Ivy New Century Fund and Ivy Latin America Strategy Fund
(each a "Fund") as Ivy US Emerging Growth Fund, Ivy Developing
Nations Fund and Ivy South America Fund, respectively, and to
change the names of each Fund's classes to reflect such
redesignations; and
WHEREAS, the Board, pursuant to Section 1 of the Plan,
desires to amend the Plan so that it pertains to each Fund and
its Class A shares as so redesignated.
NOW THEREFORE, the Board having determined that the Plan
shall pertain to each Fund and its Class A shares as so
redesignated, Ivy Fund hereby adopts this Amendment as of the
20th day of January, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 15(x)
AMENDMENT TO
DISTRIBUTION PLAN FOR IVY FUND CLASS B SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and consists of one or more separate investment
portfolios as may be established and designated from time to
time;
WHEREAS, the Board of Trustees of Ivy Fund (the "Board") has
adopted a Plan dated October 23, 1993 (the "Plan"), in accordance
with the requirements of Rule 12b-1 under the 1940 Act, and
determined that there is a reasonable likelihood that the Plan
will benefit Ivy Fund and its shareholders;
WHEREAS, the Board, by written consent dated January 15,
1998, duly approved an amendment to Ivy Fund's Agreement and
Declaration of Trust to redesignate each of Ivy Emerging Growth
Fund, Ivy New Century Fund and Ivy Latin America Strategy Fund
(each a "Fund") as Ivy US Emerging Growth Fund, Ivy Developing
Nations Fund and Ivy South America Fund, respectively, and to
change the names of each Fund's classes to reflect such
redesignations; and
WHEREAS, the Board, pursuant to Section 1 of the Plan,
desires to amend the Plan so that it pertains to each Fund and
its Class B shares as so redesignated.
NOW THEREFORE, the Board of Trustees of Ivy Fund having
determined that the Plan shall pertain to each Fund and its Class
B shares thereof as so redesignated, Ivy Fund hereby adopts this
Amendment as of the 20th day of January, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 15(y)
AMENDMENT TO
DISTRIBUTION PLAN FOR IVY FUND CLASS C SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and consists of one or more separate investment
portfolios as may be established and designated from time to
time;
WHEREAS, the Board of Trustees of Ivy Fund (the "Board") has
adopted a Plan dated February 10, 1996 (the "Plan"), in
accordance with the requirements of Rule 12b-1 under the 1940
Act, and determined that there is a reasonable likelihood that
the Plan will benefit Ivy Fund and its shareholders;
WHEREAS, the Board, by written consent dated January 15,
1998, duly approved an amendment to Ivy Fund's Agreement and
Declaration of Trust to redesignate each of Ivy Emerging Growth
Fund, Ivy New Century Fund and Ivy Latin America Strategy Fund
(each a "Fund") as Ivy US Emerging Growth Fund, Ivy Developing
Nations Fund and Ivy South America Fund, respectively, and to
change the names of each Fund's classes to reflect such
redesignations; and
WHEREAS, the Board, pursuant to Section 1 of the Plan,
desires to amend the Plan so that it pertains to each Fund and
its Class C shares as so redesignated.
NOW THEREFORE, the Board having determined that the Plan
shall pertain to each Fund and its Class C shares as so
redesignated, Ivy Fund hereby adopts this Amendment as of the
20th day of January, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 15(z)
SUPPLEMENT TO
MASTER AMENDED AND RESTATED DISTRIBUTION PLAN
FOR IVY FUND CLASS A SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940 (the "1940 Act")
and consists of one or more separate investment portfolios as may
be established and designated from time to time (each, a
"Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted a
Plan dated December 21, 1991 and amended and restated on October
23, 1993 (the "Plan"), in accordance with the requirements of the
1940 Act, and determined that there is a reasonable likelihood
that the Plan will benefit Ivy Fund and its shareholders; and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to
Section 1 of the Plan, desires to supplement the Plan so that it
pertains to the Class A Shares of a new Portfolio of Ivy Fund
referred to as Ivy High Yield Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having
determined that the Plan shall pertain to the Class A shares of
Ivy High Yield Fund, Ivy Fund hereby adopts this Supplement as of
the 25th day of March, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 15(aa)
SUPPLEMENT TO
DISTRIBUTION PLAN FOR IVY FUND CLASS B SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940 (the "1940 Act")
and consists of one or more separate investment portfolios as may
be established and designated from time to time (each, a
"Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted a
Plan dated October 23, 1993 (the "Plan"), in accordance with the
requirements of the 1940 Act, and determined that there is a
reasonable likelihood that the Plan will benefit Ivy Fund and its
shareholders; and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to
Section 1 of the Plan, desires to supplement the Plan so that it
pertains to the Class B Shares of a new Portfolio of Ivy Fund
referred to as Ivy High Yield Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having
determined that the Plan shall pertain to the Class B shares of
Ivy High Yield Fund, Ivy Fund hereby adopts this Supplement as of
the 25th day of March, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 15(bb)
SUPPLEMENT TO
DISTRIBUTION PLAN FOR IVY FUND CLASS C SHARES
WHEREAS, Ivy Fund is registered as an open-end investment
company under the Investment Company Act of 1940 (the "1940 Act")
and consists of one or more separate investment portfolios as may
be established and designated from time to time (each, a
"Portfolio");
WHEREAS, the Board of Trustees of Ivy Fund has adopted a
Plan dated February 10, 1996 (the "Plan"), in accordance with the
requirements of the 1940 Act, and determined that there is a
reasonable likelihood that the Plan will benefit Ivy Fund and its
shareholders; and
WHEREAS, the Board of Trustees of Ivy Fund, pursuant to
Section 1 of the Plan, desires to supplement the Plan so that it
pertains to the Class C Shares of a new Portfolio of Ivy Fund
referred to as Ivy High Yield Fund.
NOW THEREFORE, the Board of Trustees of Ivy Fund having
determined that the Plan shall pertain to the Class C shares of
Ivy High Yield Fund, Ivy Fund hereby adopts this Supplement as of
the 25th day of March, 1998.
IVY FUND
By: KEITH J. CARLSON, President
Exhibit 18(h)
IVY FUND
PLAN PURSUANT TO RULE 18F-3
UNDER THE
INVESTMENT COMPANY ACT OF 1940
(As Amended and Restated on February 7, 1998)
I. INTRODUCTION
In accordance with Rule 18f-3 under the Investment Company
Act of 1940, as amended (the "1940 Act"), this Plan describes the
multi-class structure that will apply to certain series of Ivy
Fund (each a "Fund" and, collectively, the "Funds"), including
the separate class arrangements for the service and distribution
of shares, the method for allocating the expenses and income of
each Fund among its classes, and any related exchange privileges
and conversion features that apply to the different classes.
II. THE MULTI-CLASS STRUCTURE
Each of the following Funds is authorized to issue four
classes of shares identified as Class A, Class B, Class C and an
Advisor Class: Ivy Asia Pacific Fund, Ivy Bond Fund, Ivy Canada
Fund, Ivy China Region Fund, Ivy Emerging Growth Fund, Ivy Global
Fund, Ivy Global Natural Resources Fund, Ivy Global Science & Ivy
High Yield Fund, Technology Fund, Ivy Growth Fund, Ivy Growth
with Income Fund, Ivy International Fund[FN][Ivy International
Fund does not have Ivy High Yield Fund an Advisor Class], Ivy
International Small Companies Fund, Ivy International Fund II,
Ivy Latin America Strategy Fund, Ivy Money Market Fund[FN1][The
separation of Ivy Money Market Fund shares into three separate
classes has been authorized as a means of enabling the Funds'
transfer agent to track the contingent deferred sales charge
period that applies to Class B and Class C shares of other Funds
that are being exchanged for shares of Ivy Money Market Fund. In
all other relevant respects, the three classes of Ivy Money
Market Fund shares are identical (i.e., having the same
arrangement for shareholder services and the distribution of
securities), and are not subject to any sales load other than in
connection with the redemption of Class B or Class C shares that
have been acquired pursuant to an exchange from another Fund.
(See Section III.D.)], Ivy New Century Fund and Ivy Pan-Europe
Fund. Ivy Bond Fund, Ivy Global Science & Technology Fund, Ivy
High Yield Fund, Ivy International Fund, Ivy International Fund
II and Ivy International Small Companies Fund are also authorized
to issue an additional class of shares identified as Class I.
Shares of each class of a Fund represent an equal pro rata
interest in the underlying assets of that Fund, and generally
have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have
a different designation; (b) each class shall bear certain class-
specific expenses, as described more fully in Section III.C.2.,
below; (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its
arrangement; and (d) each class shall have separate voting rights
on any matter submitted to shareholders in which the interests of
one class differ from the interests of any other class. Each
class of shares shall also have the distinct features described
in Section III, below.
III. CLASS ARRANGEMENTS
A. FRONT-END SALES CHARGES AND CONTINGENT DEFERRED SALES
CHARGES
Class A shares shall be offered at net asset value plus a
front-end sales charge. The front-end sales charge shall be in
such amount as is disclosed in each Fund's current prospectus and
shall be subject to reductions for larger purchases and such
waivers or reductions as are determined or approved by the Board
of Trustees. Class A shares generally will not be subject to a
contingent deferred sales charge (a "CDSC"), although a CDSC may
be imposed in certain limited cases as disclosed in each Fund's
current prospectus or prospectus supplement.
Class B and Class C shares shall be offered at net asset
value without the imposition of a front-end sales charge. A CDSC
in such amount as is described in each Fund's current prospectus
or prospectus supplement shall be imposed on Class B and Class C
shares, subject to such waivers or reductions as are determined
or approved by the Board of Trustees.
Advisor Class and Class I shares are not subject to a front-
end sales charge or a CDSC.
B. RULE 12B-1 PLANS
Each Fund (other than Ivy Money Market Fund) has adopted a
service and distribution plan pursuant to Rule 12b-1 under the
1940 Act (a "12b-1 plan") under which it pays to Ivy Mackenzie
Distributors, Inc. (the "Distributor") an annual fee based on the
average daily net assets value of the Fund's outstanding Class A,
Class B and Class C shares, respectively.[FN2][Advisor Class and
Class I shares are not subject to Rule 12b-1 service or
distribution fees.] The maximum fees currently charged to each
Fund under its 12b-1 plan are set forth in the table below, and
are expressed as a percentage of the Fund's average daily net
assets.[FN3][Fees for services in connection with the Rule 12b-1
plans will be consistent with any applicable restriction imposed
by the National Association of Securities Dealers, Inc.]
The services that the Distributor provides in connection
with each Rule 12b-1 plan for which service fees[FN4][Each Fund
pays the Distributor at the annual rate of up to 0.25% of the
average daily net asset value attributable to its Class A, Class
B and Class C shares, respectively. Ivy Canada Fund pays an
additional service-related fee of 0.15% of the average daily net
asset value attributable to its Class A shares. In addition,
each Fund (other than Ivy Canada Fund) pays the Distributor a fee
for other distribution services at the annual rate of 0.75% of
the Fund's average daily net assets attributable to its Class B
and Class C shares. Ivy Canada Fund pays the Distributor an
additional amount for other distribution services at the annual
rate of 0.60% of average daily net assets attributable to its
Class B and Class C shares.] are paid include, among other
things, advising clients or customers regarding the purchase,
sale or retention of a Fund's Class A, Class B or Class C shares,
answering routine inquiries concerning the Fund, assisting
shareholders in changing options or enrolling in specific plans
and providing shareholders with information regarding the Fund
and related developments.
The other distribution services provided by the Distributor
in connection with each Fund's Rule 12b-1 plan include any
activities primarily intended to result in the sale of the Fund's
Class B and Class C shares. For such distribution services, the
Distributor is paid for, among other things, compensation to
broker-dealers and other entities that have entered into
agreements with the Distributor; bonuses and other incentives
paid to broker-dealers or such other entities; compensation to
and expenses of employees of the Distributor who engage in or
support distribution of a Fund's Class B or Class C shares;
telephone expenses; interest expense (only to the extent not
prohibited by a regulation or order of the SEC); printing of
prospectuses and reports for other than existing shareholders;
and preparation, printing and distribution of sales literature
and advertising materials.
RULE 12b-1 FEES
CLASS B AND
CLASS A CLASS A CLASS C SHARES
SHARES SHARES (SERVICE AND
(SERVICE (DISTRIBUTION DISTRIBUTION
FUND NAME FEE) FEES) FEES)
Ivy Asia Pacific Fund 0.25% 0.00% 1.00%
Ivy Bond Fund 0.25% 0.00% 1.00%
Ivy Canada Fund 0.25% 0.15% 1.00%
Ivy China Region Fund 0.25% 0.00% 1.00%
Ivy Developing Nations 0.25% 0.00% 1.00%
Fund
Ivy Global Fund 0.25% 0.00% 1.00%
Ivy Global Natural
Resources Fund 0.25% 0.00% 1.00%
Ivy Global Science &
Technology Fund 0.25% 0.00% 1.00%
Ivy Growth Fund 0.25% 0.00% 1.00%
Ivy Growth with Income
Fund 0.25% 0.00% 1.00%
Ivy High Yield Fund 0.25% 0.00% 1.00%
Ivy International Fund 0.25% 0.00% 1.00%
Ivy International
Small Companies Fund 0.25% 0.00% 1.00%
Ivy International
Fund II 0.25% 0.00% 1.00%
Ivy South America
Fund 0.25% 0.00% 1.00%
Ivy Money Market Fund* 0.00% 0.00% 0.00%
Ivy Pan-Europe
Fund 0.25% 0.00% 1.00%
Ivy US Emerging Growth
Fund 0.25% 0.00% 1.00%
* See footnote 1.
C. ALLOCATION OF EXPENSES AND INCOME
1. "TRUST" AND "FUND" EXPENSES
The gross income, realized and unrealized capital gains and
losses and expenses (other than "Class Expenses," as defined
below) of each Fund shall be allocated to each class on the basis
of its net asset value relative to the net asset value of the
Fund. Expenses so allocated include expenses of Ivy Fund that
are not attributable to a particular Fund or class of a Fund
("Trust Expenses") and expenses of a Fund not attributable to a
particular class of the Fund ("Fund Expenses"). Trust Expenses
include, but are not limited to, Trustees' fees and expenses;
insurance costs; certain legal fees; expenses related to
shareholder reports; and printing expenses. Fund Expenses
include, but are not limited to, certain registration fees (i.e.,
state registration fees imposed on a Fund-wide basis and SEC
registration fees); custodial fees; transfer agent fees; advisory
fees; fees related to the preparation of separate documents of a
particular Fund, such as a separate prospectus; and other
expenses relating to the management of the Fund's assets.
2. "CLASS" EXPENSES
The types of expenses attributable to a particular class
("Class Expenses") include: (a) payments pursuant to the Rule
12b-1 plan for that class[FN5][Advisor Class and Class I shares
bear no distribution or service fees.]; (b) transfer agent fees
attributable to a particular class; (c) printing and postage
expenses related to preparing and distributing shareholder
reports, prospectuses and proxy materials; (d) registration fees
(other than those set forth in Section C.1. above); (e) the
expense of administrative personnel and services as required to
support the shareholders of a particular class[FN6][Class I
shares bear lower administrative services fees relative to these
Funds' other classes of shares (i.e., Class I shares of the Funds
pay a monthly administrative services fee based upon each Fund's
average daily net assets at the annual rate of only 0.01%, while
Class A, Class B, Class C and Advisor Class shares pay a fee at
the annual rate of 0.10%).]; (f) litigation or other legal
expenses relating solely to a particular class; (g) Trustees'
fees incurred as a result of issues relating to a particular
class; and (h) the expense of holding meetings solely for
shareholders of a particular class. Expenses described in
subpart (a) of this paragraph must be allocated to the class for
which they are incurred. All other expenses described in this
paragraph may (but need not) be allocated as Class Expenses, but
only if Ivy Fund's Board of Trustees determines, or Ivy Fund's
President and Secretary/Treasurer have determined, subject to
ratification by the Board of Trustees, that the allocation of
such expenses by class is consistent with applicable legal
principles under the 1940 Act and the Internal Revenue Code of
1986, as amended.
In the event that a particular expense is no longer
reasonably allocable by class or to a particular class, it shall
be treated as a Trust Expense or Fund Expense, and in the event a
Trust Expense or Fund Expense becomes reasonably allocable as a
Class Expense, it shall be so allocated, subject to compliance
with Rule 18f-3 and to approval or ratification by the Board of
Trustees.
3. WAIVERS OR REIMBURSEMENTS OF EXPENSES
Expenses may be waived or reimbursed by any adviser to Ivy
Fund, by Ivy Fund's underwriter or any other provider of services
to Ivy Fund without the prior approval of Ivy Fund's Board of
Trustees.
D. EXCHANGE PRIVILEGES
Shareholders of each Fund have exchange privileges with the
other Funds. [FN7][Other exchange privileges, not described
herein, exist under certain other circumstances, as described in
each Fund's current prospectus or prospectus supplement.]
1. CLASS A:
INITIAL SALES CHARGE SHARES. Class A shareholders may
exchange their Class A shares ("outstanding Class A shares") for
Class A shares of another Fund (or for shares of another 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. Incremental sales charges are waived
for outstanding Class A shares that have been invested for 12
months or longer.
CONTINGENT DEFERRED SALES CHARGE SHARES. Class A
shareholders may exchange their Class A shares subject to a
contingent deferred sales charge ("CDSC"), as described in the
Prospectus ("outstanding Class A shares"), for Class A shares of
another Fund (or for shares of another 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 a CDSC that would otherwise be due upon the
redemption of the outstanding Class A shares. Class A
shareholders of a Fund exercising the exchange privilege will
continue to be subject to the Fund's CDSC schedule (or period)
following an exchange, unless the CDSC schedule that applies to
the new Class A shares is higher (or such period is longer) than
the CDSC schedule (or period), if any, applicable to the
outstanding Class A shares, in which case the schedule (or
period) of the Fund into which the exchange is made shall apply.
2. CLASS B AND CLASS C:
Shareholders may exchange their Class B or Class C shares
("outstanding Class B shares" or "outstanding Class C shares,"
respectively) for Class B (or Class C) shares of another Fund
("new Class B shares" or "new Class C shares," respectively) on
the basis of the net asset value per Class B (or Class C) share,
without the payment of any CDSC that would otherwise be due upon
the redemption of the outstanding Class B (or Class C) shares.
Class B and Class C shareholders of a Fund exercising the
exchange privilege will continue to be subject to the Fund's CDSC
schedule (or period) following an exchange, unless, in the case
of Class B shareholders, the CDSC schedule that applies to the
new Class B shares is higher (or such period is longer) than the
CDSC schedule (or period) applicable to the outstanding Class B
shares, in which case the schedule (or period) of the Fund into
which the exchange is made shall apply.
3. CLASS I:
Advisor Class and Class I shareholders may exchange their
outstanding Advisor Class (or Class I) shares for Advisor Class
(or Class I) shares of another Fund on the basis of the net asset
value per Advisor Class (or Class I) share.
4. GENERAL:
Shares resulting from the reinvestment of dividends and
other distributions will not be charged an initial sales charge
or CDSC when exchanged into another Fund.
With respect to Fund shares subject to a CDSC, 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 CDSC for future redemptions of the exchanged
shares.
E. CONVERSION FEATURE
Class B shares of a Fund convert automatically to Class A
shares of the Fund 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 purchase date of the Class B shares
occurs. The conversion will be based on the relative net asset
values per share of the two classes, without the imposition of
any sales load, fee or other charge. For purposes of calculating
the eight year holding period, the "purchase date" shall mean the
date on which the Class B shares were initially purchased,
regardless of whether the Class B shares that are subject to the
conversion were obtained through an exchange (or series of
exchanges) from a different Fund. For purposes of conversion of
Class B shares, Class B shares acquired 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.
IV. BOARD REVIEW
A. INITIAL APPROVAL
The Board of Trustees of Ivy Fund, including a majority of
the Trustees who are not interested persons of Ivy Fund, as
defined under the 1940 Act (the "Independent Trustees"), at a
meeting held on December 1-2, 1995, initially approved this Plan
based on a determination that the Plan, including the expense
allocation, is in the best interests of each class of shares of
each Fund individually and Ivy Fund as a whole.[FN8][The Plan, as
initially approved, pertained only to the Class A and Class B
shares of the Funds, and the Class I shares of Ivy Bond Fund and
Ivy International Fund. The Plan was amended and restated on
April 30, 1996 to reflect the establishment and designation of
Class C shares of the Funds. The Plan was further amended and
restated on June 8, 1996 to reflect the establishment and
designation of Ivy Global Science and Technology Fund. The Plan
was further amended and restated on December 7, 1996 to reflect
the establishment and designation of Ivy Global Natural Resources
Fund, Ivy Asia Pacific Fund and Ivy International Small Companies
Fund. The Plan was further amended and restated on February 8,
1997 to reflect the establishment and designation of Ivy Pan-
Europe Fund. The Plan was further amended and restated on April
30, 1997 to reflect the establishment and designation of Ivy
International Fund II. The Plan was further amended and restated
on December 6, 1997 to reflect the establishment and designation
of the Fund's Advisor Class of shares. The Plan was further
amended and restated as of the date set forth on the first page
hereof to reflect the redesignation of Ivy International Bond
Fund as Ivy High Yield Fund.]
B. APPROVAL OF AMENDMENTS
Before any material amendments to this Plan, Ivy Fund's
Board of Trustees, including a majority of the Independent
Trustees, must find that the Plan, as proposed to be amended
(including any proposed amendments to the method of allocating
Class and/or Fund Expenses), is in the best interests of each
class of shares of each Fund individually and Ivy Fund as a
whole. In considering whether to approve any proposed
amendment(s) to the Plan, the Trustees of Ivy Fund shall request
and evaluate such information as they consider reasonably
necessary to evaluate the proposed amendment(s) to the Plan.
Such information shall address the issue of whether any waivers
or reimbursements of advisory or administrative fees could be
considered a cross-subsidization of one class by another, and
other potential conflicts of interest between classes.
C. PERIODIC REVIEW
The Board of Trustees of Ivy Fund shall review the Plan as
frequently as it deems necessary, consistent with applicable
legal requirements.
V. EFFECTIVE DATE
The Plan first became effective as of January 1, 1996.
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<ARTICLE> 6
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<NAME> IVY HIGH YIELD FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-06-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
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<OTHER-ITEMS-ASSETS> 112,322
<TOTAL-ASSETS> 112,322
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<OTHER-ITEMS-LIABILITIES> 112,272
<TOTAL-LIABILITIES> 112,272
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> IVY HIGH YIELD FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-06-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 093
<NAME> IVY HIGH YIELD FUND - CLASS C
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 094
<NAME> IVY HIGH YIELD FUND - CLASS I
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-06-1998
<PERIOD-END> DEC-31-1998
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<NET-ASSETS> 10
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 095
<NAME> IVY HIGH YIELD FUND - ADVISOR CLASS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-06-1998
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</TABLE>
