<PAGE> 1
IVY FUNDS
DECEMBER 31, 1997
IVY ASIA PACIFIC FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
Judging by Asia's stock market performance in 1997, the Asian miracle is
over. Or is it? Asia's astounding growth of the 1980s and early 1990s resulted
in dramatic increases in living standards within the region. The speed and
degree of Asia's success has been unrivaled. However, with alarming alacrity,
years of progress have been threatened by the current financial crisis--causing
some to conclude that the Asian miracle was little more than an illusion. We
disagree.
The Asian success story was built on a solid foundation: high savings
rates, an emphasis on education, a strong work ethic, and a highly competitive
export industry. In many ways, Asia's policies were offered as a model to the
rest of the world--both developed and developing. In fact, as recently as three
months prior to the crisis, the International Monetary Fund was applauding
countries like Thailand and Korea for their sound economic policies.
But although Asian policies were admired around the globe, the crisis
revealed that these relatively small countries lacked sufficient financial and
political systems to withstand the massive external pressures of an increasingly
global economy. Virulent attacks on currencies, rising interest rates and
capital outflow all worked in unison to create one of the biggest financial
crises of this century. Stock market declines of 60 to 80% (in US dollar terms)
in countries like Thailand, Malaysia, Indonesia and Korea, illustrate the degree
of wealth destruction that has occurred in six short months.
Within this very difficult environment for Asian stocks, the Ivy Asia
Pacific Fund was down 39.6% for the twelve months ended December 31, 1997. This
compares favorably with the Morgan Stanley Capital International Far East Free
Ex-Japan Index, which was down 45.5% for the same period. (For the Fund's total
return with sales charge, and performance commentary, please refer to the
following page.)
Our research tells us that panic selling has been widespread as investors
have abandoned the region. But the selling has been indiscriminate, without
regard for quality. As a result, we are finding many solid companies generating
sizable levels of cash from operations, having little or no debt and operating
in attractive industries, which are now 60% (or more) cheaper than they were six
months ago. For value investors with a long-term investment horizon, bargains
are plentiful and we have been using the accumulated cash in the Fund to build
positions in high-quality companies.
According to our research, currencies in Asia are undervalued as well. As
Asian countries stabilize and funds begin to flow back to the region, we believe
there should be a sizable appreciation in currencies from these very undervalued
levels. While there are no guarantees, we believe that investors with a
long-term view will be well rewarded by investing in Asia. We need only to
remind ourselves of the significant returns earned by those who were willing to
persevere through past financial crises. The US savings and loan debacle of the
early 1990s, the junk bond crisis of the late 1980s and the Hong Kong crisis
during the early 1980s are all examples of severe sell-offs that were followed
by significant rewards for those who stayed the course.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO IVY MACKENZIE]
<PAGE> 2
IVY ASIA PACIFIC FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy Asia Pacific Fund was down
39.6% as compared to the Morgan Stanley Capital International Far East "Free"
Ex-Japan Index, which was down 45.5% for the same period. The Fund's
outperformance is attributed primarily to its allocation of assets in Australia
and New Zealand (10% and 6% respectively), which were not impacted as
significantly by the turmoil in Asia as were other Far Eastern countries
represented in the index. In addition, the Fund is actively managed while the
index is unmanaged.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (1/97) OF A $10,000
INVESTMENT
CHART
<TABLE>
<CAPTION>
IVY ASIA PACIFIC FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
B: B: B: B:
(42.96)% (39.96)% (44.36)% (41.43)%
C: C: C: C:
Since Inception (43.06)% (44.61)% (40.94)% (39.94)% (42.46)% (41.46)%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns were higher due to reimbursement of the Fund's expenses. See
Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Asia Pacific Fund will
fluctuate and at redemption may be worth more or less than the amount of the
original investment.
The Morgan Stanley Capital International Far East "Free" Ex-Japan Index is an
unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 3
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 82.12% SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 10.23%
Australia & New Zealand Banking Group Ltd.... 4,600 $ 30,392
BRL Hardy Limited............................ 9,200 28,312
Broken Hill Proprietary Company Limited...... 2,400 22,284
National Australia Bank Ltd.................. 1,600 22,341
Pacific Dunlop Limited....................... 16,000 33,881
Telstra Corporation Limited*................. 18,000 37,999
Tyndall Australia Limited.................... 28,400 44,411
Westpac Banking Corp. Ltd.................... 3,800 24,304
----------
243,924
----------
CHINA -- 3.19%
China Southern Airlines Company Limited*..... 100,000 25,812
Guangdong Kelon Elec Holding................. 23,000 23,599
Zhenhai Refining and Chemical Company
Limited.................................... 64,000 26,638
----------
76,049
----------
HONG KONG -- 31.27%
CDL Hotels International Ltd................. 90,000 27,296
Chen Hsong Holdings.......................... 40,000 12,132
Cheung Kong Holdings Ltd..................... 9,000 58,949
China Resources Enterprise Limited........... 10,000 22,328
Citic Pacific Ltd............................ 8,000 31,801
First Pacific Company Ltd.................... 32,000 15,487
Giordano Holdings Ltd........................ 44,000 15,190
Guangdong Investments........................ 38,000 25,257
Guangdong Investments Warrants*.............. 1,000 137
Guangzhou Investment Company Ltd............. 100,000 20,779
Guoco Group Ltd.............................. 9,000 22,011
HSBC Holdings................................ 2,800 69,022
Henderson Land Development Company Ltd....... 5,000 23,554
Jardine Matheson Holdings Ltd................ 5,000 25,500
Jardine Strategic Holdings Ltd............... 10,000 26,400
Li & Fung.................................... 34,000 47,611
National Mutual Asia Ltd..................... 36,000 35,776
New World Development Company Ltd............ 6,000 20,753
Ng Fung Hong Limited......................... 24,000 25,244
Peregrine Investment Holdings Limited........ 38,000 26,974
Shanghai Industrial Holdings Limited......... 7,000 26,019
Sime Darby (Hong Kong)....................... 24,000 11,770
Sun Hung Kai Properties Ltd.................. 4,000 27,877
Swire Pacific Ltd Class A.................... 4,000 21,940
Techtronic Industries Company................ 108,000 25,089
Tingyi (Cayman Island) Holding Co............ 176,000 22,941
Union Bank of Hong Kong Ltd.................. 22,266 27,300
Wheelock & Company, Ltd...................... 26,000 30,368
----------
745,505
----------
INDONESIA -- 3.85%
Asia Pulp & Paper Company Ltd -- Sponsored
ADR........................................ 2,400 24,150
PT Astra International....................... 29,000 7,521
PT Bank Dagang Nasional -- Foreign
Registered................................. 30,500 1,943
PT Bank Dagang Nasional Warrants*............ 500 5
PT Darya Varia Laboratoria................... 6,500 532
PT Hanjaya Mandala Sampoerna................. 18,000 13,595
PT Matahari Putra Prima...................... 110,000 9,008
PT Mulia Industrindo......................... 40,000 4,550
PT Telekomunikasi Indonesia.................. 49,000 26,084
Semen Gresik................................. 7,500 4,402
----------
91,790
----------
MALAYSIA -- 9.86%
AMMB Holdings Berhad......................... 4,400 2,883
Berjaya Sports Toto Bhd...................... 19,000 48,569
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Commerce Asset Holding Bhd................... 18,000 $ 8,601
Genting Berhad............................... 7,000 17,534
Hicom Holdings Berhad........................ 10,000 5,755
KFC Holdings (Malaysia) Berhad............... 18,700 30,267
Land & General Berhad........................ 11,000 2,035
Malayan Cement Berhad........................ 7,750 5,276
Malaysia British Assurance Berhad............ 6,000 3,700
Perusahaan Otomobil Nasional Bhd............. 12,000 11,715
RHB Capital Berhad........................... 23,000 11,109
Sime UEP Properties Berhad................... 17,000 9,084
Sungei Way Holdings Bhd...................... 40,000 12,948
Telekom Malaysia Bhd......................... 14,300 42,249
Tenaga Nasional Bhd.......................... 11,000 23,456
----------
235,181
----------
NEW ZEALAND -- 6.32%
Fisher & Paykel Industries Ltd............... 9,900 31,617
Fletcher Challenge Building.................. 7,900 16,147
Fletcher Challenge Energy.................... 6,350 22,234
Fletcher Challenge Forestry.................. 32,336 26,850
Telecom Corporation of New Zealand Limited... 6,000 29,091
Tourism Holdings Limited..................... 36,000 24,666
----------
150,605
----------
PHILIPPINES -- 3.09%
Alaska Milk Corporation*..................... 260,000 10,166
Asian Terminals, Inc......................... 281,000 17,607
Benpres Holdings Corporation Sponsored
GDR*....................................... 2,600 7,215
Metro Pacific Corporation.................... 243,124 6,825
Philippine Long Distance Telephone Co........ 772 17,027
Universal Robina Corporation................. 119,500 14,826
----------
73,666
----------
SINGAPORE -- 8.30%
Clipsal Industries Limited................... 15,000 19,200
DBS Land Limited............................. 12,000 18,375
Development Bank of Singapore Limited........ 3,500 29,912
Elec & Eltek International Co. Ltd........... 6,050 27,709
Fraser & Neave Ltd. Ordinary................. 7,000 30,327
Overseas Union Bank Ltd...................... 7,240 27,715
Singapore Airlines Ltd....................... 6,000 39,171
Total Access Communication Public Company
Ltd. -- Foreign Registered................. 16,400 5,576
----------
197,985
----------
SOUTH KOREA -- 2.00%
Hyundai Motor Company Ltd.................... 500 5,516
Pohang Iron & Steel Company Ltd.............. 600 16,898
Samsung Electronics Co. GDR 144A
Registered*................................ 1,350 21,769
Samsung Fire & Marine Insurance.............. 30 3,451
----------
47,634
----------
THAILAND -- 4.01%
Asia Credit Company PLC -- Foreign
Registered................................. 5,700 1,213
Bangkok Bank Public Company Ltd -- Foreign
Registered................................. 5,000 12,461
Circuit Electronics Industries Public Company
Limited -- Foreign Registered.............. 4,500 3,552
Delta Electronics (Thailand) Public Company
Limited.................................... 700 5,815
Delta Electronics (Thailand) Public Company
Limited -- Foreign Registered*............. 2,600 21,600
Dhana Siam Finance & Securities Public
Company Limited -- Foreign Registered...... 8,800 1,681
</TABLE>
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
K. R. Precision Public
Company Limited -- Foreign
Registered................. 3,200 $ 12,096
Robinson Department Store
Public Company
Limited -- Foreign
Registered................. 27,200 565
Thai Airways Int'l. Public
Co., Ltd -- Foreign
Registered................. 32,900 36,557
----------
95,540
----------
TOTAL EQUITY SECURITIES
(Cost -- $2,800,359)....... 1,957,879
CONVERTIBLE CORPORATE
BONDS -- 0.11% PRINCIPAL
- ----------------------------- ----------
Benpres Holdings Corporation
144A, 4.20%, 11/26/49
(Cost -- $8,000)........... $ 1,000 2,775
----------
TOTAL INVESTMENTS -- 82.23%
(Cost -- $2,808,359)(a).... 1,960,654
OTHER ASSETS, LESS
LIABILITIES -- 17.77%...... 423,605
----------
NET ASSETS -- 100%........... $2,384,259
==========
ADR -- American Depository
Receipt
GDR -- Global Depository
Receipt
* Non-income producing
security.
(a) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation........ $ 38,273
Gross unrealized depreciation........ (885,978)
----------
Net unrealized depreciation.... $ (847,705)
==========
Purchases and sales of securities other than
short-term obligations aggregated $2,819,108 and
$11,755, respectively, for the period ended December
31, 1997.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $2,808,359)....... $ 1,960,654
Cash........................................................ 285,175
Receivables
Fund shares sold.......................................... 87,275
Dividends and interest.................................... 6,304
Manager for expense reimbursement......................... 16,111
Deferred organization expenses.............................. 38,657
Other assets................................................ 10,136
-----------
Total assets.............................................. 2,404,312
-----------
LIABILITIES
Payables
Investments purchased..................................... 1,005
Management fee............................................ 1,978
12b-1 service and distribution fees....................... 1,460
Other payables to related parties......................... 2,863
Accrued expenses............................................ 12,747
-----------
Total liabilities......................................... 20,053
-----------
NET ASSETS.................................................. $ 2,384,259
===========
CLASS A
Net asset value and redemption price per share
($691,519/115,116 shares outstanding)..................... $ 6.01
===========
Maximum offering price per share ($6.01 X 100/94.25)*....... $ 6.38
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($929,117/155,081 shares outstanding)............. $ 5.99
===========
CLASS C
Net asset value, offering price and redemption price***
per share ($763,623/127,433 shares outstanding)......... $ 5.99
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 3,228,337
Undistributed net realized gain on investments............ 1,006
Undistributed net investment income....................... 2,842
Net unrealized depreciation on investments and foreign
currency transactions................................... (847,926)
-----------
NET ASSETS.................................................. $ 2,384,259
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 5
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $2,948 foreign taxes withheld........... $ 26,623
---------
EXPENSES
Management fee............................................ $10,473
Transfer agent............................................ 2,346
Administrative services fee............................... 1,047
Custodian fees............................................ 31,848
Blue Sky fees............................................. 5,410
Auditing and accounting fees.............................. 4,617
Shareholder reports....................................... 195
Amortization of organization expenses..................... 7,672
Fund accounting........................................... 18,400
Trustees' fees............................................ 4,670
12b-1 service and distribution fees....................... 7,343
Legal..................................................... 15,544
Other..................................................... 1,624
---------
111,189
Expenses reimbursed by manager............................ (84,673)
Fees paid indirectly...................................... (2,114)
---------
Net expenses............................................ 24,402
---------
NET INVESTMENT INCOME....................................... 2,221
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 2,302
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (847,926)
---------
Net loss on investment transactions..................... (845,624)
---------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(843,403)
=========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 2,221
Net realized gain on investments and foreign currency
transactions............................................ 2,302
Net unrealized depreciation during the period on
investments............................................. (847,926)
----------
Net decrease resulting from operations.................... (843,403)
----------
Class A distributions
From net investment income................................ (1,243)
In excess of net investment income........................ (3,430)
----------
Total distributions to Class A shareholders........... (4,673)
----------
Class B distributions
From net investment income................................ (521)
In excess of net investment income........................ (1,436)
----------
Total distributions to Class B shareholders........... (1,957)
----------
Class C distributions
From net investment income................................ (457)
In excess of net investment income........................ (1,260)
----------
Total distributions to Class C shareholders........... (1,717)
----------
Fund share transactions (Note 5)
Class A................................................... 1,052,849
Class B................................................... 1,226,021
Class C................................................... 957,139
----------
Net increase resulting from Fund share transactions..... 3,236,009
----------
NET ASSETS AT END OF PERIOD................................. $2,384,259
==========
Undistributed net investment income......................... $ 2,842
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 6
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997(A)
---------------------------
CLASS A CLASS B CLASS C
SELECTED PER SHARE DATA ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.00 $10.00 $ 10.00
------- ------- -------
Income (loss) from investment operations
Net investment income (b)................................. .02 -- --
Net realized and unrealized loss on investment
transactions............................................ (3.98) (4.00) (3.99)
------- ------- -------
Total from investment operations........................ (3.96) (4.00) (3.99)
------- ------- -------
Less distributions
From net investment income................................ .01 -- --
In excess of net investment income........................ .02 .01 .02
------- ------- -------
Total distributions..................................... .03 .01 .02
------- ------- -------
Net asset value, end of period.............................. $ 6.01 $ 5.99 $ 5.99
======= ======= =======
Total return(%)(c).......................................... (39.58) (39.96) (39.94)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 692 $ 929 $ 764
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.11 2.86 2.74
Without expense reimbursement(%).......................... 10.17 10.92 10.80
Ratio of net investment income (loss) to average net
assets(%)(b).............................................. .63 (.12) --
Portfolio turnover rate(%).................................. 1 1 1
Average commission rate(e).................................. $.0070 $.0070 $ .0070
</TABLE>
(a) The Fund commenced operations on January 1, 1997.
(b) Net investment income (loss) is net of expenses reimbursed by manager.
(c) Total return does not reflect a sales charge.
(d) Total expenses include fees paid indirectly through an expense offset
arrangement.
(e) This amount may vary from period to period and fund to fund depending on
the mix of trades executed in various markets where trading practices and
commission rate structures may differ.
(See Notes to Financial Statements)
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
Ivy Asia Pacific Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The fund earned foreign source dividends of $29,571. These dividends were
subject to foreign withholding tax in the amount of $2,948. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of foreign taxes paid as either a
credit or itemized deduction.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, certain securities sold at a loss, and non-deductible organization
expenses. As a result, Net investment income (loss) and Net realized gain (loss)
on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement with its custodian
whereby a certain percentage of quarterly cumulative credits resulting from cash
balances on deposit with the custodian are used to offset custody fees,
including transaction and out of pocket expenses. For the year, custody fees
were reduced by $2,114 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $3,127.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $1,044, $3,528, and
$2,771 for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays IMSC a monthly fee plus certain out-of-pocket expenses. Such fees
and expenses of $1,050, $908, and $388, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the
Asia-Pacific region. Therefore, the Fund is more susceptible to factors
adversely affecting securities within the Asia-Pacific region than is an equity
fund that is not concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for the year ended December 31, 1997, for Class A,
Class B and Class C were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 186,266 $1,497,206
Issued on reinvestment of distributions................ 747 4,378
Repurchased............................................ (71,897) (448,735)
------- ----------
Net increase........................................... 115,116* $1,052,849
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 177,326 $1,403,362
Issued on reinvestment of distributions................ 171 1,002
Repurchased............................................ (22,416) (178,343)
------- ----------
Net increase........................................... 155,081 $1,226,021
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 133,442 $ 992,947
Issued on reinvestment of distributions................ 283 1,654
Repurchased............................................ (6,292) (37,462)
------- ----------
Net increase........................................... 127,433 $ 957,139
======= ==========
</TABLE>
* At December 31, 1997, MIMI owned 10,053 Class A shares of the Fund.
6. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Asia Pacific Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the year then ended These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, and the results of its operations, changes in its
net assets, and the financial highlights for the year then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IAPF12311997
<PAGE> 9
December 31, 1997 IVY FUNDS
IVY GLOBAL NATURAL RESOURCES FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
Concerns about world economic growth took a heavy toll on
resource-related stocks during the fourth quarter of 1997. According to our
research, the speed of decline in commodity prices and related stocks, and the
commonality among all sectors is unprecedented in recent history--especially
given the record highs in many stock markets around the world. We believe that
either the market is correctly forecasting a major world economic slowdown for
the coming year, or this decline will be regarded as an overreaction to a
slowing of world economic activity.
In past business cycles, as economic growth continued into the fourth
and fifth years, capacity constraints drew down inventories and prices began to
rise. Throughout the first half of 1997, this was the observable path.
Inventories of metals like zinc and aluminum were on a steep decline, and prices
were rising; newsprint and paper were similar. Real estate and labor prices were
pushing higher. The US Federal Reserve Board and the Bank of Canada confirmed
these developments by raising interest rates. Then came Asia. We believe that if
the turmoil in Asia is addressed before it can hop over the oceans, a recession
will have been avoided and many resource sectors should rebound strongly.
According to our research, at current levels, many companies are
trading at very attractive absolute and relative valuation levels, based on
price-to-cash flow, price-to-net asset value, and price-to-underlying earning
power. This is true even of the gold sector, where the Ivy Global Natural
Resources Fund's holdings in Normandy Mining Ltd. and Acacia Resources--which
have locked in gold prices of $525 and $425, respectively, for the next four to
five years--trade at less than five times annual cash flow and at significant
discounts to net asset value. We believe these companies earnings can grow for
the next several years no matter how low gold drifts.
The Ivy Global Natural Resources Fund is broadly diversified
geographically by the underlying assets of individual companies and maintains a
balance between large- and intermediate-size companies. We selectively added
some Australian stocks to the Fund, which, according to our research represent
better value than some North American and European resource companies. For the
twelve months ended December 31, 1997, the Ivy Global Natural Resources Fund was
up 6.95%. (For the Fund's total return with sales charge, and performance
commentary, please refer to the following page.)
Intuitively we believe that buying when things are on sale is the right
approach and may result in long-term gains. Our research tells us that low share
prices, low commodity prices, low valuations and low investor sentiment are all
aligning and should result in meaningful contributions to the performance of Ivy
Global Natural Resources Fund.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 10
IVY GLOBAL NATURAL RESOURCES FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy Global Natural Resources
Fund was up 6.95%. This compares favorably to the Morgan Stanley
Commodity-Related Index which was down 2.2% for the same period. And while the
Fund did outperform the benchmark, it should be noted that typically the Fund
will invest in at least three countries around the world, which makes it more
susceptible to currency volatility than the benchmark (which is comprised of
US-based companies) and which impacted the Fund's performance in 1997.
Additionally, Ivy Global Natural Resources Fund has a bias towards smaller,
global companies as compared to the Index, which is focused on larger, domestic
companies.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (1/97) OF A $10,000
INVESTMENT
CHART
<TABLE>
<CAPTION>
IVY GLOBAL NATURAL RESOURCES FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
B: B: B: B:
1.28% 6.28% 1.23% 6.23%
C: C: C: C:
Since Inception .80% .73% 5.08% 6.08% 5.02% 6.02%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Global Natural Resources Fund
will fluctuate and at redemption may be worth more or less than the amount of
the original investment.
The Morgan Stanley Commodity-Related Index is an unmanaged index of stocks which
assumes reinvestment of dividends and, unlike Fund returns, does not reflect any
fees or expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 11
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 104.26% SHARES VALUE
- -----------------------------------------
<S> <C> <C>
DIAMONDS -- 8.32%
Aber Resources, Ltd.*.................... 15,000 $ 158,279
De Beers Consolidated Mines Ltd.......... 5,000 102,188
SouthernEra Resources Ltd.*.............. 30,000 299,786
-----------
560,253
-----------
ENERGY SERVICES -- 4.75%
EVI, Inc................................. 5,000 258,750
Noble Drilling Corporation*.............. 2,000 61,250
-----------
320,000
-----------
FOOD/AGRICULTURE -- 2.47%
Potash Corporation of Saskatchewan Inc... 2,000 166,385
-----------
GAS PRODUCERS -- 10.80%
Elk Point Resources, Inc*................ 5,000 26,030
Fletcher Challenge Energy................ 25,000 87,668
Paragon Petroleum Corp.*................. 85,000 225,713
Penn West Petroleum Ltd.*................ 13,500 145,753
Rio Alto Exploration Ltd*................ 18,000 150,941
Snyder Oil Corp.......................... 5,000 91,250
-----------
727,355
-----------
INDUSTRIAL -- 4.48%
Cameco Corporation....................... 5,000 162,122
International Uranium Corp............... 200,000 139,761
-----------
301,883
-----------
INTERMEDIATE MINERAL
PRODUCERS/EXPLORERS -- 13.40%
Geomaque Explorations Ltd.*.............. 100,000 177,496
Meridian Gold Inc*....................... 90,000 251,569
Orvana Minerals Corporation*............. 275,000 374,733
Prime Resources Group, Inc............... 15,000 99,579
-----------
903,377
-----------
METALS & MINERALS -- 13.08%
Aluminum Company of America.............. 2,700 190,013
Billiton plc*............................ 50,000 127,724
Breakwater Resources, Ltd.*.............. 60,000 171,905
Freeport-McMoRan Copper & Gold, Inc...... 7,500 114,844
LionOre Mining International Ltd*........ 100,000 132,773
QNI Limited.............................. 199,554 132,623
Rio Tinto Ltd............................ 1,000 11,665
-----------
881,547
-----------
OIL PRODUCERS -- 15.08%
Carmanah Resources Ltd*.................. 15,000 58,175
Hurricane Hydrocarbons Ltd. -- CL A*..... 31,500 244,336
Pacalta Resources Ltd.*.................. 20,000 234,099
Richland Petroleum Corporation -- CL A*.. 30,000 89,097
TransGlobe Energy Corp.*................. 55,000 48,125
Vermilion Resources Ltd.*................ 45,000 259,431
Windsor Energy Corp*..................... 20,000 83,158
-----------
1,016,421
-----------
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
PAPER & FOREST PRODUCTS -- 11.87%
Alliance Forest Products, Inc.*.......... 18,000 $ 295,594
Aracruz Celulose S.A.- Sponsored ADR..... 10,000 143,750
Donohue, Inc. Class A.................... 3,000 54,402
Sino-Forest Corp. Class A*............... 175,000 305,726
-----------
799,472
-----------
SENIOR PRECIOUS METALS -- 20.01%
Acacia Resources Ltd*.................... 350,000 319,267
Ashanti Goldfields Company Ltd........... 15,320 114,900
Getchell Gold Corporation*............... 1,000 24,000
Industrias Penoles S.A................... 50,000 222,655
Normandy Mining Ltd...................... 300,000 291,250
Vaal Reefs Exploration & Mining Co. Ltd.. 55,000 211,406
Vengold Inc.*............................ 181,700 165,064
-----------
1,348,542
-----------
TOTAL INVESTMENTS -- 104.26%
(Cost -- $8,225,751) (Cost on Federal
income tax basis -- $8,276,532)........ 7,025,235
OTHER ASSETS, LESS
LIABILITIES -- (4.26%)................. (287,257)
-----------
NET ASSETS -- 100%....................... $ 6,737,978
===========
ADR - American Depository Receipt
* Non-income producing security.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation based on cost
for Federal income tax purposes is as follows:
Gross unrealized appreciation.................. $ 133,008
Gross unrealized depreciation.................. (1,384,305)
-----------
Net unrealized depreciation................ $(1,251,297)
===========
Purchases and sales of investments (excluding short-term
obligations) aggregated $19,855,034 and $12,325,413,
respectively, for the period ended December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $8,225,751)....... $7,025,235
Receivables
Investments sold.......................................... 489,848
Dividends and interest.................................... 371
Manager for expense reimbursement......................... 15,514
Deferred organization expenses.............................. 38,658
Other assets................................................ 10,111
----------
Total assets.............................................. 7,579,737
----------
LIABILITIES
Payables
Fund shares repurchased................................... 118,695
Management and advisory fees.............................. 6,011
12b-1 service and distribution fees....................... 3,311
Other payables to related parties......................... 3,921
Due to custodian............................................ 696,593
Accrued expenses............................................ 13,228
----------
Total liabilities......................................... 841,759
----------
NET ASSETS.................................................. $6,737,978
==========
CLASS A
Net asset value and redemption price per share
($3,907,408/433,606 shares outstanding)................... $ 9.01
==========
Maximum offering price per share ($9.01 X 100/94.25)*....... $ 9.56
==========
CLASS B
Net asset value, offering price and redemption price** per
share ($2,706,163/300,781 shares outstanding)............. $ 9.00
==========
CLASS C
Net asset value, offering price and redemption price*** per
share ($124,407/13,819 shares outstanding)................ $ 9.00
==========
NET ASSETS CONSIST OF
Capital paid-in........................................... $8,313,863
Accumulated net realized loss on investments.............. (393,892)
Undistributed net investment income....................... 17,963
Net unrealized depreciation on investments and foreign
currency transactions................................... (1,199,956)
----------
NET ASSETS.................................................. $6,737,978
==========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $2,460 foreign taxes withheld........... $ 38,168
Interest.................................................. 26,320
-----------
64,488
-----------
EXPENSES
Management fee............................................ $32,056
Advisory fee.............................................. 32,056
Transfer agent............................................ 9,520
Administrative services fee............................... 6,411
Custodian fees............................................ 31,301
Blue Sky fees............................................. 4,134
Auditing and accounting fees.............................. 4,650
Shareholder reports....................................... 924
Amortization of organization expenses..................... 7,672
Fund accounting........................................... 18,506
Trustees' fees............................................ 4,670
12b-1 service and distribution fees....................... 32,726
Legal..................................................... 16,189
Other..................................................... 1,945
-----------
202,760
Expenses reimbursed by manager............................ (50,360)
-----------
Net expenses............................................ 152,400
-----------
NET INVESTMENT LOSS......................................... (87,912)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 740,820
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (1,199,956)
-----------
Net loss on investment transactions..................... (459,136)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ (547,048)
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (87,912)
Net realized gain on investments and foreign currency
transactions............................................ 740,820
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (1,199,956)
-----------
Net decrease resulting from operations.............. (547,048)
-----------
Class A distributions
In excess of net investment income........................ (91,654)
From net realized gain.................................... (441,915)
In excess of net realized gain............................ (125,911)
-----------
Total distributions to Class A shareholders......... (659,480)
-----------
Class B distributions
In excess of net investment income........................ (44,832)
From net realized gain.................................... (287,696)
In excess of net realized gain............................ (78,348)
-----------
Total distributions to Class B shareholders......... (410,876)
-----------
Class C distributions
In excess of net investment income........................ (1,675)
From net realized gain.................................... (11,209)
In excess of net realized gain............................ (4,050)
-----------
Total distributions to Class C shareholders......... (16,934)
-----------
Fund share transactions (Note 4)
Class A................................................... 4,800,177
Class B................................................... 3,416,671
Class C................................................... 155,468
-----------
Net increase resulting from Fund share transactions..... 8,372,316
-----------
NET ASSETS AT END OF PERIOD................................. $ 6,737,978
===========
Undistributed net investment income......................... $ 17,963
===========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997(A)
---------------------------
CLASS A CLASS B CLASS C
SELECTED PER SHARE DATA ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.00 $10.00 $ 10.00
------- ------- -------
Income from investment operations
Net investment loss(b).................................... (.11) (.15) (.17)
Net realized and unrealized gain on investment
transactions............................................ .70 .68 .68
------- ------- -------
Total from investment operations........................ .59 .53 .51
------- ------- -------
Less distributions
In excess of net investment income........................ .22 .17 .15
From net realized gain.................................... 1.08 1.08 1.08
In excess of net realized gain............................ .28 .28 .28
------- ------- -------
Total distributions..................................... 1.58 1.53 1.51
------- ------- -------
Net asset value, end of period.............................. $ 9.01 $ 9.00 $ 9.00
======= ======= =======
Total return(%)(c).......................................... 6.95 6.28 6.08
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $3,907 $2,706 $ 124
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 2.10 2.86 3.08
Without expense reimbursement(%).......................... 2.88 3.64 3.86
Ratio of net investment loss to average net assets(%)(b).... (1.10) (1.86) (2.08)
Portfolio turnover rate(%).................................. 199 199 199
Average commission rate(d).................................. $.0190 $.0190 $ .0190
</TABLE>
(a) The Fund commenced operations on January 1, 1997.
(b) Net investment loss is net of expenses reimbursed by manager.
(c) Total return does not reflect a sales charge.
(d) This amount may vary from period to period and fund to fund depending on
the mix of trades executed in various markets where trading practices
and commission rate structures may differ.
(See Notes to Financial Statements)
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Ivy Global Natural Resources Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation, Committee of the Board; as of
December 31, 1997 there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $29,649. These dividends were
subject to foreign withholding tax in the amount of $2,460. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of such foreign taxes paid as either
a tax credit or itemized deduction.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, passive foreign investment companies, certain securities sold at a
loss and non-deductible organization expenses. As a result, Net investment
income (loss) and Net realized gain (loss) on investments and foreign currency
transactions for a reporting period may differ significantly in amount and
character from distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI), a wholly owned subsidiary of Mackenzie
Investment Management Inc. (MIMI), is the Manager of the Fund. For its services,
IMI receives a management fee monthly at the annual rate of .50% of the Fund's
average net assets. Currently, IMI
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
voluntarily limits the Fund's total operating expenses (excluding taxes, 12b-1
fees, brokerage commissions, interest, litigation and indemnification expenses,
and other extraordinary expenses) to an annual rate of 1.95% of the Fund's
average net assets. The voluntary expense limitation may be terminated or
revised at any time.
Mackenzie Financial Corporation (MFC) in Toronto, Ontario, Canada is the
Investment Adviser of the Fund. For its services, MFC receives a fee monthly at
the annual rate of .50% of the Fund's average net assets. The fee is collected
from the Fund and remitted to MFC by MIMI, a subsidiary of MFC.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $5,287.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $10,462, $21,374 and
$890, for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $5,933, $3,256 and $331, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for the year ended December 31, 1997, for Class A,
Class B and Class C were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
------- -------- -----------
<S> <C> <C>
Sold................................................. 514,551 $ 5,779,987
Issued on reinvestment of distributions.............. 35,261 297,604
Repurchased.......................................... (116,206) (1,277,414)
-------- -----------
Net increase......................................... 433,606 $ 4,800,177
======== ===========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 322,291 $3,679,427
Issued on reinvestment of distributions................ 15,150 127,716
Repurchased............................................ (36,660) (390,472)
------- ----------
Net increase........................................... 300,781 $3,416,671
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 16,819 $ 190,701
Issued on reinvestment of distributions................ 1,026 8,660
Repurchased............................................ (4,026) (43,893)
------- ----------
Net increase........................................... 13,819 $ 155,468
======= ==========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Natural Resources Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, and the results of its operations, changes in its
net assets, and the financial highlights for the year then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IGNR123197
<PAGE> 17
December 31, 1997 IVY FUNDS
Ivy South America Fund
Annual Report
This report and the financial statements contained herein are submitted for the
general information of the share-holders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
The South American and neighboring regional economies showed remarkable
strength in 1997, reflecting a decade of free market reforms and corporate
restructuring. According to our research, regional GDP growth, led by strong
cyclical recoveries in Argentina, Chile, Mexico, Peru and Venezuela, reached
5.5%, its highest level in 20 years. And inflation, long the bane of these
economies, fell to its lowest level in 50 years to an average annual rate of 8%
(from over 1800% in 1989).
We believe that equity markets in the region rewarded strong economic
growth and improved stability, particularly in the first three quarters of 1997.
During the fourth quarter, South American markets sold-off quite dramatically as
a result of volatility in global financial markets and fears that turmoil in
Asia would spill over into South America. Within this environment, the Ivy South
America Fund (formerly known as the Ivy Latin America, Strategy Fund) was up
7.0%. (For the Funds total return with sales charge, and performance commentary,
please refer to the following page.)
Our research confirms that stock markets in South America have been among
the hardest hit by the news coming out of Asia. While part of the sell-off was
caused by negative emerging market sentiment, the South American
economies--without exception--do remain vulnerable to external shocks. Higher
funding costs and reduced access to financing from international capital markets
are likely to contribute to slower growth in 1998. And weak Asian demand is
expected to depress prices for some of the region's raw materials and
semi-manufactured products. We believe, however, that restructuring at both the
corporate and national levels have significantly improved the ability of
economies throughout the region to withstand turmoil in global markets. Low
corporate leverage, restructured financial systems and aggressive policy
responses have helped contain the impact of the recent crisis.
Although regional growth prospects for 1998 have been somewhat dampened by
the Asian crisis, we believe economic fundamentals remain largely intact in the
region and continue to move in the right direction. According to our research,
regional GDP growth for the year is estimated to be between 3.5 and 4%. And,
progress on inflation is likely to continue; the regional rate could be as low
as 5.5%. Perhaps most importantly, valuations are considerably more attractive
after last quarter's sell-off.
Forty-six percent of the Ivy South America Fund is invested in Brazil,
which was the regional market most affected by fears steming from the Asian
crisis. Pressures on the Brazilian real led authorities to double interest rates
at the end of October and initiate a fiscal austerity program designed to save
about R$20 billion in 1998. We believe these measures demonstrated the Cardoso
government's political will to defend the real, which remains the cornerstone of
the economic program implemented in 1994. We also believe these measures should
contribute to longer-term stability and higher sustainable growth in the future.
They should also lead to slower growth and lower corporate earnings in the
medium term, particularly in the private sector. Privatization will remain a
central theme in Brazil in 1998 as the long-awaited sale of state-owned Telebras
remains on track for mid-year.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 18
IVY SOUTH AMERICA FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy South America Fund
returned 7.0% as compared to the Morgan Stanley Capital International (MSCI)
Emerging Markets "Free" Latin America Index, which returned 31.6% for the same
period. The difference in performance is attributed to the dissimilarity in
country weightings between the Fund and the Index. For example, the Ivy South
America Fund had a 13% allocation to Mexico, which was up 53% for 1997, whereas
the Index had a 31% allocation to Mexico.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (11/94)
OF A $10,000 INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY SOUTH AMERICA FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
1.18% 6.18% .36% 5.36%
C: C: C: C:
1 Yr. .88% .20% 5.06% 6.06% 4.42% 5.42%
- -----------------------------------------------------------------------------------
B: B: B: B:
(4.18)% (3.26)% (8.04)% (7.15)%
C: C: C: C:
Since Inception (4.31)% (8.33)% 7.66% 7.66% 6.66% 6.66%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy South America Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Morgan Stanley Capital International Latin America "Free" Index is an
unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 19
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 96.14% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
ARGENTINA -- 15.44%
Astra Cia Argentina de Petro
(C.A.P.S.A.)(with 51,130
Rights)................... 51,130 $ 89,494
Banco de Galicia y Buenos
Aries S.A. de C.V......... 14,600 93,457
Banco Frances del Rio de la
Plata S.A................. 8,900 82,607
Bansud S.A.*................ 7,200 74,174
Cia Naviera Perez Companc
'B'....................... 13,055 93,230
Disco S.A. ADR*............. 2,000 89,876
Inversiones y
Representaciones S.A.
(IRSA).................... 28,107 104,577
Quilmes Industrial S.A...... 14,050 192,309
Renault Argentina S.A....... 20,535 28,756
Telecom Argentina........... 5,800 207,350
Telefonica de Argentina S.A.
ADR....................... 3,000 111,750
Transportadora de Gas Sur... 49,400 112,159
YPF S.A. Sponsored ADR...... 3,900 133,332
----------
1,413,071
----------
BRAZIL -- 44.52%
Aracruz Celulose S.A. ADR... 5,850 84,094
Banco Bradesco S.A.
Preferred................. 7,936,032 78,221
Banco Bradesco S.A.
Rights*(a)................ 339,306 1,216
Banco Itau.................. 176,000 94,622
Brasmotor S.A. Preferred.... 710,000 69,981
Centrais Electricas
Brasileiras S.A.
(Electrobras)............. 1,600,000 79,568
Centrais Electricas
Brasileiras S.A.
(Electrobras) Preferred
B......................... 4,570,000 233,410
Centrais Electricas de Santa
Catarina S.A. (CELESC).... 83,201 103,627
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar Preferred.......... 8,000,000 146,234
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar Sponsored ADR...... 993 19,239
Companhia Cervejaria Brahma
Preferred................. 206,551 138,809
Companhia Cimento Portland
Itau...................... 320,000 61,648
Companhia Energetica de
Minas Gerais (CEMIG)...... 2,900,000 126,002
Companhia Paranaense de
Energia -- Copel.......... 6,800,000 76,164
Companhia Paulista de Forca
e Luz (CPFL).............. 500,000 65,859
Companhia Paulista de Forca
e Luz (CPFL) Preferred.... 2,905 299
Companhia Saneamento Basico
(SABESP) (with 1,652
Rights(a))................ 520,030 123,482
Companhia Siderurgica de
Tubarao................... 6,900,000 97,686
Companhia Vale do Rio Doce
Preferred (with
Debentures* 8,300)........ 10,300 207,196
Electricidade de Sao Paulo
S.A. (Eletropaulo)
Preferred B*.............. 500,000 94,084
Electrolux do Brasil S.A.... 37,100,000 67,484
Elevadores Atlas S.A.
144A...................... 12,400 149,997
Gerdau S.A.................. 6,600,000 82,794
Ipiranga Brasileira de
Petroleo.................. 4,700,000 71,594
Light Servicos de
Eletricidade S.A.......... 170,000 70,829
Louis Dreyfus Citrus S.A.... 1,300 39,762
Marco Polo S.A.............. 610,000 72,149
OSA S.A*.................... 17,400,000 66,262
Petroleo Brasileiro S.A.
(Petrobras)............... 1,184,000 276,898
Rossi Residencial S.A.
GDR*...................... 10,000 48,750
Tam Transport Aereos
Regionais S.A.
Preferred................. 2,450,000 142,695
Telecomunicacoes Brasileiras
S.A. ADR (Telebras)....... 3,500 $ 407,531
Telecomunicacoes de Minas
Gerais (Telemig).......... 4,861 479
Telecomunicacoes de Minas
Gerais (Telemig) Preferred
B......................... 870,726 110,009
Telecomunicacoes de Sao
Paulo S.A. (Telesp)*...... 6,856 1,560
Telecomunicacoes de Sao
Paulo S.A. (Telesp)
Preferred................. 323,807 86,170
Telecomunicacoes do Parana
(Telepar)................. 216,690 116,498
Telecomunicacoes do Rio de
Janeiro S.A. (Telerj)..... 1,116,013 115,999
Unibanco -- Units........... 2,479,847 168,875
Usinas Siderurgicas de Minas
Gerais S.A. (USIMINAS).... 13,010 76,939
----------
4,074,715
----------
CHILE -- 14.98%
A.F.P. Provida S.A. ADR..... 4,100 69,956
Antofagasta Holdings PLC.... 11,700 63,529
Banco de Santiago........... 1,700 37,825
Banco Santander Chile
Sponsored ADR............. 4,200 59,325
Chilgener S.A. Sponsored
ADR....................... 1,728 42,336
Compania de
Telecomunicaciones de
Chile S.A. ADR............ 2,975 88,878
Cristalerias de Chile
Sponsored ADR............. 4,500 65,250
Empresa Nacional
Electricidad S.A.......... 10,100 178,644
Genesis Chile Fund.......... 5,582 214,907
Laboratorio Chile S.A.
ADR....................... 6,400 142,400
Madeco S.A. ADR............. 5,200 79,300
Maderas y Sinteticos
Sociedad Anonima S.A
Sponsored ADR............. 4,300 40,850
Quimica Minera Chile S.A.
Sponsored ADR............. 2,200 96,800
Santa Isabel S.A. ADR....... 5,700 99,750
Vina Concha y Toro S.A.
ADR....................... 3,600 90,900
----------
1,370,650
----------
COLOMBIA -- 2.71%
Banco Ganadero S.A.
Sponsored ADR............. 2,400 105,000
Banco Industrial Colombiano
ADR....................... 6,900 96,600
Cememtos Diamante ADR
144A...................... 4,100 46,638
----------
248,238
----------
MEXICO -- 13.47%
Corporacion GEO, S.A.
'B'*...................... 22,912 140,965
Desc S.A. de C.V. Sponsored
ADR....................... 2,000 75,000
Grupo Elektra, S.A. de
C.V....................... 10,000 17,639
Grupo Industrial Maseca S.A.
de C.V. Sponsored ADR..... 5,800 89,900
Grupo Minsa S.A. de C.V*.... 63,500 51,040
Grupo Posadas S.A. -- Series
A*........................ 193,500 132,011
Hylsamex ADR 144A*.......... 3,200 113,200
Panamerican Beverages Inc... 5,000 163,125
Sanluis Corporacion S.A. de
C.V....................... 13,000 105,621
Telefonos de Mexico S.A.
Sponsored ADR............. 2,000 112,125
Tubos de Acero de Mexico
S.A. Sponsored ADR*....... 9,300 201,113
Vitro S.A. Sponsored ADR.... 2,400 31,350
----------
1,233,089
----------
PANAMA -- 0.77%
Banco Latinamericano de
Exportaciones S.A. - E.... 1,700 70,337
----------
</TABLE>
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
PERU -- 4.25%
Banco Wiese ADR.............. 20,200 $ 101,000
Credicorp.................... 6,194 111,492
Southern Peru Copper Corp.... 6,100 81,589
Telefonica del Peru S.A.-B... 42,500 94,948
----------
389,029
----------
TOTAL EQUITY SECURITIES
(Cost -- $8,248,346)....... 8,799,129
----------
BONDS -- 0.48% PRINCIPAL
- ----------------------------- ----------
Inversiones y
Representaciones S.A.
"Parcks" 144A Floating
Rate, 4.50%, 07/04/03
(Cost -- $40,000).......... $ 40,000 43,600
----------
TOTAL INVESTMENTS -- 96.62%
(Cost -- $8,288,346) (Cost
on Federal income tax
basis -- $8,289,892)....... 8,842,729
OTHER ASSETS, LESS
LIABILITIES -- 3.38%....... 310,014
----------
NET ASSETS -- 100%........... $9,152,743
==========
ADR -- American Depository Receipt
* Non-income producing security.
(a) Securities valued in good faith by
the Valuation Committee of the Board
of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation
based on cost for Federal income tax purposes is as
follows:
Gross unrealized appreciation........ $1,595,890
Gross unrealized depreciation........ (1,043,053)
----------
Net unrealized appreciation...... $ 552,837
==========
Purchases and sales of securities other than
short-term obligations aggregated $3,464,892 and
$820,884, respectively, for the period ended December
31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 21
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $8,288,346)....... $8,842,729
Cash........................................................ 265,026
Receivables
Fund shares sold.......................................... 3,114
Dividends and interest.................................... 30,095
Manager for expense reimbursement......................... 6,438
Deferred organization expenses.............................. 22,734
Other assets................................................ 13,686
----------
Total assets.............................................. 9,183,822
----------
LIABILITIES
Payables
Fund shares repurchased................................... 1,472
Management fee............................................ 7,494
12b-1 service and distribution fees....................... 4,265
Other payables to related parties......................... 4,977
Custodian fees............................................ 7,500
Legal fees.................................................. 2,585
Accrued expenses............................................ 2,786
----------
Total liabilities......................................... 31,079
----------
NET ASSETS.................................................. $9,152,743
==========
CLASS A
Net asset value and redemption price per share
($5,670,931/632,670 shares outstanding)................... $ 8.96
==========
Maximum offering price per share ($8.96 X 100/94.25)*....... $ 9.51
==========
CLASS B
Net asset value, offering price and redemption price** per
share ($3,028,387/338,641 shares outstanding)............. $ 8.94
==========
CLASS C
Net asset value, offering price and redemption price*** per
share ($453,425/50,988 shares outstanding)................ $ 8.89
==========
NET ASSETS CONSIST OF
Capital paid-in........................................... $8,523,163
Undistributed net realized gain on investments............ 76,588
Accumulated net investment loss........................... (1,356)
Net unrealized appreciation on investments and foreign
currency transactions................................... 554,348
----------
NET ASSETS.................................................. $9,152,743
==========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 22
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $19,339 foreign taxes withheld.......... $264,637
Interest.................................................. 1,866
--------
266,503
--------
EXPENSES
Management fee............................................ $94,278
Transfer agent............................................ 22,139
Administrative services fee............................... 9,428
Custodian fees............................................ 41,366
Blue Sky fees............................................. 25,769
Auditing and accounting fees.............................. 14,179
Shareholder reports....................................... 2,384
Amortization of organization expenses..................... 12,454
Fund accounting........................................... 24,860
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 52,084
Legal..................................................... 19,900
Other..................................................... 3,525
--------
329,578
Expenses reimbursed by manager............................ (68,548)
Fees paid indirectly...................................... (25,575)
--------
Net expenses............................................ 235,455
--------
NET INVESTMENT INCOME....................................... 31,048
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 154,205
Net unrealized appreciation during the period on
investments and foreign currency transactions........... 64,801
--------
Net gain on investment transactions..................... 219,006
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $250,054
========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income (loss).............................. $ 31,048 $ (487)
Net realized gain on investments and foreign currency
transactions............................................ 154,205 58,873
Net unrealized appreciation during the period on
investments and foreign currency transactions........... 64,801 660,305
---------- ----------
Net increase resulting from operations................ 250,054 718,691
---------- ----------
Class A distributions
From net investment income................................ (26,281) --
From net realized gain.................................... (60,670) (17,179)
---------- ----------
Total distributions to Class A shareholders........... (86,951) (17,179)
---------- ----------
Class B distributions
From net realized gain.................................... (19,985) --
---------- ----------
Total distributions to Class B shareholders........... (19,985) --
---------- ----------
Class C distributions
From net realized gain.................................... (4,054) (370)
---------- ----------
Total distributions to Class C shareholders........... (4,054) (370)
---------- ----------
Fund share transactions (Note 5)
Class A................................................... 1,541,795 1,503,651
Class B................................................... 950,516 1,138,431
Class C................................................... 369,599 109,902
---------- ----------
Net increase resulting from Fund share transactions..... 2,861,910 2,751,984
---------- ----------
TOTAL INCREASE IN NET ASSETS................................ 3,000,974 3,453,126
NET ASSETS
Beginning of period....................................... 6,151,769 2,698,643
---------- ----------
END OF PERIOD............................................. $9,152,743 $6,151,769
========== ==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 24
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
----------------------------------- ----------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.51 $ 6.88 $ 8.37 $ 10.00
------ ------ ------- -------
Income (loss) from investment operations
Net investment income(a).................................. .06 .01 .01 --
Net realized and unrealized gain (loss) on investment
transactions............................................ .53 1.66 (1.45) (1.63)
------ ------ ------- -------
Total from investment operations........................ .59 1.67 (1.44) (1.63)
------ ------ ------- -------
Less distributions
From net investment income................................ .04 -- -- --
From net realized gain.................................... .10 .04 -- --
From capital paid-in...................................... -- -- .05 --
------ ------ ------- -------
Total distributions..................................... .14 .04 .05 --
------ ------ ------- -------
Net asset value, end of period.............................. $ 8.96 $ 8.51 $ 6.88 $ 8.37
====== ====== ======= =======
Total return(%)............................................. 7.03(c) 24.22(c) (17.28)(c) (16.10)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... 5,671 $4,016 $ 2,015 $ 571
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 2.45 2.55 2.61 2.20(d)
Without expense reimbursement(%).......................... 3.18 4.89 9.26 16.22(d)
Ratio of net investment income to average net
assets(%)(a).............................................. .65 .24 .22 .21(d)
Portfolio turnover rate(%).................................. 10 20 45 82
Average commission rate(f).................................. $.0002 $.0002 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
----------------------------------- ----------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.48 $ 6.88 $ 8.37 $ 10.00
------ ------ ------- -------
Income (loss) from investment operations
Net investment loss(a).................................... (.01) (.03) (.02) (.01)
Net realized and unrealized gain (loss) on investment
transactions............................................ .53 1.63 (1.47) (1.62)
------ ------ ------- -------
Total from investment operations........................ .52 1.60 (1.49) (1.63)
------ ------ ------- -------
Less distributions
From net realized gain.................................... .06 -- -- --
------ ------ ------- -------
Total distributions..................................... .06 -- -- --
------ ------ ------- -------
Net asset value, end of period.............................. $ 8.94 $ 8.48 $ 6.88 $ 8.37
====== ====== ======= =======
Total return(%)............................................. 6.18(c) 23.26(c) (17.90)(c) (16.20)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $3,028 $2,025 $ 684 $ 122
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.23 3.33 3.36 2.95(d)
Without expense reimbursement(%).......................... 3.96 5.67 10.01 16.97(d)
Ratio of net investment loss to average net assets(%)(a).... (.13) (.54) (.53) (.54)(d)
Portfolio turnover rate(%).................................. 10 20 45 82
Average commission rate(f).................................. $.0002 $.0002 N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 25
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ----------------
1997 1996
SELECTED PER SHARE DATA ------------ ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.46 $ 7.96
------ -------
Income from investment operations
Net investment loss(a).................................... (.02) (.02)
Net realized and unrealized gain on investment
transactions............................................ .53 .55
------ -------
Total from investment operations........................ .51 .53
------ -------
Less distributions
From net realized gain.................................... .08 .03
------ -------
Total distributions..................................... .08 .03
------ -------
Net asset value, end of period.............................. $ 8.89 $ 8.46
====== =======
Total return(%)............................................. 6.06(c) 6.66(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 453 $ 111
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.30 3.46(d)
Without expense reimbursement(%).......................... 4.03 5.80(d)
Ratio of net investment loss to average net assets (%)(a)... (.20) (.68)(d)
Portfolio turnover rate(%).................................. 10 20
Average commission rate(f).................................. $.0002 $ .0002
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed
by manager.
(b) Total return represents aggregate total return and does not
reflect a sales charge.
(c) Total return does not reflect a sales charge.
(d) Annualized.
(e) Beginning in 1995, total expenses include fees paid
indirectly through an expense offset arrangement.
(f) For fiscal years beginning on or after September 1, 1995, a
fund is required to disclose its average commission rate per
share for security trades on which commissions are charged.
This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets
where trading practices and commission rate structures may
differ.
(See Notes to Financial Statements)
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
Ivy Latin America Strategy Fund (the Fund), is a non-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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 securities valued in good faith by the Valuation Committee of the Board
amounted to $1,216 (.01% of net assets) and have been noted as such in the
investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $283,976. These dividends were
subject to foreign withholding tax in the amount of $19,339. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of foreign taxes paid as either a tax
credit or itemized deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$7,868 as capital gain dividends for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, passive foreign investment companies, certain securities sold at a
loss, and nondeductible organization expenses. As a result, Net investment
income (loss) and Net realized gain (loss) on investments and foreign currency
transactions for a reporting period may differ significantly in amount and
character from distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEES PAID INDIRECTLY -- The Fund has an arrangement whereby a certain
percentage of quarterly cumulative credits resulting from cash balances on
deposit with the custodian are used to offset custody fees, including
transaction and out of pocket expenses. For the year, custody fees were reduced
by $25,575 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets.
Currently, IMI voluntarily limits the Fund's total operating expenses
(excluding taxes, 12b-1 fees, brokerage commissions, interest, litigation and
indemnification expenses, and other extraordinary expenses) to an annual rate of
1.95% of its average net assets. The voluntary expense limitation may be
terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $5,358.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $14,065, $33,776 and
$4,243, for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $12,408, $8,375 and $1,356, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in South
America. Therefore, the Fund is more susceptible to factors adversely affecting
securities in South America than is an equity fund that is not concentrated in
such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 378,980 3,715,905 321,787 $ 2,648,064
Issued on reinvestment of
distributions................ 8,757 73,733 1,568 13,506
Repurchased................... (226,858) (2,247,843) (144,190) (1,157,919)
-------- ----------- -------- -----------
Net increase.................. 160,879 $ 1,541,795 179,165 $ 1,503,651
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 224,612 $ 2,200,555 164,935 $ 1,349,112
Issued on reinvestment of
distributions................ 1,372 11,530 -- --
Repurchased................... (126,124) (1,261,569) (25,510) (210,681)
-------- ----------- -------- -----------
Net increase.................. 99,860 $ 950,516 139,425 $ 1,138,431
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 41,166 $ 400,890 13,400 $ 111,758
Issued on reinvestment of
distributions................ 167 1,391 5 42
Repurchased................... (3,514) (32,682) (236) (1,898)
-------- ----------- -------- -----------
Net increase.................. 37,819 $ 369,599 13,169 $ 109,902
======== =========== ======== ===========
</TABLE>
6. SUBSEQUENT EVENTS
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
Effective January 20, 1998, Ivy Latin America Strategy Fund changed its
name to Ivy South America Fund.
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy South America Fund, formerly
Ivy Latin America Strategy Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02ISAF123197
<PAGE> 29
DECEMBER 31, 1997 IVY FUNDS
IVY INTERNATIONAL SMALL COMPANIES FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
The trend of underperformance of small company international stocks
continued in 1997. While international large companies, as measured by the
Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
Index, were up 1.8%, small-cap stocks lost 12.8%, (according to the HSBC James
Capel World (excluding US Small Company Index). Within this environment, the
Ivy International Small Companies Fund, down 12.5% for the twelve months ended
December 31, 1997, performed in line with the index. (For the Fund's total
return with sales charge, and performance commentary, please refer to the
following page.)
Large-cap stocks outperformed smaller companies in every region of the
world in 1997. We believe this relationship can be partly explained by the
continued popularity of index investing. But in addition, as the uncertainty
created by the Asian crisis during the second half of the year swept the globe,
investors fled to the more well-researched, liquid, large-company stocks. This
was reflected in stock market performance in the second half of the year as the
small-cap index fell 15%, while the large-cap EAFE index fell 8%.
We continue to favor European smaller companies and at year-end they
represented approximately 65% of the Fund's total assets. The domestic recovery
in Europe is finally underway and we believe those small companies, which tend
to be domestically focused, are well positioned to benefit. Retailers, such as
Galeries Lafayette in France, Unibail, the property company, and Edipresse, the
Swiss publisher, should all benefit from improvements in consumer and business
confidence as the recovery gains momentum. European export companies have also
been given a shot in the arm from weakening currencies against the US dollar.
Paper and forestry companies, like Norske Skog in Norway and eyeglass
manufacturer Safilo in Italy, should show strong growth from export markets.
As European Monetary Union approaches, we expect to see increased
merger activity in Europe. This is particularly true in the financial services
industry where significant consolidation is likely to occur. The Fund is
invested in a number of small banks and insurance companies that are expected
to take advantage of this trend.
Our research confirms that small companies in Asia could not escape
the turmoil that devastated the region in the second half of 1997. As investors
fled from Asian markets, many smaller companies saw their share prices cut in
half. Interestingly, many small companies in Asia are exporters, which are net
beneficiaries of the massive currency devaluations that have taken place
throughout the region. The Ivy International Small Companies Fund is invested
in a number of exporters including KR Precision and Circuit Electronics in
Thailand, Elec & Eltek in Singapore and Techtronic in Hong Kong. Also, with the
indiscriminate selling that has occurred in Asia, many high-quality, defensive
companies are now trading at bargain levels. We believe, however, that
investors with a long-term view will be well rewarded by investing in Asia. We
need only to remind ourselves of the significant returns earned by those who
were willing to preserve through past financial crises in other areas of the
world.
Large-cap stocks have become more and more expensive while their
smaller counterparts are trading at increasingly large discounts. Over the
longer term, we believe that the value found in smaller companies will be
recognized by investors and that a period of outperformance will ensue.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 30
IVY INTERNATIONAL SMALL COMPANIES FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy International Small
Companies Fund was down 12.5% as compared to the HSBC James Capel World
(excluding US) Small Company Index, which was down 12.8% for the same period.
The similarity of the Fund's performance to that of the index is attributed to
the similarity in country selection and weightings for the Fund as compared to
the index.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (1/97) OF A $10,000
INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY INTERNATIONAL SMALL COMPANIES FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
(17.53)% (13.19)% (18.69)% (14.41)%
C: C: C: C:
Since Inception (17.55)% (19.05)% (14.14)% (13.14)% (15.66)% (14.66)%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns were higher due to reimbursement of the Fund's expenses. See
Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Small Companies
Fund will fluctuate and at redemption shares may be worth more or less than the
amount of the original investment.
The HSBC James Capel World (excluding-US) Small Company Index is an unmanaged
index of stocks which assumes reinvestment of dividends and, unlike Fund
returns, does not reflect any fees or expenses. It is not possible to invest in
an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B, Class C and Class I shares will vary
relative to that of Class A shares based on differences in their respective
sales loads and fees.
- --------------------------------------------------------------------------------
<PAGE> 31
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 91.39% SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
ASIA/PACIFIC -- 23.33%
- -------------------------------------------
AUSTRALIA -- 3.14%
BRL Hardy Limited.......................... 15,000 $ 46,160
Tyndall Australia Limited.................. 42,300 66,147
----------
112,307
----------
HONG KONG -- 8.52%
CDL Hotels International Ltd............... 80,000 24,263
Gold Peak Industries (Holdings) Ltd........ 53,000 29,413
Lamex Holdings Ltd......................... 130,000 16,778
Li & Fung.................................. 50,000 70,016
National Mutual Asia Ltd................... 54,000 53,664
Peregrine Investment Holdings Limited...... 36,000 25,554
Techtronic Industries Company.............. 166,000 38,563
Union Bank of Hong Kong Ltd................ 38,000 46,591
----------
304,842
----------
MALAYSIA -- 2.65%
KFC Holdings (Malaysia) Berhad............. 26,000 42,082
Malayan Cement Berhad...................... 28,750 19,574
Malaysia British Assurance Bhd............. 11,000 6,783
Sime UEP Properties Berhad................. 24,000 12,825
Sungei Way Holdings Bhd.................... 42,000 13,596
----------
94,860
----------
NEW ZEALAND -- 4.38%
Fisher & Paykel Industries................. 20,800 66,427
Fletcher Challenge Building................ 23,000 47,010
Fletcher Challenge Forestry................ 920 764
Tourism Holdings Limited................... 61,200 41,932
----------
156,133
----------
PHILIPPINES -- 0.66%
Alaska Milk Corporation*................... 440,000 17,204
Asian Terminals, Inc....................... 7,000 439
Metro Pacific Corp......................... 216,391 6,074
----------
23,717
----------
SINGAPORE -- 2.20%
Clipsal Industries Ltd..................... 22,000 28,160
Elec & Eltek International Co. Ltd......... 11,000 50,380
----------
78,540
----------
THAILAND -- 1.78%
Asia Credit Company PLC -- Foreign
Registered............................... 18,000 3,832
Circuit Electronic Industries Public
Company Limited
-- Foreign Registered.................... 13,500 10,655
Delta Electronics (Thailand) Public Company
Ltd...................................... 1,200 9,969
Delta Electronics (Thailand) Public Company
Ltd
-- Foreign Registered*................... 1,300 10,800
Dhana Siam Finance & Securities Public
Company Limited
-- Foreign Registered.................... 48,400 9,248
K. R. Precision Public Company Limited
-- Foreign Registered.................... 4,100 15,498
Robinson Department Store Public Company
Limited
-- Foreign Registered.................... 180,200 3,743
----------
63,745
----------
EUROPE -- 59.38%
- -------------------------------------------
AUSTRIA -- 2.43%
BWT AG..................................... 560 86,761
----------
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- --------------------------------------------------------------------
<S> <C> <C>
DENMARK -- 2.64%
Jyske Bank A/S............................. 400 $ 48,779
Sydbank A/S................................ 800 45,566
----------
94,345
----------
FINLAND -- 1.59%
Metsa-Serla OY -- Class B.................. 7,300 56,974
----------
FRANCE -- 11.80%
Assurances Banque Populaire................ 741 81,295
Assurances Banque Populaire
Certificates*(a)......................... 140 791
Bongrain S.A............................... 275 116,110
Galeries Lafayette......................... 85 46,909
Scor....................................... 1,810 86,591
Unibail.................................... 900 89,912
----------
421,608
----------
GERMANY -- 6.54%
Dyckerhoff AG.............................. 215 60,744
Gerresheimer Glas AG....................... 3,800 53,257
Leica Camera AG............................ 4,185 70,990
Merck KGaA................................. 1,440 48,453
----------
233,444
----------
HUNGARY -- 1.97%
Danubius Hotel & Spa Rights*............... 1,200 36,431
Pick Szeged Rights......................... 425 33,922
----------
70,353
----------
ITALY -- 6.62%
Banca Popolare Di Milano................... 10,650 66,864
Industrie Natuzzi Spa -- Sponsored ADR..... 3,100 63,938
Safilo S.p.A............................... 4,060 105,634
----------
236,436
----------
NORWAY -- 1.99%
Norske Skogindustrier ASA.................. 910 26,415
Nycomed ASA................................ 1,190 44,712
----------
71,127
----------
PORTUGAL -- 5.11%
Colep -- Cia. Portuguesa de Embalagens*.... 3,000 42,427
Companhia de Seguros Mundial Confianca
S.A.*.................................... 4,850 88,376
Lusomundo-SGPS S.A......................... 5,610 51,875
----------
182,678
----------
SPAIN -- 2.00%
Grupo Anaya S.A............................ 3,900 71,646
----------
SWEDEN -- 0.90%
S.K.F. AB Series "B"....................... 1,510 32,163
----------
SWITZERLAND -- 5.51%
Edipresse S.A.............................. 390 113,373
Fotolabo S.A............................... 375 83,559
----------
196,932
----------
UNITED KINGDOM -- 10.28%
Care U.K. PLC.............................. 45,955 108,885
Corporate Services Group PLC............... 26,380 92,888
Jarvis Hotels PLC.......................... 34,370 85,677
Kiln Capital PLC........................... 45,150 79,862
----------
367,312
----------
</TABLE>
<PAGE> 32
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C> <C> <C> <C>
LATIN AMERICA -- 7.34%
- -----------------------------
ARGENTINA -- 2.43%
Bansud S.A.*................. 3,340 $ 34,408
Quilmes Industrial S.A....... 3,830 52,423
----------
86,831
----------
BRAZIL -- 2.82%
Brasmotor S. A............... 300,000 29,569
Elevadores Atlas S.A. 144A... 1,600 19,355
OSA S.A. Preferred*.......... 2,800,000 10,663
Tam Transport Aeros
Preferred.................. 710,000 41,352
----------
100,939
----------
CHILE -- 2.09%
Genesis Chile Fund........... 760 29,260
Vina Concha Y
Toro -- Sponsored ADR...... 1,800 45,450
----------
74,710
----------
NORTH AMERICA -- 1.34%
- -----------------------------
CANADA -- 1.34%
Methanex Corporation*........ 5,870 46,557
Semi-Tech Corporation*....... 1,560 1,134
----------
47,691
----------
TOTAL INVESTMENTS
(Cost -- $3,863,662) (Cost
on Federal income tax
basis -- $3,868,929)....... $3,266,094
OTHER ASSETS, LESS
LIABILITIES -- 8.61%....... 307,839
----------
NET ASSETS -- 100%........... $3,573,933
==========
ADR -- American Depository Receipt
* Non-Income producing security.
(a) Securities valued in good faith by
the Valuation Committee of the Board
of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation
based on cost for Federal income tax purposes is as
follows:
Gross unrealized appreciation........ $ 275,275
Gross unrealized depreciation........ (878,110)
----------
Net unrealized depreciation...... $ (602,835)
==========
Purchases and sales of securities other than
short-term obligations aggregated $4,076,314 and
$240,873 respectively, for the period ended December
31, 1997.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $3,863,662)....... $ 3,266,094
Cash........................................................ 268,528
Receivables
Fund shares sold.......................................... 25,004
Dividends and interest.................................... 5,762
Manager for expense reimbursement......................... 6,217
Deferred organization expense............................... 39,165
Other assets................................................ 10,250
-----------
Total assets............................................ 3,621,020
-----------
LIABILITIES
Payables
Investments purchased..................................... 2,453
Fund shares repurchased................................... 24,058
Management fee............................................ 3,103
12b-1 service and distribution fees....................... 3,585
Custodian fees............................................ 5,000
Other payables to related parties......................... 3,536
Accrued expenses............................................ 5,352
-----------
Total liabilities....................................... 47,087
-----------
NET ASSETS.................................................. $ 3,573,933
===========
CLASS A
Net asset value and redemption price per share
($992,005/114,561 shares outstanding)..................... $ 8.66
===========
Maximum offering price per share ($8.66 X 100/94.25)*....... $ 9.19
===========
CLASS B
Net asset value, offering price, and redemption price** per
share ($1,007,466/116,764 shares outstanding)............. $ 8.63
===========
CLASS C
Net asset value, offering price, and redemption price*** per
share ($1,574,462/181,927 shares outstanding)............. $ 8.65
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 4,170,495
Undistributed net realized gain on investments............ 2,878
Accumulated net investment loss........................... (1,620)
Net unrealized depreciation on investments and foreign
currency transactions................................... (597,820)
-----------
NET ASSETS.................................................. $ 3,573,933
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
*** Subject to a maximum contingent deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 33
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $6,457 foreign taxes withheld........... $ 58,029
---------
EXPENSES
Management fee............................................ $28,799
Transfer agent............................................ 7,443
Administrative services fee............................... 2,880
Custodian fees............................................ 35,833
Blue Sky fees............................................. 5,629
Auditing and accounting fees.............................. 4,626
Shareholder reports....................................... 482
Amortization or organization expenses..................... 7,772
Fund accounting........................................... 18,633
Trustees' fees............................................ 4,670
12b-1 service and distribution fees....................... 22,000
Legal..................................................... 15,056
Other..................................................... 1,872
---------
155,695
Expenses reimbursed by manager............................ (68,465)
Fees paid indirectly...................................... (11,190)
---------
Net expenses............................................ 76,040
---------
NET INVESTMENT LOSS......................................... (18,011)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 29,248
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (597,820)
---------
Net loss on investment transactions..................... (568,572)
---------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(586,583)
=========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (18,011)
Net realized gain on investments and foreign currency
transactions............................................ 29,248
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (597,820)
----------
Net decrease resulting from operations.............. (586,583)
----------
Distributions to shareholders from net realized gain
Class A................................................... (10,611)
Class B................................................... (5,916)
Class C................................................... (6,491)
----------
Total distributions to shareholders................. (23,018)
----------
Fund share transactions (Note 4)
Class A................................................. 1,166,547
Class B................................................. 1,178,634
Class C................................................. 1,838,353
Class I................................................. --
----------
Net increase resulting from Fund share transactions..... 4,183,534
----------
NET ASSETS AT END OF PERIOD................................. $3,573,933
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 34
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997(A)
---------------------------------
CLASS A CLASS B CLASS C
SELECTED PER SHARE DATA ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.00 $10.00 $ 10.00
------- ------- -------
Income from investment operations
Net investment loss(b).................................... (.01) (.05) (.06)
Net realized and unrealized loss on investment
transactions............................................ (1.24) (1.27) (1.25)
------- ------- -------
Total from investment operations........................ (1.25) (1.32) (1.31)
------- ------- -------
Less distributions
From net realized gain.................................... .09 .05 .04
------- ------- -------
Total distributions..................................... .09 .05 .04
------- ------- -------
Net asset value, end of period.............................. $ 8.66 $ 8.63 $ 8.65
======= ======= =======
Total return (%)(c)......................................... (12.52) (13.19) (13.14)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 992 $1,007 $ 1,574
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.50 3.31 3.23
Without expense reimbursement(%).......................... 4.87 5.68 5.60
Ratio of net investment loss to average net assets(%)(b).... (.11) (.91) (.83)
Portfolio turnover rate(%).................................. 10 10 10
Average commission rate(e).................................. $.0030 $.0030 $ .0030
</TABLE>
(a) The Fund commenced operations on January 1, 1997.
(b) Net investment loss is net of expenses reimbursed by
manager.
(c) Total return does not reflect a sales charge.
(d) Total expenses include fees paid indirectly through an
expense offset arrangement.
(e) This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets
where trading practices and commission rate structures may
differ.
(See Notes to Financial Statements)
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
Ivy International Small Companies Fund (the 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 and Class I
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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 securities valued in good faith by the Valuation Committee of the Board
amounted to $791 (.02% of net assets) and have been noted as such in the
investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $63,213. These dividends were
subject to foreign withholding tax in the amount of $6,457. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
foreign taxes. Shareholders may report their share of foreign taxes paid as
either a tax credit or itemized deduction.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to; investments in foreign
denominated securities, passive foreign investment companies, certain securities
sold at a loss, and non-deductible organization expenses. As a result, Net
investment income (loss) and Net realized gain (loss) on investments and foreign
currency transactions for a reporting period may differ significantly in amount
and character from distributions during such period. Accordingly, the Fund may
make reclassifications among certain of its capital accounts without impacting
the net asset value of the Fund.
FEES PAID INDIRECTLY -- The Fund has an arrangement with its custodian
whereby a certain percentage of quarterly cumulative credits resulting from cash
balances on deposit with the custodian are used to offset custody fees,
including transaction and out of pocket expenses. For the year, custody fees
were reduced by $11,190 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
shares from the Fund at net asset value to settle orders
from investment dealers. For the year ended December 31, 1997, the net amount of
underwriting discount retained by IMDI was $5,425.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net
assets, excluding Class I. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net asset
value attributable to Class B and Class C shares. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$2,266, $6,742 and $12,992, for Class A, Class B and Class C, respectively, are
reflected as 12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $2,306, $2,114 , $3,023 and $0, for Class A, Class B, Class C and
Class I, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for the year ended December 31, 1997 for Class A,
Class B, Class C and Class I were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 137,090 $1,381,448
Issued on reinvestment of distributions................ 1,120 9,573
Repurchased............................................ (23,649) (224,474)
------- ----------
Net increase........................................... 114,561 $1,166,547
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 138,360 $1,386,132
Issued on reinvestment of distributions................ 479 4,077
Repurchased............................................ (22,075) (211,575)
------- ----------
Net increase........................................... 116,764 $1,178,634
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 227,583 $2,285,190
Issued on reinvestment of distributions................ 196 1,670
Repurchased............................................ (45,852) (448,507)
------- ----------
Net increase........................................... 181,927 $1,838,353
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS I SHARES AMOUNT
------- ------- ----------
<S> <C> <C>
Sold................................................... 1 $ 10
Repurchased............................................ (1) (10)
------- ----------
Net increase........................................... 0 $ 0
======= ==========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Small Companies Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the year then ended These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights 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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, and the results of its operations, changes in its
net assets, and the financial highlights for the year then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IISC123197
<PAGE> 37
IVY FUNDS
DECEMBER 31, 1997
IVY INTERNATIONAL FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
Nineteen ninety-seven was a significant year for both the world stock
markets and the Ivy International Fund. The assets of the Fund almost doubled in
the course of the year -- from $1.4 billion on December 31, 1996 to $2.6 billion
a year later. As a result of this rapid growth, and the manager's belief that to
continue growing at this pace would hinder the Fund's future performance, the
Ivy International Fund was closed to new investors in the spring of 1997.
Existing shareholders, however, can continue to invest in the Fund without
limitation.
For the twelve months ended December 31, 1997, the Ivy International Fund
was up 10.4%, which compares favorably to its most relevant benchmark, the
Morgan Stanley Capital International Europe, Australasia, Far East (EAFE) Index,
which was up 1.8% for the same period. (For the Fund's total return with sales
charge, and performance commentary, please refer to the following page.)
There were two dominant stories for the year: the roiling currency and
stock markets in Southeast Asia and the strong fiscal and economic discipline of
European countries as they head toward European Monetary Union (EMU) in 1999.
According to our research, the interest rate structure in Europe has
trended down as countries imposed strict controls on government spending to meet
the inflation and deficit goals of the Maastricht rules for joining EMU. The
participants will be finalized in May of 1998 and we expect the exchange rates
into the Euro (the single European currency) to also be set at that time.
Meanwhile, the continental European countries have allowed unemployment rates to
remain high to reduce the deficits. We believe this has led to low interest
rates for all potential members, including countries such as Italy and Spain.
The high European weighting in the Ivy International Fund (66% of assets) helped
performance as the region (including the United Kingdom and Switzerland
countries which will not initially participate in the Euro) had a strong 1997.
Our research also indicates that merger activity in Europe, both in the
financial and pharmaceutical sectors, will continue as companies align
themselves for the Euro and prepare to compete in the world market from the
European base.
The implosion of markets in Southeast Asia was felt by the Fund. The
decision to sell the Fund's Korean holdings in 1996, together with the manager's
aversion to Thailand, Indonesia, and the Philippines, meant that the Fund
avoided some of the damage that was felt throughout the region. Investments in
Malaysia, Singapore, and Hong Kong did, however, negatively affect the Fund in
the latter part of 1997. We believe the sell-off of currencies and stock markets
in the region resulted from an overinvestment in capacity on a world scale,
which meant manufacturing enterprises in these countries could not generate
sufficient revenues to satisfy their investors' expectations of return.
Brazil and Argentina, which together represent 7% of the Ivy International
Fund, were among the top performing South American markets in 1997, up 27.3% and
24.6% respectively. We believe this strong performance was the result of
investors seeking out large capitalization, blue-chip investments in emerging
markets.
We continue to believe that the US market will not meet the expectations of
investors in the future, and that those who diversify their portfolios
internationally should be rewarded. And so, we would remind existing
shareholders of their ability to continue investing in the Ivy International
Fund.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 38
IVY INTERNATIONAL FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy International Fund was up
10.4% which compares favorably to the Morgan Stanley Capital International
Europe, Australasia, Far East (EAFE) Index, which was up 1.8% for the same
period. The difference in performance is attributed to the Fund's active
management (EAFE is an unmanaged index) and a difference in country and regional
weightings between the Fund and the index. In particular, as of December 31,
1997, 25% of the index was allocated in Japan -- which was down more than 23%
for the year -- as compared to only 7% of the Fund.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (4/86) OF A $10,000
INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY INTERNATIONAL FUND
FOR PERIOD ENDING 12/31/97
Class A*-w/sales charge Class B**, C*** & I
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- 4.49% 9.49%
C: C: C: C:
-- -- 8.50% 9.50%
I: I: I: I:
1 Yr. -- 4.03% -- -- 10.87% 10.87%
- -----------------------------------------------------------------------------------
5 Yr. -- 16.69% -- -- -- --
- -----------------------------------------------------------------------------------
10 Yr. 13.87% 13.86% -- -- -- --
- -----------------------------------------------------------------------------------
B: B: B: B:
-- -- 11.68% 12.00%
C: C: C: C:
-- -- 12.66% 12.66%
I: I: I: I:
Since Inception 14.51% 14.50% -- -- 12.74% 12.74%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
index is an unmanaged index of stocks which assumes reinvestment of dividends
and, unlike Fund returns, does not reflect any fees or expenses. It is not
possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B, Class C and Class I shares will vary
relative to that of Class A shares based on differences in their respective
sales loads and fees.
- --------------------------------------------------------------------------------
<PAGE> 39
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 96.59% SHARES VALUE
- -----------------------------------
<S> <C> <C>
AFRICA -- 2.48%
- -----------------------------------
SOUTH AFRICA -- 2.48%
Anglo American Corporation
of South Africa Ltd.............. 26,900 $ 1,085,651
Anglo American Corporation
of South Africa Ltd. ADR......... 450,000 18,112,500
Billiton Plc....................... 476,400 1,223,708
Billiton Plc ADR................... 6,000,000 15,414,000
Gencor Limited..................... 95,280 157,614
Gencor Limited ADR................. 1,200,000 1,984,800
Pepkor Limited ADR 144A REGD....... 320,251 3,290,451
South African Breweries Limited.... 266,012 6,559,621
South African Breweries Limited
ADR.............................. 639,089 15,759,935
--------------
63,588,280
--------------
ASIA -- 20.90%
- -----------------------------------
HONG KONG -- 4.66%
Cheung Kong Holdings............... 4,000,000 26,199,407
China Light & Power................ 5,750,000 31,910,361
Hong Kong Telecommunications Ltd... 15,921,610 32,775,029
Swire Pacific Class A.............. 3,500,000 19,197,841
Television Broadcasting Ltd........ 3,321,000 9,472,324
--------------
119,554,962
--------------
JAPAN -- 7.16%
Bridgestone Corp................... 1,200,000 26,118,840
Canon Inc.......................... 1,200,000 28,056,987
Fuji Photo Film ORD................ 850,000 32,687,005
Komatsu Ltd........................ 4,100,000 20,654,342
Matsushita Electric Industrial
Co............................... 1,700,000 24,972,872
Nintendo Corp Ltd.................. 20,000 1,968,911
Sega Enterprises................... 18,000 326,716
Sharp Corp......................... 3,500,000 24,173,002
Sony Corp.......................... 275,000 24,534,481
--------------
183,493,156
--------------
MALAYSIA -- 1.18%
Malayan Banking Berhad............. 2,300,000 6,677,173
Sime Darby Berhad.................. 6,500,000 6,245,559
Telekom Malaysia Berhad............ 5,875,000 17,357,695
--------------
30,280,427
--------------
RUSSIA -- 4.79%
LUKoil Oil Co. Sponsored ADR
144A............................. 743,876 68,451,470
Mosenergo Sponsored ADR 144A....... 655,000 24,235,000
Unified Energy System*............. 100,000,000 30,240,000
--------------
122,926,470
--------------
SINGAPORE -- 3.11%
Fraser & Neave Ltd. ORD............ 5,000,000 21,662,506
Hong Kong Land Holdings Ltd........ 10,144,151 19,476,770
Keppel Corporation Ltd............. 7,050,000 20,251,178
United Overseas Bank Foreign
Registered....................... 3,312,407 18,381,084
--------------
79,771,538
--------------
AUSTRALIA -- 1.12%
- -----------------------------------
AUSTRALIA -- 1.12%
News Corp. Ltd. ADR................ 1,000,000 22,312,500
Rio Tinto Limited.................. 322,500 3,761,958
Western Mining Corporation
Holdings......................... 413,994 1,443,132
Western Mining Corporation Holdings
ADR.............................. 82,812 1,128,314
--------------
28,645,904
--------------
EUROPE -- 65.27%
- -----------------------------------
DENMARK -- 2.23%
ISS International Service Systems
B*............................... 700,000 25,762,318
Novo Nordisk AS -- Class B......... 220,000 31,487,277
--------------
57,249,595
--------------
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------
<S> <C> <C>
FRANCE -- 12.36%
AXA-UAP............................ 500,000 $ 38,706,008
Banque Nationale de Paris.......... 513,349 27,297,891
BIC................................ 140,000 10,223,306
Compagnie Financiere de Paribas.... 367,257 31,928,161
Elf Aquitaine S.A.................. 300,000 34,907,716
Eurotunnel S.A.*................... 10,000,000 9,641,179
Michelin Class B REGD.............. 353,305 17,794,859
Rhone Poulenc S.A.................. 567,790 25,445,428
Schneider S.A...................... 500,000 27,161,527
Seita/Societe National
D'Exploitation Industrielle Des
Tabacs Et Allumettes............. 691,570 24,830,875
Suez Lyonnaise des Eaux............ 222,611 24,644,669
Total S.A.......................... 407,995 44,422,017
--------------
317,003,636
--------------
ITALY -- 1.79%
Assicurazioni Genarali............. 1,200,000 29,491,011
Banca Commericale Italiana......... 4,700,000 16,349,016
--------------
45,840,027
--------------
NETHERLANDS -- 3.69%
ABN Amro Holdings NV............... 1,442,177 28,100,450
Hunter Douglas NV.................. 147,066 5,150,724
ING Groep NV....................... 632,343 26,638,404
Royal Dutch Petroleum ADR.......... 640,000 34,680,000
--------------
94,569,578
--------------
NORWAY -- 4.37%
Bergesen D.Y. A/S A................ 1,150,000 27,142,549
Frontline Ltd*..................... 4,229,200 17,095,351
Kvaerner Industrier Series A....... 360,000 18,360,897
Norsk Hydro Sponsored ADR.......... 600,000 30,600,000
Saga Petroleum Series A Free....... 1,100,000 18,949,595
--------------
112,148,392
--------------
PORTUGAL -- 1.16%
Banco Commercial Portugues
Preferrred....................... 400,000 29,700,000
--------------
SPAIN -- 2.65%
Banco Bilboa Vizcaya REGD.......... 300,000 9,703,744
Banco Intercontinental............. 350,000 19,840,515
Repsol S.A......................... 900,000 38,381,948
--------------
67,926,207
--------------
SWEDEN -- 9.64%
AGA AB Series B Free............... 2,500,000 33,083,945
Autoliv, Inc. SDR.................. 750,000 24,434,857
Ericsson L.M. Telephone Series B
Free............................. 600,000 22,572,703
Kinnevik AB B Free................. 230,870 3,826,320
Nobel Biocare AB................... 916,346 12,011,046
Pharmacia & Upjohn SDS............. 254,300 9,358,736
Skandia Forsakrings AB............. 1,000,000 47,199,762
Svenska Cellulosa AB (SCA)-Series
B................................ 1,200,000 26,996,500
Swedish Match AB Fuerer............ 9,000,000 30,059,128
Trelleborg AB B Free............... 300,000 3,781,022
Volvo AB B Free.................... 1,260,000 33,825,026
--------------
247,149,045
--------------
SWITZERLAND -- 13.49%
Ciba Specialty Chemicals AG........ 300,000 35,788,944
Compagnie Financiere Michelin...... 45,000 18,820,048
Compagnie Financiere Richemont
AG............................... 25,000 27,253,075
Credit Suisse Group REGD........... 177,035 27,431,273
Nestle AG REGD..................... 20,000 30,016,091
Novartis AG REGD................... 18,096 29,404,196
Sairgroup*......................... 24,000 32,909,374
SGS Holdings Bearer................ 15,000 28,795,702
Sulzer AG REGD..................... 10,775 6,840,796
Swiss Bank Corporation REGD........ 102,121 31,786,982
Swiss Re REGD...................... 20,655 38,688,712
Zurich Versicherungsgesellschaft
REGD............................. 80,000 38,174,874
--------------
345,910,067
--------------
</TABLE>
<PAGE> 40
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------
<S> <C> <C>
UNITED KINGDOM -- 13.89%
B.A.T. Industries plc.............. 4,055,131 $ 36,997,973
BG plc............................. 6,176,470 27,845,973
Barclay's Bank ORD................. 483,912 12,859,095
British Petroleum ORD.............. 2,350,077 30,953,868
Cadbury Schweppes plc ADR.......... 430,081 17,794,601
Diageo plc......................... 3,500,000 32,163,457
Imperial Tobacco Group plc......... 5,500,000 34,750,848
National Westminster Bank.......... 2,025,841 33,649,853
Reed International plc............. 2,600,000 25,347,387
Rio Tinto plc...................... 1,670,228 19,388,503
Royal Bank Scotland Group ORD...... 789,259 10,103,472
Smithkline Beecham plc ADR......... 800,000 41,150,000
Waste Management International plc
ADR*............................. 1,809,000 11,306,250
Whitbread PLC...................... 1,500,000 21,805,663
--------------
356,116,943
--------------
SOUTH AMERICA -- 6.82%
- -----------------------------------
ARGENTINA -- 3.14%
Telecom de Argentina S.A. Class B.. 3,300,000 23,764,349
Telefonica de Argentina S.A. Class
B................................ 6,000,000 22,504,118
YPF ADR Class D.................... 1,000,000 34,187,500
--------------
80,455,967
--------------
BRAZIL -- 3.68%
Centrais Electricas Brasileiras
S.A.(Electrobras)................ 600,000,000 30,644,612
Petrobras Registered NV............ 150,000,000 35,080,017
Telebras Registered NV............. 250,000,000 28,516,514
--------------
94,241,143
--------------
TOTAL EQUITY SECURITIES
(Cost -- $2,086,752,568)......... 2,476,571,337
--------------
CONVERTIBLE BONDS -- 0.75% PRINCIPAL
- ----------------------------------- -----------
Liberty Life International 144A
Registered, 6.50%, 09/30/04
(Cost -- $19,008,260)............ $16,500,000 19,305,000
--------------
COMMERCIAL PAPER -- 1.60%
- -----------------------------------
American Express, 6.00%, 01/02/98.. 18,933,561 18,933,561
American Express, 5.90%, 01/05/98.. 22,069,619 22,069,619
--------------
TOTAL COMMERCIAL PAPER
(Cost -- $41,003,180)......................... 41,003,180
--------------
TOTAL INVESTMENTS -- 98.94%
(Cost -- $2,146,764,008)(a)................... 2,536,879,517
OTHER ASSETS, LESS LIABILITIES -- 1.06%......... 27,339,189
--------------
NET ASSETS -- 100%.............................. $2,564,218,706
==============
ADR -- American Depository Receipt
NV -- Non-voting
ORD -- Ordinary
REGD -- Registered
SDR -- Swedish Depository Receipt
SDS -- Swedish Depository Shares
* Non-income producing security.
(a) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation................... $ 576,699,372
Gross unrealized depreciation................... (186,583,863)
-------------
Net unrealized appreciation................. $ 390,115,509
=============
Purchases and sales of securities other than short-term obligations
aggregated $1,234,112,830 and $174,291,735, respectively, for the
period ended, December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 41
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $2,146,764,008)... $2,536,879,517
Cash........................................................ 99,322
Receivables
Investments sold.......................................... 25,213,659
Fund shares sold.......................................... 1,265,075
Dividends and interest.................................... 6,505,889
Other assets................................................ 124,364
--------------
Total assets............................................ 2,570,087,826
--------------
LIABILITIES
Payables
Investments purchased..................................... 774,342
Fund shares repurchased................................... 836,909
Management fee............................................ 2,158,393
12b-1 service and distribution fees....................... 1,024,003
Other payables to related parties......................... 476,853
Accrued expenses............................................ 598,620
--------------
Total liabilities....................................... 5,869,120
--------------
NET ASSETS.................................................. $2,564,218,706
==============
CLASS A
Net asset value and redemption price per share
($1,705,771,784/43,698,675 shares outstanding)............ $ 39.03
==============
Maximum offering price per share ($39.03 X 100/94.25)*...... $ 41.41
==============
CLASS B
Net asset value, offering price and redemption price** per
share ($568,520,801/14,644,471 shares outstanding)........ $ 38.82
==============
CLASS C
Net asset value, offering price and redemption price*** per
share ($174,880,169/4,525,637 shares outstanding)......... $ 38.64
==============
CLASS I
Net asset value,offering price, and redemption price per
share ($115,045,952/2,945,551 shares outstanding)......... $ 39.06
==============
NET ASSETS CONSIST OF
Capital paid-in........................................... $2,180,517,167
Accumulated net realized loss on investments.............. (6,080,319)
Accumulated net investment loss........................... (32,902)
Net unrealized appreciation on investments and foreign
currency transactions................................... 389,814,760
--------------
NET ASSETS.................................................. $2,564,218,706
==============
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 42
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $3,999,950 foreign taxes withheld....... $ 43,108,571
Interest.................................................. 8,805,859
------------
51,914,430
------------
EXPENSES
Management fee............................................ $22,898,279
Transfer agent............................................ 3,166,932
Administrative services fee............................... 2,211,426
Custodian fees............................................ 2,231,677
Blue Sky fees............................................. 78,615
Auditing and accounting fees.............................. 64,051
Shareholder reports....................................... 103,119
Fund accounting........................................... 171,582
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 10,199,531
Legal..................................................... 73,121
Other..................................................... 426,025
------------
Total expenses.......................................... 41,631,570
------------
NET INVESTMENT INCOME....................................... 10,282,860
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 15,941,694
Net unrealized appreciation during the period on
investments and foreign currency transactions........... 155,677,616
------------
Net gain on investment transactions..................... 171,619,310
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $181,902,170
============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 43
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 10,282,860 $ 5,658,391
Net realized gain on investments and foreign currency
transactions............................................ 15,941,694 25,065,630
Net unrealized appreciation during the period on
investments and foreign currency transactions........... 155,677,616 140,672,710
-------------- --------------
Net increase resulting from operations.................. 181,902,170 171,396,731
-------------- --------------
CLASS A DISTRIBUTIONS
From net investment income................................ (9,161,845) (4,882,162)
From net realized gain.................................... (11,110,560) (17,087,565)
In excess of net realized gain............................ (4,390,449) --
-------------- --------------
Total distributions to Class A shareholders............. (24,662,854) (21,969,727)
-------------- --------------
CLASS B DISTRIBUTIONS
From net investment income................................ (1,396) --
In excess of net investment income........................ -- (430,044)
From net realized gain.................................... (3,054,436) (5,538,963)
In excess of net realized gain............................ (1,203,967) --
-------------- --------------
Total distributions to Class B shareholders............. (4,259,799) (5,969,007)
-------------- --------------
CLASS C DISTRIBUTIONS
From net investment income................................ (71,355) --
In excess of net investment income........................ -- (243,273)
From net realized gain.................................... (957,153) (791,253)
In excess of net realized gain............................ (377,366) --
-------------- --------------
Total distributions to Class C shareholders............. (1,405,874) (1,034,526)
-------------- --------------
CLASS I DISTRIBUTIONS
From net investment income................................ (927,558) (395,163)
In excess of net investment income........................ -- (23,513)
From net realized gain.................................... (819,545) (932,968)
In excess of net realized gain............................ (324,157) --
-------------- --------------
Total distributions to Class I shareholders............. (2,071,260) (1,351,644)
-------------- --------------
Fund share transactions (Note 4)
Class A................................................... 616,356,715 404,645,714
Class B................................................... 218,972,703 211,044,612
Class C................................................... 121,136,209 42,991,790
Class I................................................... 59,040,747 35,796,386
-------------- --------------
Net increase resulting from Fund share transactions..... 1,015,506,374 694,478,502
-------------- --------------
TOTAL INCREASE IN NET ASSETS................................ 1,165,008,757 835,550,329
NET ASSETS
Beginning of period....................................... 1,399,209,949 563,659,620
-------------- --------------
END OF PERIOD............................................. $2,564,218,706 $1,399,209,949
============== ==============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 44
FINANCIAL HIGHLIGHTS(A)
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 35.89 $ 30.67 $ 27.60 27.71 $ 18.88
---------- -------- -------- -------- --------
Income from investment operations
Net investment income..................................... .24 .20 .25 .07 .12
Net realized and unrealized gain on investment
transactions............................................ 3.47 5.85 3.22 1.01 9.01
---------- -------- -------- -------- --------
Total from investment operations........................ 3.71 6.05 3.47 1.08 9.13
---------- -------- -------- -------- --------
Less distributions
From net investment income................................ .21 .19 .25 .07 .08
From net realized gain.................................... .26 .64 .12 1.11 .22
In excess of net realized gain............................ .10 -- .03 -- --
From capital paid-in...................................... -- -- -- .01 --
---------- -------- -------- -------- --------
Total distributions..................................... .57 .83 .40 1.19 .30
---------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 39.03 $ 35.89 $ 30.67 $ 27.60 $ 27.71
========== ======== ======== ======== ========
Total return(%)(b).......................................... 10.38 19.72 12.65 3.92 48.37
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,705,772 $989,254 $475,989 $229,586 $172,539
Ratio of expenses to average net assets(%).................. 1.59 1.65 1.52 1.58 1.61
Ratio of net investment income to average net assets(%)..... .68 .76 .97 .30 .56
Portfolio turnover rate(%).................................. 8 14 6 7 19
Average commission rate(e).................................. $ .0090 $ .0092 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------------- -----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................. $ 35.73 $ 30.67 $ 27.60 $ 27.71 $25.86
-------- -------- -------- -------- ------
Income from investment operations
Net investment income (loss)........................ (.06) (.01) .01 (.10) (.01)
Net realized and unrealized gain on investment
transactions...................................... 3.44 5.76 3.20 .91 2.12
-------- -------- -------- -------- ------
Total from investment operations.................. 3.38 5.75 3.21 .81 2.11
-------- -------- -------- -------- ------
Less distributions
From net investment income.......................... -- -- .01 -- .04
In excess of net investment income.................. -- .05 -- -- --
From net realized gain.............................. .21 .64 .10 .90 .22
In excess of net realized gain...................... .08 -- .03 -- --
From capital paid-in................................ -- -- -- .02 --
-------- -------- -------- -------- ------
Total distributions............................... .29 .69 .14 .92 .26
-------- -------- -------- -------- ------
Net asset value, end of period........................ $ 38.82 $ 35.73 $ 30.67 $ 27.60 $27.71
======== ======== ======== ======== ======
Total return(%)....................................... 9.46(b) 18.76(b) 11.62(b) 2.96(b) 7.65(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).............. $568,521 $312,161 $ 74,650 $ 30,143 $2,846
Ratio of expenses to average net assets(%)............ 2.42 2.45 2.44 2.50 2.59(d)
Ratio of net investment income (loss)
to average net assets (%)........................... (.15) (.04) .05 (.62) (.42)(d)
Portfolio turnover rate(%)............................ 8 14 6 7 19
Average commission rate(e)............................ $ .0090 $ .0092 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 45
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ -----------------
1997 1996
SELECTED PER SHARE DATA ------------ -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 35.58 $ 32.68
-------- -------
Income from investment operations
Net investment loss....................................... (.05) --
Net realized and unrealized gain on investment
transactions............................................ 3.42 3.74
-------- -------
Total from investment operations........................ 3.37 3.74
-------- -------
Less distributions
From net investment income................................ .01 --
In excess of net investment income........................ -- .20
From net realized gain.................................... .21 .64
In excess of net realized gain............................ .09 --
-------- -------
Total distributions..................................... .31 .84
-------- -------
Net asset value, end of period.............................. $ 38.64 $ 35.58
======== =======
Total return(%)............................................. 9.50(b) 11.45(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $174,880 $44,450
Ratio of expenses to average net assets(%).................. 2.41 2.44(d)
Ratio of net investment loss to average net assets(%)....... (.14) (.03)(d)
Portfolio turnover rate(%).................................. 8 14
Average commission rate(e).................................. $ .0090 $ .0092
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 6, 1994
CLASS I FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------------------- -----------------
1997 1996 1995 1994
SELECTED PER SHARE DATA -------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 35.89 $ 30.67 $ 27.60 $29.06
-------- ------- ------- ------
Income (loss) from investment operations
Net investment income..................................... .32 .27 .30 .03
Net realized and unrealized gain (loss) on investment
transactions............................................ 3.56 5.88 3.22 (.49)
-------- ------- ------- ------
Total from investment operations........................ 3.88 6.15 3.52 (.46)
-------- ------- ------- ------
Less distributions
From net investment income................................ .32 .27 .30 .03
In excess of net investment income........................ -- .02 -- --
From net realized gain.................................... .28 .64 .12 .92
In excess of net realized gain............................ .11 -- .03 --
From capital paid-in...................................... -- -- -- .05
-------- ------- ------- ------
Total distributions..................................... .71 .93 .45 1.00
-------- ------- ------- ------
Net asset value, end of period.............................. $ 39.06 $ 35.89 $ 30.67 $27.60
======== ======= ======= ======
Total return (%)............................................ 10.87(b) 20.06(b) 12.85(b) (1.64)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $115,046 $53,344 $13,020 $4,921
Ratio of expenses to average net assets(%).................. 1.18 1.25 1.35 1.41(d)
Ratio of net investment income to average net assets(%)..... 1.08 1.16 1.14 0.47(d)
Portfolio turnover rate(%).................................. 8 14 6 7
Average commission rate(e).................................. $ .0090 $ .0092 N/A N/A
</TABLE>
(a) Effective April 1, 1993, the subadviser is Northern Cross Investments
Limited. Boston Overseas Investors Inc. was the subadviser from July 1,
1990 through March 31, 1993.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a
sales charge.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures
may differ.
(See Notes to Financial Statements)
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
Ivy International Fund (the 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 and Class I 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $40,323,653. These dividends
were subject to foreign withholding tax in the amount of $3,999,950. The Fund
intends to elect to pass through to its shareholders their proportionate share
of such taxes. Shareholders may report their share of foreign taxes paid as
either a tax credit or itemized deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$19,045,225 as capital gain dividends (of which, 44.35% is designated as 20%
rate gain) for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to investments in foreign
denominated securities, and certain securities sold at a loss. As a result, Net
investment income (loss) and Net realized gain (loss) on investments and foreign
currency transactions for a reporting period may differ significantly in amount
and character from distributions during such period. Accordingly, the Fund may
make reclassifications among certain of its capital accounts without impacting
the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Northern Cross Investments Limited is the
subadviser of the Fund. IMI, not the Fund, is obligated to compensate the
subadviser.
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $535,280.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value of shares issued after December 31, 1991, excluding Class I.
Class B and Class C shares are also subject to an ongoing distribution fee at an
annual rate of .75% of the average net asset value attributable to Class B and
Class C shares. IMDI may use such distribution fee for purposes of advertising
and marketing shares of the Fund. Such fees of $3,454,447, $5,257,708 and
$1,487,376, for Class A, Class B and Class C, respectively, are reflected as
12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $1,908,207, $967,354, $260,528 and $30,843, for Class A, Class B,
Class C and Class I, respectively, are reflected as Transfer agent in the
Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Class I were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 24,535,217 $ 947,843,934 16,070,230 $537,452,973
Issued on reinvestment
of distributions...... 553,328 21,066,996 534,854 19,195,195
Repurchased............ (8,953,220) (352,554,215) (4,561,167) (152,002,454)
---------- ------------- ----------- ------------
Net increase........... 16,135,325 $ 616,356,715 12,043,917 $404,645,714
========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 7,205,870 $ 269,571,973 6,659,639 $222,635,747
Issued on reinvestment
of distributions...... 55,534 2,101,941 91,688 3,275,938
Repurchased............ (1,353,764) (52,701,211) (448,268) (14,867,073)
---------- ------------- ----------- ------------
Net increase........... 5,907,640 $ 218,972,703 6,303,059 $211,044,612
========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
-------------------------- --------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 3,605,650 $ 133,986,481 1,260,097 $ 43,344,404
Issued on reinvestment
of distributions...... 12,771 481,083 9,696 344,991
Repurchased............ (342,252) (13,331,355) (20,325) (697,605)
---------- ------------- ----------- ------------
Net increase........... 3,276,169 $ 121,136,209 1,249,468 $ 42,991,790
========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- --------------------------
CLASS I SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 1,663,567 $ 67,173,182 1,105,814 $ 37,145,203
Issued on reinvestment
of distributions...... 41,606 1,584,389 35,847 1,286,548
Repurchased............ (245,848) (9,716,824) (79,940) (2,635,365)
---------- ------------- ----------- ------------
Net increase........... 1,459,325 $ 59,040,747 1,061,721 $ 35,796,386
========== ============= =========== ============
</TABLE>
Effective April 18, 1997, the Fund suspended the offer of its shares to new
investors. Shares of the Fund are available for purchase only by existing
shareholders of the Fund. Once a shareholder's account is liquidated, the
shareholder may not invest in the Fund at a later date.
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IIFX123197
<PAGE> 49
IVY FUNDS(R)
DECEMBER 31, 1997
IVY GROWTH FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
In 1997, the US stock market recorded its third consecutive year of strong
performance as measured by the S&P 500, which was up 34%. Performance continued
to be driven by large-company stocks: the median large-capitalization stock
gained 29%, the median mid-cap stock gained 21%, and the median small-cap stock
gained about 16%. Furthermore, in 1997 more than 40% of the gains in the S&P 500
came from the top 25 performers, almost all of which were mega-cap stocks--the
largest of the large. Within this environment, the Ivy Growth Fund was up 11.7%.
(For the Fund's total return with sales charge, and performance commentary,
please refer to the following page.)
There are special features to the Ivy Growth Fund which we believe set it
apart from most other growth funds. It employs a three-pronged investment
approach: a "core" portfolio of mid- and large-cap stocks together with US
emerging growth and international stocks. Most recently, the Fund's performance
has been led by the core portion of the portfolio. But going forward, we believe
the emerging growth and international components will make more meaningful
contributions to the Fund's overall performance.
In the US, we believe that as downsizing and consolidation--big
contributors to profit margin expansion in the 1990s--run out of steam, the
prospects exist for decelerating earnings growth. Additionally, the recent
turmoil in Asia is likely to contribute to lackluster revenue growth in the US.
Paradoxically, however, the Asian turmoil may boost US equity prices in the
short term if investors are attracted to the US market's safe haven status and
the deflationary effects the turmoil may have in keeping a lid on interest
rates. Nevertheless, we continue to be concerned with valuation levels, given
that the S&P 500 is at the high end of its historical valuation range by almost
every measure.
On the international front, Europe performed well in 1997 as, according to
our research, the cyclical recovery gained momentum and as the benefits of
corporate restructuring began to be reflected in higher profitability. We
believe these two trends should continue in 1998, aided by even lower interest
rates. Many companies are in the midst of aggressive restructuring programs
aimed at increasing profitability and increasing shareholder value.
After experiencing a region-wide sell-off in both currency and stock
markets in Asia, our research now indicates that bargains are now widespread
across the region, particularly in countries like Hong Kong, Singapore and
Malaysia. And we believe that stock prices will begin to move far in advance of
an economic recovery.
The US emerging growth component of the Fund is invested in smaller-cap
companies whose earnings are driven by product cycles rather than macroeconomic
conditions. According to our research, the US emerging growth sector is
currently selling at the bottom end of its relative valuation range, improving
the likelihood that strong earnings growth may translate into higher stock
prices for dynamic (yet volatile) small companies.
The Ivy Growth Fund dates back to 1961 and during its history has provided
consistent returns. The strategy of the Fund has been fine-turned over the years
but we believe it is as relevant today as it was then.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO MACKENZIE]
<PAGE> 50
IVY GROWTH FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy Growth Fund was up 11.7%
as compared to the S&P 500 which was up 34.2% for the same period. The Fund's
underperformance can be attributed primarily to its allocation to both US
emerging growth and international stocks, both of which underperformed the
large-cap US equity market (as measured by the S&P 500).
10-YEAR PERFORMANCE
COMPARISONS OF THE FUND
OF A $10,000 INVESTMENT
INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY GROWTH FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- 5.69% 10.69%
C: C: C: C:
1 Yr. -- 5.27% -- -- 9.58% 10.58%
- -----------------------------------------------------------------------------------
5 Yr. 11.35% 11.31% -- -- -- --
- -----------------------------------------------------------------------------------
10 Yr. 12.48% 12.45% -- -- -- --
- -----------------------------------------------------------------------------------
B: B: B: B:
11.42% 11.76% 11.37% 11.70%
C: C: C: C:
Since Inception 10.78% 10.77% 9.47% 9.47% 9.47% 9.47%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Growth Fund will fluctuate and
at redemption may be worth more or less than the amount of the original
investment.
The Lipper Average Growth Fund represents the performance of the average growth
fund as measured by Lipper Analytical Services, Inc. The S&P 500 is an unmanaged
index of stocks which assumes reinvestment of dividends and, unlike Fund
returns, does not reflect any fees or expenses. It is not possible to invest in
an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 51
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 92.32% SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 6.73%
AKZO Nobel NV(a)....................... 6,000 $ 1,034,713
Anglo-American Corporation of South
Africa Limited(a).................... 18,100 730,494
AssiDoman AB(a)........................ 24,200 613,055
Billiton Plc(a)........................ 282,200 720,875
Broken Hill Proprietary Company
Limited(a)........................... 38,800 360,251
Companhia Vale do Rio Doce -- Sponsored
ADR.................................. 30,000 603,600
Crown Cork & Seal Company, Inc......... 75,500 3,784,438
Du Pont (E.I.) De Numours & Company.... 24,000 1,441,500
Enso OY -- R Shares(a)................. 72,000 557,967
Ferro Corporation...................... 57,000 1,385,813
Fletcher Challenge Building(a)......... 183,750 375,567
Fletcher Challenge Forests(a).......... 129,566 107,583
Fletcher Challenge Paper(a)............ 184,500 241,044
Hanson plc............................. 16,000 369,000
Harsco Corporation..................... 63,000 2,716,875
Holderbank Financiere Glaris AG(a)..... 1,520 1,242,219
Imperial Chemical Industries PLC --
Sponsored ADR(a)..................... 19,000 1,233,813
Inco Limited(a)........................ 19,600 332,825
Nampak Limited(a)...................... 93,100 279,318
Rio Tinto plc(a)....................... 30,000 348,249
Semen Gresik(a)........................ 110,000 64,561
Stora Kopparbergs Bergslags
Aktiebolag(a)........................ 46,200 582,277
Trelleborg AB B Free Shares(a)......... 106,300 1,339,742
Union Carbide Corporation Holding
Company.............................. 19,000 815,813
UPM-Kymmene OY(a)...................... 28,840 577,276
------------
21,858,868
------------
BUSINESS SERVICES -- 8.68%
ABR Information Services, Inc.*........ 42,400 1,012,300
Applied Graphics Technologies, Inc.*... 28,200 1,501,650
Abacus Direct Corporation*............. 16,000 656,000
Banta Corporation...................... 83,000 2,241,000
Children's Comprehensive Services,
Inc.*................................ 40,400 747,400
Copart, Inc.*.......................... 25,000 446,875
Corporate Services Group Plc(a)........ 108,000 380,284
Dendrite International, Inc.*.......... 20,600 399,125
Electronic Data Systems Corp........... 112,000 4,921,000
FactSet Research Systems Inc.*......... 29,600 910,200
First Data Corporation................. 94,000 2,749,500
Gartner Group, Inc.*................... 43,600 1,624,100
Harte-Hanks Communications............. 60,000 2,227,500
Lason Holdings, Inc.*.................. 30,200 804,075
MSC Industrial Direct Co., Inc.*....... 24,700 1,046,663
Metro Networks, Inc.*.................. 28,200 923,550
Paychex, Inc........................... 25,000 1,265,625
Profit Recovery Group International,
Inc.*................................ 76,400 1,356,100
QuickResponse Services, Inc.*.......... 24,000 888,000
USA Waste Services, Inc.*.............. 30,925 1,213,806
Wackenhut Corrections Corporation*..... 33,000 886,875
------------
28,201,628
------------
CAPITAL GOODS -- 3.83%
AGCO Corporation....................... 88,000 2,574,000
American Standard Companies, Inc.*..... 33,800 1,294,963
Ballantyne of Omaha, Inc.*............. 37,000 666,000
Fluor Corporation...................... 15,000 560,625
Foster Wheeler Corporation............. 21,000 568,313
Johnson Controls, Inc.................. 22,000 1,050,500
Kaydon Corporation..................... 30,000 978,750
Rauma OY(a)............................ 21,803 340,329
S.K.F. AB Series "B"(a)................ 32,000 681,592
Schneider, S.A.(a)..................... 15,379 835,432
Tecumseh Products Company.............. 16,000 780,000
Tyco International Ltd................. 46,880 2,112,530
------------
12,443,034
------------
CONGLOMERATES -- 1.36%
Benpres Holdings Corp. -- Sponsored
GDR*(a).............................. 57,000 158,175
Cheung Kong(a)......................... 127,000 831,831
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Genting Berhad(a)...................... 70,000 $ 175,343
Guangdong Investments (a).............. 400,000 265,866
Guangdong Tannery Limited.............. 80,000 9,189
Jardine Matheson Holdings Ltd.(a)...... 75,200 383,520
Jardine Strategic Holdings Ltd.(a)..... 171,562 452,924
Jardine Strategic Holdings Ltd.
Warrants*(a)......................... 19,062 762
Metro Pacific Corporation(a)........... 2,064,958 57,965
New World Development Company
Ltd.(a).............................. 168,654 583,347
Pacific Dunlop Ltd.(a)................. 315,000 667,041
Swire Pacific Ltd. Class A(a).......... 154,000 844,705
------------
4,430,668
------------
CONSUMER DURABLES -- 1.90%
Brunswick Corp......................... 18,500 560,781
Electrolux AB(a)....................... 12,500 868,060
Fiat Sp A(a)........................... 291,500 848,287
PT Astra International(a).............. 284,000 73,651
Perusahaan Otomobil Nasional
Berhad(a)............................ 228,000 222,590
Peugeot Citroen(a)..................... 6,200 782,232
Renault Argentina S.A.(a).............. 48,180 67,464
Volkswagen AG(a)....................... 3,600 2,012,188
Volvo AB B Shares(a)................... 28,000 751,667
------------
6,186,920
------------
CONSUMER NON-DURABLES -- 7.50%
Blyth Industries, Inc.*................ 33,150 992,428
Cadbury Schweppes PLC (a).............. 27,000 268,776
Cutter & Buck Inc.*.................... 24,000 447,000
Diageo plc -- Sponsored ADR............ 27,104 1,026,564
Fraser & Neave Ltd(a).................. 80,000 346,600
Fuji Photo Film(a)..................... 22,000 846,017
Gallaher Group Plc(a).................. 84,000 446,430
Group Danone(a)........................ 5,500 982,818
Gucci Group(a)......................... 10,000 402,520
Hasbro, Inc............................ 34,500 1,086,750
Mattel, Inc............................ 64,000 2,384,000
Nestle AG Registered(a)................ 1,813 2,720,959
Next Plc(a)............................ 39,000 444,061
Nine West Group, Inc.*................. 104,000 2,697,500
PepsiCo, Inc........................... 51,000 1,858,313
President Enterprises*(a).............. 147,600 175,763
Rembrandt Group Limited(a)............. 31,000 226,144
SMH AG Bearer (a)...................... 1,000 552,603
Scholastic Corporation*................ 25,000 937,500
South African Breweries Ltd.(a)........ 10,022 247,133
South African Breweries Ltd.
Sponsored ADR........................ 5,200 128,232
Tate & Lyle PLC(a)..................... 52,000 429,515
Tsingtao Brewery Series H*(a).......... 1,176,000 274,714
Tupperware Corporation................. 26,500 738,688
Unilever NV ADR(a)..................... 18,800 1,173,825
Vina Concha y Toro S.A.(a)............. 13,400 338,350
Warnaco Group, Inc. Class A............ 69,400 2,177,425
------------
24,350,628
------------
CONSUMER SERVICES -- 8.77%
Apollo Group, Inc. -- Class A*......... 16,400 774,900
CHS Electronics, Inc.*................. 58,650 1,004,381
Carnival Corporation Class A........... 50,000 2,768,750
CompUSA, Inc.*......................... 27,200 843,200
Corporate Express, Inc.*............... 50,850 654,694
Deutsche Lufthansa AG(a)............... 13,600 255,656
Dollar Tree Stores, Inc.*.............. 22,600 935,075
Equity Corporation International*...... 32,200 744,625
Extended Stay America, Inc.*........... 54,000 671,625
Far Eastern Department Stores Ltd...... 190,950 202,249
Federated Department Stores, Inc.*..... 30,000 1,291,875
Galeries Lafayette (a)................. 2,410 1,330,017
Guitar Center, Inc.*................... 34,500 793,500
International Speedway Corp. -- Class
A.................................... 43,000 1,013,188
J.C. Penney Co., Inc................... 25,000 1,507,813
Lowe's Companies, Inc.................. 27,000 1,287,563
Lusomundo-SGPS S.A.
Preferred Shares (a)................. 51,200 469,266
McDonald's Corporation................. 48,500 2,315,875
Papa John's International, Inc.*....... 22,000 767,250
Petco Animal Supplies, Inc.*........... 25,000 600,000
</TABLE>
<PAGE> 52
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Premier Parks, Inc.*................... 26,200 $ 1,061,100
Rental Service Corporation*............ 30,000 736,875
Robinson Department Store
Public Company Limited (a)........... 272,100 5,651
Royal Caribbean Cruises Ltd............ 29,300 1,562,056
Safeway plc (a)........................ 139,000 789,051
Santa Isabel S.A. Sponsored ADR (a).... 8,800 154,000
Sears, Roebuck & Co.................... 22,000 995,500
Singapore Airlines Ltd(a).............. 100,000 652,843
Sun International Hotels Ltd.*......... 22,000 827,750
Sunglass Hut International, Inc.*...... 58,500 369,281
Tourism Holdings Limited(a)............ 521,000 356,974
Tricon Global Restaurants, Inc.*....... 25,100 729,469
------------
28,472,052
------------
ENERGY -- 4.83%
Dresser Industries, Inc................ 38,000 1,593,625
Elf Aquitaine S.A.(a).................. 5,700 663,247
Enron Corporation...................... 47,000 1,953,438
Fletcher Challenge Energy(a)........... 263,750 923,479
Helmerich & Payne, Inc................. 20,000 1,357,500
Noble Drilling Corporation*............ 45,000 1,378,125
Norsk Hydro A.S. Sponsored ADR(a)...... 21,100 1,076,100
Nuevo Energy Company*.................. 33,300 1,356,975
Offshore Logistics, Inc.*.............. 14,146 302,371
Repsol SA -- Sponsored ADR............. 8,000 340,500
Schlumberger, Ltd...................... 18,000 1,449,000
Shell Transport & Trading Co.(a)....... 195,000 1,416,566
Total S.A. ADR(a)...................... 20,155 1,118,603
YPF S.A. Sponsored ADR(a).............. 22,000 752,125
------------
15,681,654
------------
FINANCIAL SERVICES -- 13.67%
ABN Amro Bank(a)....................... 20,800 405,286
A.F.P. Provida S.A. Sponsored ADR(a)... 10,300 175,744
AMBAC, Inc............................. 49,000 2,254,000
AMMB Holdings Bhd(a)................... 100,000 65,513
Aegon NV............................... 13,147 1,178,300
Arab Malaysian Corporation Berhad(a)... 189,000 55,840
Asia Credit Company PLC(a)............. 17,000 3,619
Australia & New Zealand Banking Group
Ltd(a)............................... 78,000 515,337
BG Bank A/S(a)......................... 1,800 121,188
Banca Popolare di Milano(a)............ 135,000 847,570
Bangkok Bank Public Company
Limited(a)........................... 45,000 112,153
Bank of Ireland(a)..................... 59,175 908,433
Bank of Scotland(a).................... 180,000 1,631,908
Bankers Trust New York Corp............ 8,000 899,500
Banque Nationale de Paris(a)........... 13,500 717,878
Barclays PLC(a)........................ 30,500 810,483
Compagnie Financiere de Paribas(a)..... 12,455 1,082,798
Den Danske Bank(a)..................... 1,000 133,339
Development Bank of Singapore
Limited(a)........................... 70,000 598,241
Dhana Siam Finance & Securities Public
Company Limited(a)................... 55,000 10,509
Exel Limited........................... 39,000 2,471,625
Federal Agricultural Mortgage Corp.
Class C*............................. 12,000 732,000
Federal National Mortgage Association.. 50,000 2,853,125
First Chicago NBD Corporation.......... 15,000 1,252,500
First Union Corporation................ 28,000 1,435,000
Fortis Amev NV(a)...................... 24,500 1,068,355
Freddie Mac............................ 77,000 3,229,188
HSBC Holdings plc(a)................... 42,997 1,059,905
ING Group NV(a)........................ 19,156 806,975
J.P. Morgan & Company Inc.............. 8,500 959,438
Krung Thai Bank Public Company
Limited(a)........................... 75,000 15,577
Krung Thai Thanakit PLC(a)............. 26,000 4,697
LECG, Inc.*............................ 53,300 466,375
Litchfield Financial Corp.............. 31,900 618,063
National Australia Bank Ltd.(a)........ 42,000 586,448
National Westminster Bank PLC(a)....... 41,500 689,328
NationsBank Corporation................ 28,600 1,739,238
Nava Finance and Securities Public
Company Limited(a)................... 40,000 5,815
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Norwest Corporation.................... 41,600 $ 1,606,800
PMT Services, Inc.*.................... 77,000 1,068,375
PennCorp Financial, Inc................ 39,000 1,391,813
Peregrine Investment Holdings(a)....... 428,000 303,809
Peregrine Investment Holdings
Warrants*(a)......................... 82,800 106
Providian Corporation.................. 46,000 2,078,625
RHB Capital Berhad(a).................. 103,000 49,748
RHB Sakura Merchant Bankers
Berhad*(a)........................... 5,150 1,733
Societe Generale(a).................... 4,700 640,640
Terra Nova (Bermuda) Holdings Ltd...... 65,000 1,706,250
Travelers, Inc......................... 44,315 2,387,471
Unidanmark A/S(a)...................... 1,600 117,537
Westpac Banking Corp. Ltd.(a).......... 84,000 537,244
------------
44,411,442
------------
HEALTHCARE -- 10.49%
Agouron Pharmaceuticals, Inc.*......... 11,000 323,125
Alkermes, Inc.*........................ 20,000 397,500
Allegiance Corporation................. 31,000 1,098,563
ArQule, Inc.*.......................... 20,000 458,750
Astra AB -- B Free Shares(a)........... 72,800 1,224,900
Biochem Pharma, Inc.*.................. 51,000 1,064,625
Boston Scientific Corporation*......... 18,000 825,750
CIMA Labs, Inc.*....................... 21,600 91,800
ChiRex Inc.*........................... 49,400 870,675
Coast Dental Services, Inc.*........... 19,500 468,000
Columbia/HCA Healthcare Corp........... 52,500 1,555,313
Concentra Managed Care, Inc.*.......... 19,500 658,125
Cytyc Corporation*..................... 5,000 124,375
Dura Pharmaceuticals, Inc.*............ 36,800 1,688,200
Elan Corp. PLC -- Sponsored ADR*(a).... 49,000 2,508,188
FPA Medical Management, Inc.*.......... 26,000 484,250
Geltex Pharmaceuticals, Inc.*.......... 24,000 636,000
Health Management Associates, Inc.*.... 33,000 833,250
Horizon Mental Health Management,
Inc.*................................ 50,900 1,183,425
Liposome Company, Inc.*................ 45,400 209,975
Medpartners, Inc.*..................... 64,000 1,432,000
MedQuist, Inc.*........................ 14,250 495,188
Merck KGaA(a).......................... 24,000 807,544
Molecular Devices Corporation*......... 200 4,225
NCS HealthCare, Inc. Class A*.......... 7,400 195,175
Neurex Corporation*.................... 26,000 360,750
Omnicare, Inc.......................... 39,200 1,215,200
Orthodontic Centers of America,
Inc.*................................ 110,900 1,843,713
PathoGenesis Corp.*.................... 16,000 594,000
Pediatrix Medical Group Inc.*.......... 26,500 1,132,875
Penederm, Inc.*........................ 5,500 55,000
Pharmacia & Upjohn, Inc................ 29,000 1,062,125
Pharmacyclics, Inc.*................... 8,000 205,000
Renal Treatment Centers Inc.*.......... 44,000 1,589,500
Sepracor, Inc.*........................ 19,000 761,188
Serologicals Corporation*.............. 53,400 1,388,400
Sonus Pharmaceuticals, Inc.*........... 17,500 579,688
Total Renal Care Holdings, Inc.*....... 30,000 825,000
Trinity Biotech PLC ADR Warrants B.*... 30,000 15,000
US Surgical Corp....................... 65,000 1,905,313
Ventana Medical Systems, Inc.*......... 34,000 518,500
Vertex Pharmaceuticals, Inc.*.......... 7,000 231,000
Yung Shin Pharmaceuticals Industries
Co.(a)............................... 82,500 169,207
------------
34,090,380
------------
INDUSTRIAL -- 1.32%
Clipsal Industries Ltd.(a)............. 252,000 322,560
General Electric Company............... 23,000 1,687,625
Hunter Douglas NV(a)................... 19,800 693,459
Societe Generale d'Enterprises
SA.*(a).............................. 15,000 388,971
Suez Lyonnaise des Eaux(a)............. 7,799 863,406
Waste Management
International plc.*(a)............... 51,400 321,250
------------
4,277,271
------------
</TABLE>
<PAGE> 53
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
PROPERTY DEVELOPERS
& INVESTMENT -- 0.13%
DBS Land Limited(a).................... 157,000 $ 240,400
Land & General Berhad(a)............... 450,000 83,239
Sime UEP Properties Berhad(a).......... 200,000 106,875
------------
430,514
------------
TECHNOLOGY -- 19.89%
ASM Lithography Holding NV*(a)......... 11,200 756,000
Acer Incorporation*(a)................. 68,750 105,228
Adaptec, Inc.*......................... 20,000 742,500
Advanced Fibre Communications*......... 36,900 1,074,713
Advantage Learning Systems, Inc.*...... 20,000 427,500
American Power Conversion Corp.*....... 52,200 1,233,225
ANADIGICS, Inc.*....................... 15,000 451,875
Analog Devices, Inc.*.................. 31,333 867,532
Aspect Development, Inc.*.............. 22,200 1,154,400
Bell & Howell Holdings Company*........ 84,000 2,031,750
CBT Group PLC Sponsored ADR*........... 32,200 2,644,425
Cabletron Systems, Inc.*............... 31,000 465,000
Cadence Design Systems, Inc.*.......... 31,000 759,500
Cambridge Technology Partners, Inc.*... 200 8,400
Canon Inc.............................. 32,000 748,186
Checkfree Corporation*................. 38,000 1,026,000
CIENA Corporation*..................... 15,900 971,888
Cisco Systems, Inc.*................... 106,500 5,937,375
Citrix Systems, Inc.*.................. 8,600 653,600
Compeq Manufacturing Co.*(a)........... 33,600 193,369
DSP Communications, Inc.*.............. 26,000 312,000
Elec & Eltek International Co.
Ltd.(a).............................. 159,500 730,510
ENCAD, Inc.*........................... 20,000 550,000
Gemstar International Group Limited*... 44,600 1,087,125
Gilat Satellite Networks Ltd.*......... 15,000 429,375
HNC Software Inc.*..................... 15,000 645,000
H.T.E., Inc.*.......................... 400 8,300
Hewlett-Packard Company................ 24,500 1,531,250
Inacom Corp.*.......................... 20,000 561,250
Ingram Micro, Inc.*.................... 28,000 815,500
Integrated Process Equipment
Corporation*......................... 10,000 157,500
Intel Corp............................. 49,000 3,442,250
International Business Machines Corp... 15,500 1,620,719
International Network Services*........ 50,700 1,172,438
International Telecommunication Data
Systems, Inc.*....................... 29,500 944,000
JDA Software Group, Inc.*.............. 16,000 560,000
KLA-Tencor Corporation.*............... 13,000 502,125
Linear Technology Corporation.......... 8,000 461,000
Matsushita Electric Industrial Company,
Ltd (a).............................. 50,000 734,496
Maxim Integrated Products, Inc.*....... 39,800 1,373,100
Microsoft Corporation.*................ 12,300 1,589,775
Network Appliance, Inc.*............... 37,200 1,320,600
Network Associates, Inc.*.............. 11,000 581,625
Nextel Communications, Inc.*........... 29,000 754,000
Optika Imaging Systems, Inc.*.......... 113,800 391,188
Oracle Systems Corp.*.................. 36,000 803,250
P-COM, Inc.*........................... 48,000 828,000
PRI Automation, Inc.*.................. 12,000 346,500
Pairgain Technologies, Inc.*........... 19,400 375,875
Pegasystems Inc.*...................... 33,000 666,188
Peoplesoft, Inc.*...................... 22,000 858,000
Philips Electronics NV (a)............. 18,600 1,115,691
Photronics, Inc.*...................... 39,700 962,725
RadiSys Corporation*................... 16,900 629,525
Registry, Inc (The).*.................. 16,000 734,000
Saville Systems Ireland plc.*.......... 26,700 1,108,050
Sawtek Inc.*........................... 29,700 783,338
Security Dynamics Technologies, Inc.*.. 17,500 625,625
Sharp Corporation (a).................. 116,000 801,162
Sony Corporation (a)................... 9,600 856,476
Sterling Commerce, Inc.*............... 17,000 653,438
Sykes Enterprises, Inc.*............... 43,800 854,100
Synopsys, Inc.*........................ 18,000 643,500
Systex Corporation.* (a)............... 86,085 146,255
Tecnomatix Technologies Ltd.*.......... 3,500 118,125
Tellabs, Inc.*......................... 23,400 1,237,275
Telstra Corporation Limited* (a)....... 108,000 227,995
Transaction Network Services, Inc.*.... 63,750 1,099,688
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Transactions Systems Architects,
Inc.*................................ 20,500 $ 779,000
Veritas Software Corporation*.......... 15,500 790,500
Visio Corporation*..................... 31,200 1,197,300
Whittman-Hart, Inc.*................... 25,000 856,250
------------
64,625,423
------------
TELEPHONE & ELECTRIC -- 3.22%
Aerial Communications, Inc.*........... 40,000 285,000
Cia. de Telecomunicaciones de Chile
S.A. (a)............................. 10,625 317,422
Citizens Utilities Company CL B.*...... 207,240 1,994,694
Empresa Nacional de Electridad S.A.
(a).................................. 11,800 208,713
Endesa S. A -- Sponsored ADR........... 65,600 1,193,100
PT Telekomunikasi Indonesia -
Foreign Registered (a)............... 280,000 149,049
Portugal Telecom S.A. -- ADR (a)....... 10,800 507,600
Telecom Corporation of New Zeland
Limited (a).......................... 185,000 896,965
Telecomunicacoes Brasileiras S.A. ADR
(Telebras)........................... 13,400 1,560,263
Telefonica de Argentina -- ADS (a)..... 9,100 338,975
Telefonica de Espana S.A. -- ADR (a)... 29,200 2,659,025
Western Wireless Corp.*................ 19,000 330,125
------------
10,440,931
------------
TOTAL EQUITY SECURITIES
(Cost -- $231,886,563)............... 299,901,413
------------
REAL ESTATE INVESTMENT TRUSTS
(REITS) -- 1.33%
Amli Residential Properties Trust...... 50,000 1,112,500
Apartment Investment & Management Co... 48,000 1,764,000
First Industrial Realty Trust, Inc..... 40,000 1,445,000
------------
TOTAL REITS
(Cost -- $3,516,077)................. 4,321,500
------------
TOTAL INVESTMENTS -- 93.65%
(Cost -- $235,402,640) (Cost on
Federal income tax basis --
$235,634,881)........................ 304,222,913
OTHER ASSETS, LESS
LIABILITIES -- 6.35%................. 20,610,793
------------
NET ASSETS -- 100%..................... $324,833,706
============
ADR -- American Depository Receipt
ADS -- American Depository Share
GDR -- Global Depository Receipt
NV -- Non-voting
* Non-income producing security.
(a) Foreign security.
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation based on cost
for Federal income tax purposes is as follows:
Gross unrealized appreciation................. $ 88,735,752
Gross unrealized depreciation................. (20,147,720)
------------
Net unrealized appreciation............... $ 68,588,032
============
Purchases and sales of securities other than short-term
obligations aggregated $116,021,063 and $157,785,808,
respectively, for the period ended December 31, 1997.
Transactions in written call options during the period ended
December 31, 1997 were:
</TABLE>
<TABLE>
<CAPTION>
PREMIUMS
NUMBER OF RECEIVED/
CONTRACTS (PAID)
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997............ 3,865 $ 918,726
Contracts written....................... 265 68,849
Contracts sold.......................... (1,865) (510,755)
Contracts expired....................... (1,298) (273,605)
Contracts exercised..................... (967) (203,215)
------ ---------
Outstanding at December 31, 1997.......... -- $ --
====== =========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 54
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $235,402,640)..... $304,222,913
Cash........................................................ 20,870,296
Receivables
Fund shares sold.......................................... 6,851
Dividends and interest.................................... 342,139
Other assets................................................ 80,819
------------
Total assets.............................................. 325,523,018
------------
LIABILITIES
Payables
Investments purchased..................................... 235,434
Fund shares repurchased................................... 52,046
Management fee............................................ 232,000
12b-1 service and distribution fees....................... 20,923
Other payables to related parties......................... 105,242
Accrued expenses............................................ 43,667
------------
Total liabilities......................................... 689,312
------------
NET ASSETS.................................................. $324,833,706
============
CLASS A
Net asset value and redemption price per share
($320,000,346/17,972,734 shares outstanding).............. $ 17.80
============
Maximum offering price per share ($17.80 X 100/94.25)*...... $ 18.89
============
CLASS B
Net asset value, offering price and redemption price** per
share ($4,432,893/250,129 shares outstanding)............. $ 17.72
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($400,467/22,918 shares outstanding)................ $ 17.47
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $251,155,806
Undistributed net realized gain on investments and foreign
currency transactions................................... 4,684,515
Undistributed net investment income....................... 180,966
Net unrealized appreciation on investments and foreign
currency transactions................................... 68,812,419
------------
NET ASSETS.................................................. $324,833,706
============
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 3,645,490
Interest.................................................. 1,316,355
-----------
4,961,845
-----------
EXPENSES
Management fee............................................ $2,794,304
Transfer agent............................................ 790,101
Administrative services fee............................... 328,742
Custodian fees............................................ 111,511
Blue Sky fees............................................. 27,845
Auditing and accounting fees.............................. 63,513
Shareholder reports....................................... 21,601
Fund accounting........................................... 104,714
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 220,585
Legal..................................................... 22,933
Other..................................................... 77,737
-----------
Total expenses............................................ 4,570,798
-----------
NET INVESTMENT INCOME....................................... 391,047
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) on
Investments and foreign currency transactions........... 35,190,261
Options................................................. (1,152,465)
Forward foreign currency contracts...................... 2,164,946
Net unrealized appreciation (depreciation) during the
period on
Investments and foreign currency transactions........... (1,186,211)
Options................................................. 472,707
Forward foreign currency contracts...................... 70,156
-----------
Net gain on investment transactions................. 35,559,394
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $35,950,441
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 55
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 391,047 $ 362,902
Net realized gain (loss) on
Investments and foreign currency transactions........... 37,355,207 31,145,326
Options................................................. (1,152,465) (480,845)
Net unrealized appreciation (depreciation) during the
period on
Investments and foreign currency transactions........... (1,186,211) 18,302,190
Options................................................. 472,707 (472,707)
Forward foreign currency contracts...................... 70,156 167,966
------------ ------------
Net increase resulting from operations.............. 35,950,441 49,024,832
------------ ------------
Class A distributions
From net investment income................................ (388,231) (389,158)
In excess of net investment income........................ (2,099,612) (1,722,867)
From net realized gain.................................... (29,374,568) (28,336,336)
------------ ------------
Total distributions to Class A shareholders......... (31,862,411) (30,448,361)
------------ ------------
Class B distributions
From net investment income................................ (2,415) --
In excess of net investment income........................ (13,058) --
From net realized gain.................................... (391,020) (346,890)
------------ ------------
Total distributions to Class B shareholders......... (406,493) (346,890)
------------ ------------
Class C distributions
From net investment income................................ (401) --
In excess of net investment income........................ (2,173) (395)
From net realized gain.................................... (36,669) (8,094)
------------ ------------
Total distributions to Class C shareholders......... (39,243) (8,489)
------------ ------------
Fund share transactions (Note 4)
Class A................................................... 1,470,182 6,870,702
Class B................................................... 566,456 1,041,023
Class C................................................... 307,343 91,198
------------ ------------
Net increase resulting from Fund share
transactions........................................ 2,343,981 8,002,923
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 5,986,275 26,224,015
NET ASSETS
Beginning period.......................................... 318,847,431 292,623,416
------------ ------------
END OF PERIOD............................................. $324,833,706 $318,847,431
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 180,966 $ 50,714
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 56
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.76 $ 16.75 $ 13.91 $ 15.14 $ 14.98
-------- -------- -------- -------- --------
Income (loss) from investment operations
Net investment income..................................... .02 .02(a) .05(a) .05(a) .10(a)
Net realized and unrealized gain (loss) on investment
transactions............................................ 1.98 2.86 3.73 (.49) 1.74
-------- -------- -------- -------- --------
Total from investment operations.................... 2.00 2.88 3.78 (.44) 1.84
-------- -------- -------- -------- --------
Less distributions
From net investment income................................ .02 .02 .02 .05 .10
In excess of net investment income........................ .13 .11 -- -- --
From net realized gain.................................... 1.81 1.74 .89 .74 1.58
In excess of net realized gain............................ -- -- .03 -- --
-------- -------- -------- -------- --------
Total distributions................................. 1.96 1.87 .94 .79 1.68
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 17.80 $ 17.76 $ 16.75 $ 13.91 $ 15.14
======== ======== ======== ======== ========
Total return(%)(b).......................................... 11.69 17.22 27.33 (2.97) 12.29
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $320,000 $314,908 $289,954 $231,446 $268,533
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 1.45 1.59 1.38 1.33
Without expense reimbursement(%).......................... 1.38 1.45 1.60 1.49 1.43
Ratio of net investment income to average net assets(%)..... .13 .13(a) .32(a) .32(a) .64(a)
Portfolio turnover rate(%).................................. 39 72 41 39 77(e)
Average commission rate(f).................................. $ .0480 $ .0439 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS B FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------------------------------ -----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $17.69 $16.75 $13.91 $15.14 $ 16.42
------ ------ ------ ------ --------
Income (loss) from investment operations
Net investment loss....................................... (.14) (.13)(a) (.08)(a) (.04)(a) --
Net realized and unrealized gain (loss)
on investment transactions.............................. 1.96 2.81 3.71 (.54) .37
------ ------ ------ ------ --------
Total from investment operations.................... 1.82 2.68 3.63 (.58) .37
------ ------ ------ ------ --------
Less distributions
From net investment income................................ -- -- -- -- .07
In excess of net investment income........................ .07 -- -- -- --
From net realized gain.................................... 1.72 1.74 .73 .52 1.58
In excess of net realized gain............................ -- -- .06 .13 --
------ ------ ------ ------ --------
Total distributions................................. 1.79 1.74 .79 .65 1.65
------ ------ ------ ------ --------
Net asset value, end of period.............................. $17.72 $17.69 $16.75 $13.91 $ 15.14
====== ====== ====== ====== ========
Total return(%)............................................. 10.69(b) 16.02(b) 26.13(b) (3.90)(b) 2.34(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $4,433 $3,850 $2,669 $1,399 $ 65
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 2.37 2.55 2.34 2.31(d)
Without expense reimbursement(%).......................... 2.30 2.37 2.56 2.45 2.44(d)
Ratio of net investment loss to average net assets(%)....... (.79) (.79)(a) (.64)(a) (.64)(a) (.33)(a)(d)
Portfolio turnover rate(%).................................. 39 72 41 39 77(e)
Average commission rate(f).................................. $.0480 $.0439 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 57
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1996
CLASS C ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ -----------------
1997 1996
SELECTED PER SHARE DATA ------------ -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $17.59 $18.46
------ ------
Loss from investment operations
Net investment loss....................................... (.07) (.06)(a)
Net realized and unrealized gain on investment
transactions............................................ 1.86 1.02
------ ------
Total from investment operations.................... 1.79 .96
------ ------
Less distributions
In excess of net investment income........................ .13 .09
From net realized gain.................................... 1.78 1.74
------ ------
Total distributions................................. 1.91 1.83
------ ------
Net asset value, end of period.............................. $17.47 $17.59
====== ======
Total return(%)............................................. 10.58(b) 5.20(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 400 $ 90
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 2.44(d)
Without expense reimbursement(%).......................... 2.33 2.44(d)
Ratio of net investment loss
to average net assets(%).................................. (.82) (.86)(a)(d)
Portfolio turnover rate(%).................................. 39 72
Average commission rate(f).................................. $.0480 $.0439
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a
sales charge.
(d) Annualized.
(e) The portfolio turnover rate excludes sales of portfolio securities made
following the February 1, 1993 reorganization between the Fund and
American Investors Growth Fund, Inc. to realign the Fund's portfolio and
reflects an adjustment to the monthly average value of the portfolio
securities owned by the Fund during the year ended December 31, 1993.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
(See Notes to Financial Statements)
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS
Ivy Growth Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
OPTIONS -- The Fund may write (sell) put options on securities and stock
indicies, and may write (sell) covered call options on securities held in its
portfolio. When the Fund writes a call, it gives the purchaser of the call
option the right to buy the underlying security at the price specified in the
option (the "exercise price") at any time during the option period, generally
ranging up to nine months. When the fund holds covered call options, the
underlying securities are held in a segregated account by the custodian.
If the option expires unexercised, the Fund will realize income, in the
form of a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder. For
options on indices, cash settlement by the Fund will be required if the option
is exercised.
By writing a call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security or
currency above the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call option is valued at the last sale price or, in the absence of a
sale, the last offering price.
In addition, the Fund may purchase put options on securities and stock
indices. Exchange traded purchased options are valued at the last sale price or,
in the absence of a sale, the last bid price.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$27,372,315 as capital gain dividends (of which, 68.43% is designated 20% rate
gain) for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts
may be entered into for purposes of hedging specific securities denominated in
foreign currencies. Forward contracts are marked to market daily, and the change
in market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to investments in foreign
denominated securities, investments in forward foreign currency contracts,
passive foreign investment companies, and certain securities sold at a loss. As
a result, Net investment income (loss) and Net realized gain (loss) on
investments and foreign currency transactions for a reporting period may differ
significantly in amount and character from distributions during such period.
Accordingly, the Fund may make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of .85% of
the Fund's average net assets.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $16,522.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value of shares issued after December 31, 1991. Class B and Class C
shares are also subject to an ongoing distribution fee at an annual rate of .75%
of the average net asset value of Class B and Class C shares. IMDI may use such
distribution fee for purposes of advertising and marketing shares of the Fund.
Such fees of $176,461, $42,336 and $1,788, for Class A, Class B and Class C,
respectively, are reflected as 12b-1 service and distribution fees in the
Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $780,605, $9,051 and $445, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,926,280 $ 55,575,299 1,496,693 $ 27,187,211
Issued on reinvestment of
distributions........... 1,722,605 29,508,347 1,508,308 28,065,960
Repurchased.............. (4,406,743) (83,613,464) (2,657,170) (48,382,469)
---------- ------------ ---------- ------------
Net increase............. 242,142 $ 1,470,182 419,831 $ 6,870,702
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 65,628 $ 1,231,249 103,139 $ 1,850,267
Issued on reinvestment of
distributions........... 22,508 383,770 18,721 331,192
Repurchased.............. (55,634) (1,048,563) (63,589) (1,140,436)
---------- ------------ ---------- ------------
Net increase............. 32,502 $ 566,456 58,271 $ 1,041,023
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 37,235 $ 674,963 5,921 $ 105,632
Issued on reinvestment of
distributions........... 2,037 34,248 482 8,487
Repurchased.............. (21,478) (401,868) (1,279) (22,921)
---------- ------------ ---------- ------------
Net increase............. 17,794 $ 307,343 5,124 $ 91,198
========== ============ ========== ============
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Growth Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IGFX123197
<PAGE> 61
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMERCIAL PAPER -- 34.12% PRINCIPAL VALUE
- ------------------------------------------------------
<S> <C> <C>
Abbott Laboratories, 5.70%,
01/06/98.................. $ 900,000 $ 899,288
Associates Corp. of North
America, 5.53%,
01/06/98.................. 850,000 849,347
Bellsouth Telecomm Inc.,
5.62%, 02/04/98........... 750,000 746,019
General Electric Capital
Corp., 5.71%, 01/15/98.... 800,000 798,224
Kellogg Co., 5.60%,
01/14/98.................. 600,000 598,787
National Rural Utilities,
5.50%, 01/08/98........... 1,000,000 998,931
Paccar Financial Corp.,
5.70%, 01/09/98........... 900,000 898,860
Yale University, 5.70%,
01/13/98.................. 900,000 898,290
-----------
TOTAL COMMERCIAL PAPER
(Cost -- $6,687,746)...... 6,687,746
-----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS -- 67.20%
- ----------------------------
Federal Home Loan Bank,
4.90%, 01/07/98........... 2,400,000 2,398,040
Federal Home Loan Bank,
5.59%, 01/08/98........... 1,000,000 998,913
Federal Home Loan Mortgage
Corp., 5.72%, 01/28/98.... 2,000,000 1,991,420
Federal National Mortgage
Association, 5.65%,
01/20/98.................. $1,000,000 $ 997,018
Federal National Mortgage
Association, 5.51%,
01/21/98.................. 500,000 498,469
Federal National Mortgage
Association, 5.68%,
01/23/98.................. 3,300,000 3,288,545
Federal National Mortgage
Association, 5.74%,
01/26/98.................. 2,000,000 1,992,028
Student Loan Marketing
Association, 4.76%,
08/02/99(a)............... 1,000,000 1,008,580
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost -- $13,173,013)..... 13,173,013
-----------
TOTAL INVESTMENTS -- 101.32%
(Cost --$19,860,759)(b)... 19,860,759
-----------
OTHER ASSETS, LESS
LIABILITIES -- (1.32%).... (259,431)
-----------
NET ASSETS -- 100%.......... $19,601,328
===========
</TABLE>
(a) Floating rate note; reflects variable rate as of the latest reset date,
December 31, 1997.
(b) Cost is the same for Federal income tax purposes.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (amortized cost -- $19,860,759)....... $19,860,759
Cash........................................................ 118,820
Receivables
Fund shares sold.......................................... 103,524
Manager for expense reimbursement......................... 17,463
Other assets................................................ 15,725
-----------
Total assets.............................................. 20,116,291
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 1,002
Fund shares repurchased................................... 487,668
Management and advisory fees.............................. 6,640
Other payables to related parties......................... 11,617
Accrued expenses............................................ 8,036
-----------
Total liabilities......................................... 514,963
-----------
NET ASSETS.................................................. $19,601,328
===========
CLASS A
Net asset value, offering price and redemption price per
share ($15,384,629/15,384,629 shares outstanding)......... $ 1.00
===========
CLASS B
Net asset value, offering price and redemption price* per
share ($3,811,703/3,811,703 shares outstanding)........... $ 1.00
===========
CLASS C
Net asset value, offering price and redemption price* per
share ($404,996/404,996 shares outstanding)............... $ 1.00
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $19,601,328
-----------
NET ASSETS.................................................. $19,601,328
===========
</TABLE>
* Subject to any applicable contingent deferred sales charge.
(See Notes to Financial Statements)
<PAGE> 62
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,146,314
----------
EXPENSES
Management fee............................................ $83,294
Transfer agent............................................ 86,746
Administrative services fee............................... 20,823
Custodian fees............................................ 13,651
Blue Sky fees............................................. 29,094
Auditing and accounting fees.............................. 10,624
Shareholder reports....................................... 5,818
Fund accounting........................................... 26,342
Trustees' fees............................................ 7,212
Legal..................................................... 20,430
Other..................................................... 18,390
----------
322,424
Expenses reimbursed by manager............................ (144,403)
----------
Net expenses............................................ 178,021
----------
NET INVESTMENT INCOME AND INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $ 968,293
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income and increase resulting from
operations.............................................. $ 968,293 $ 894,987
----------- -----------
Net increase resulting from operation............... 968,293 894,987
----------- -----------
Distributions to shareholders from net investment income
Class A................................................... (805,708) (794,505)
Class B................................................... (148,800) (95,901)
Class C................................................... (13,785) (4,581)
----------- -----------
Total distributions to shareholders................. (968,293) (894,987)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (5,974,438) (3,249,695)
Class B................................................... 337,330 3,474,373
Class C................................................... 331,385 73,611
----------- -----------
Net (decrease) increase resulting from Fund share
transactions........................................... (5,305,723) 298,289
----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (5,305,723) 298,289
NET ASSETS
Beginning of period....................................... 24,907,051 24,608,762
----------- -----------
END OF PERIOD............................................. $19,601,328 $24,907,051
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 63
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations
Net investment income(a).................................. .05 .04 .05 .04 .02
Less distributions
From net investment income................................ (.05) (.04) (.05) (.04) (.02)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return(%)............................................. 4.60 4.47 4.80 4.21 2.42
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $15,385 $21,359 $24,609 $26,827 $25,782
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .88 .86 .85 .85 .85
Without expense reimbursement(%).......................... 1.57 1.86 1.39 1.24 1.56
Ratio of net investment income to average net
assets(%)(a).............................................. 4.60 4.47 4.91 3.29 2.22
</TABLE>
<TABLE>
<CAPTION>
CLASS B FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1997 1996
SELECTED PER SHARE DATA ------ ------
<S> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00
------ ------
Income from investment operations
Net investment income(a).................................. .05 .05
Less distributions
From net investment income................................ (.05) (.05)
------ ------
Net asset value, end of period.............................. $ 1.00 $ 1.00
====== ======
Total return(%)............................................. 4.77 4.57
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $3,812 $3,474
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .70 .77
Without expense reimbursement(%).......................... 1.39 1.77
Ratio of net investment income to average net
assets(%)(a).............................................. 4.77 4.57
</TABLE>
<TABLE>
<CAPTION>
FOR THE FROM APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ -------------------
1997 1996
SELECTED PER SHARE DATA ------------ -------------------
<S> <C> <C>
Net asset value, beginning of period........................ $1.00 $1.00
----- -----
Income from investment operations
Net investment income(a).................................. .05 .03
Less distributions
From net investment income................................ (.05) (.03)
----- -----
Net asset value, end of period.............................. $1.00 $1.00
===== =====
Total return(%)............................................. 4.78 4.78(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 405 $ 74
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .70 .56(c)
Without expense reimbursement(%).......................... 1.39 1.56(c)
Ratio of net investment income to average net assets
(%)(a).................................................... 4.78 4.78
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return represents aggregate total return.
(c) Annualized.
</TABLE>
Note: The seven day yield as of December 31, 1997 was 4.86%. The thirty day
yield as of December 31, 1997 was 4.74%.
(See Notes to Financial Statements)
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
Ivy Money Market Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Short-term obligations and commercial paper are
valued at amortized cost, which approximates market.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions of net investment income are
declared daily, and are paid monthly.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of .40% of
the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, brokerage commissions, interest,
litigation and indemnification expenses, and other extraordinary expenses) to an
annual rate of .85% of its average net assets. The voluntary expense limitation
may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $77,685, $8,321 and $740, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions and equivalent dollar amounts for Class A, Class B
and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
CLASS A DECEMBER 31, 1997 DECEMBER 31, 1996
- ------- ----------------- -----------------
<S> <C> <C>
Sold.............................. 110,167,300 67,870,418
Issued on reinvestment of
distributions.................... 687,560 682,663
Repurchased....................... (116,829,298) (71,802,776)
------------ ------------
Net decrease...................... (5,974,438) (3,249,695)
============ ============
</TABLE>
<TABLE>
<CAPTION>
FROM JANUARY 1, 1996
YEAR ENDED (COMMENCEMENT)TO
CLASS B DECEMBER 31, 1997 DECEMBER 31, 1996
- ------- ----------------- --------------------
<S> <C> <C>
Sold........................... 17,941,947 24,768,901
Issued on reinvestment of
distributions................. 113,848 68,338
Repurchased.................... (17,718,465) (21,362,866)
------------ ------------
Net increase................... 337,330 3,474,373
============ ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT) TO
CLASS C DECEMBER 31, 1997 DECEMBER 31, 1996
- ------- ----------------- --------------------
<S> <C> <C>
Sold........................... 4,042,327 668,573
Issued on reinvestment of
distributions................. 10,606 2,270
Repurchased.................... (3,721,548) (597,232)
------------ ------------
Net increase................... 331,385 73,611
============ ============
</TABLE>
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Money Market Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
<PAGE> 66
IVY FUNDS(R)
DECEMBER 31, 1997
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the share-holders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
While US large-capitalization stocks once again turned in strong
performance in 1997, the year proved to be quite challenging for technology
investors, particularly in the smaller capitalization sector. For instance, the
Russell 2000 Growth Index returned 12.95%, while the technology component of
this index had a nominal gain of only 0.21%--substantially behind the S&P 500,
which returned 34%.
The year began on a cheerless note with investors generally shunning
small-cap stocks in favor of larger, more liquid holdings and index funds
enjoying enormous popularity. This was exacerbated in the technology sector by
product-transition issues in the networking sector. Uncertainty surrounded
industry stalwarts Cisco and 3Com, which dampened sentiment toward the entire
sector. By late April, which marked the end of this phase, the technology
sector had sold off significantly and as a result, the Fund had declined 23.66%.
This set the stage for the second phase, during which the Fund came roaring
back in a rally that continued into early October. From the April low to the
October peak, the Fund appreciated 61.18%.
Then the "Asian flu" reached our shores, and its impact on technology
stocks was quite severe. As currencies plummeted throughout the Pacific Rim,
growth rate projections for these economies were cut sharply and investors
worried about the eventual impact on US technology companies. Although in some
cases--semiconductor equipment suppliers, for instance--these concerns were well
founded, the selling pressure was broad based and seemed indiscriminate. The
upshot was that over the last twelve weeks of the year the Fund retreated 13.4%
and ended the year up 6.53% for the twelve months ended December 31, 1997. (For
the Fund's total return with sales charge, and performance commentary, please
refer to the following page.)
In spite of all this volatility, which seems endemic to the technology
sector, we are resolute in our conviction that technology will remain one of the
great growth drivers in the world economy for many years. The software business,
which represents the largest industry weighting in the Ivy Global Science &
Technology Fund, provides a good example of what we find so compelling. Ever
since the microprocessor was invented more than 25 years ago, the cost of
computing power has been plummeting. This has caused a proliferation of desktop
computers--over 300 million world wide--all of which need software to run. So
this has grown into a huge business that's rife with growth opportunities. And
it has several business and financial characteristics that are extremely
attractive. For one thing, it can be highly profitable since all of the product
cost is up-front in development. Once a company passes the break-even point, the
incremental margins tend to be very high. And because essentially no plant or
inventory investment is required, software companies can grow rapidly and at the
same time generate huge amounts of cash. The most successful of these companies
develop a program so popular that it evolves into an industry standard, gaining
distribution, deep support, and highly trained users. Success breeds success,
often leading to significant market share and profitability.
We also expect strong earnings growth from other industry sectors that are
well represented in the Fund. These include networking, telecommunication
equipment and services, IT consulting, electronic commerce, pharmaceuticals, and
biotechnology. We believe these are all very fertile areas for sustainable
growth, and are optimistic that over the long term they should generate
favorable investment results.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022 DISTRIBUTOR
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 Ivy Mackenzie
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Distributors, Inc.
Roy J. Glauber Keith J. Carlson, President Via Mizner Financial Plaza
Michael G. Landry James W. Broadfoot, Vice President AUDITORS 700 South Federal Highway
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. Boca Raton, FL 33432
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO IVY MACKENZIE]
<PAGE> 67
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, Ivy Global Science & Technology
Fund was up 6.5% as compared to the Chicago Board of Options Exchange Technology
Index, which was up 8.2% for the same period. The Fund's underperformance is
attributed to its greater exposure to small technology companies whereas the
index is more heavily biased towards larger technology firms.
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (7/96)
OF A $10,000 INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
--------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
--------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- .66% 5.66%
C: C: C: C:
1 Yr. -- .40% -- -- 4.71% 5.71%
- ------------------------------------------------------------------------------------
B: B: B: B:
44.50% 46.85% 44.42% 46.77%
C: C: C: C:
Since Inception 41.59% 41.43% 46.91% 46.91% 46.83% 46.83%
- ------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Global Science & Technology
Fund will fluctuate and at redemption may be worth more or less than the amount
of the original investment.
The Chicago Board of Options Exchange Technology Index is an unmanaged index of
stocks which assumes reinvestment of dividends and, unlike Fund returns, does
not reflect any fees or expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 68
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 96.05% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
BIOTECHNOLOGY -- 6.05%
Aastrom Biosciences, Inc.*...... 11,300 $ 49,438
Agouron Pharmaceuticals,
Inc.*......................... 2,900 85,188
Alkermes, Inc.*................. 4,600 91,425
ArQule, Inc.*................... 5,500 126,156
Biochem Pharma, Inc.*........... 5,500 114,813
Cell Therapeutics, Inc.*........ 6,600 112,200
Ergo Science Corporation*....... 9,700 147,925
Geltex Pharmaceuticals, Inc.*... 4,400 116,600
Gene Logic Inc.*................ 13,000 104,000
Guilford Pharmaceuticals,
Inc.*......................... 3,000 60,375
Liposome Company Inc.*.......... 3,700 17,113
Neurex Corporation*............. 7,500 104,063
PathoGenesis Corp.*............. 3,800 141,075
Pharmacyclics, Inc.*............ 5,400 138,375
US Bioscience, Inc.*............ 11,500 104,219
Vertex Pharmaceuticals Inc.*.... 1,400 46,200
ViroPharma Inc.*................ 4,500 79,310
-----------
1,638,475
-----------
BUSINESS & FINANCIAL
SERVICES -- 27.66%
ABR Infomation Services,
Inc.*......................... 9,000 214,875
Applied Graphics Technologies,
Inc.*......................... 4,800 255,600
CBT Group PLC ADR*.............. 6,500 533,813
CHS Electronics, Inc.*.......... 15,850 271,431
Cambridge Technology Partners,
Inc.*......................... 5,900 245,588
Claremont Technology Group,
Inc.*......................... 5,300 98,050
CompUSA, Inc.*.................. 5,200 161,200
Cotelligent Group, Inc.*........ 5,500 105,188
FactSet Research Systems
Inc.*......................... 8,100 249,075
First Data Corp................. 8,500 248,625
Forrester Research, Inc.*....... 3,800 86,450
Gartner Group, Inc. -- Class
A*............................ 7,600 283,100
Inacom Corp.*................... 6,700 188,019
Ingram Micro Inc. -- Class A*... 10,100 294,163
Inspire Insurance Solutions,
Inc.*......................... 17,200 359,050
Intelligroup, Inc.*............. 8,400 160,650
International Network
Services*..................... 11,900 275,188
International Telecommunication
Data Systems, Inc.*........... 10,500 336,000
LHS Group, Inc.*................ 2,500 149,375
Lason Holdings, Inc.*........... 9,700 258,260
Lightbridge, Inc.*.............. 14,900 283,100
Meta Group, Inc.*............... 6,200 136,400
PMT Services, Inc.*............. 19,300 267,788
Profit Recovery Group
International, Inc. (The)*.... 15,100 268,025
QuickResponse Services Inc.*.... 6,800 251,600
RWD Technologies, Inc.*......... 11,000 198,000
Sapient Corporation*............ 1,900 116,375
Saville Systems Ireland ADR*.... 9,000 373,500
SportsLine USA, Inc*............ 10,700 115,025
Superior Consultant Holdings
Corporation*.................. 6,800 204,000
Sykes Enterprises, Inc.*(a)..... 11,800 230,100
Whittman-Hart, Inc.*............ 8,000 274,000
-----------
7,491,613
-----------
COMPUTER SOFTWARE -- 20.19%
Advantage Learning Systems,
Inc.*......................... 7,800 166,725
Aspect Development, Inc.*....... 6,300 327,600
Best Software, Inc.*............ 8,600 79,550
Cadence Design Systems, Inc.*... 7,800 191,100
Checkfree Corporation*.......... 7,600 205,200
Citrix Systems, Inc.*........... 2,300 174,800
Computer Learning Centers
Inc.*......................... 2,000 122,500
Concord Communications, Inc.*... 8,800 182,600
CyberMedia, Inc.*............... 6,500 97,906
Deltek Systems, Inc.*........... 16,500 260,906
Dendrite International, Inc.*... 5,600 108,500
Great Plains Software, Inc.*.... 4,500 $ 122,625
HNC Software Inc.*.............. 3,900 167,700
H.T.E., Inc.*................... 17,600 365,200
J.D. Edwards & Company*......... 4,400 129,800
JDA Software Group, Inc.*....... 4,500 157,500
Memco Software Ltd.*............ 10,000 202,500
Microsoft Corporation*.......... 1,200 155,100
Network Associates, Inc.*....... 3,600 190,350
New Era of Networks, Inc.*...... 15,400 173,250
Optika Imaging Systems, Inc.*... 15,800 54,313
Pegasystems Inc*................ 6,300 127,181
Peoplesoft, Inc.*............... 5,000 195,000
Peregrine Systems, Inc.*........ 15,000 200,625
Rogue Wave Software*............ 14,400 159,300
Security Dynamics Technologies,
Inc.*......................... 4,900 175,175
Sterling Commerce, Inc*......... 6,200 238,313
Tecnomatix Technologies Ltd*.... 4,000 135,000
Transactions Systems Architects,
Inc.*......................... 5,800 220,400
Veritas Software Corp.*......... 2,650 135,150
Visio Corporation*.............. 6,400 245,600
-----------
5,467,469
-----------
HEALTHCARE -- 4.71%
Cyberonics, Inc.*............... 7,500 114,375
Cytyc Corporation*.............. 4,100 101,986
EPIX Medical, Inc.*............. 10,000 130,000
HBO & Company................... 5,020 240,960
MedQuist Inc.*.................. 5,200 180,700
Serologicals Corporation*....... 14,850 386,100
Ventana Medical Systems,
Inc.*......................... 8,000 122,000
-----------
1,276,121
-----------
MISCELLANEOUS TECHNOLOGY --8.26%
Discreet Logic, Inc.*........... 12,400 272,025
Encad, Inc.*.................... 6,200 170,500
FARO Technologies, Inc.*........ 11,000 127,875
Gemstar International Group
Ltd.*......................... 10,300 251,062
ONTRACK Data International,
Inc.*......................... 10,900 271,819
Pegasus Systems, Inc.*.......... 9,000 133,875
RadiSys Corporation*............ 5,200 193,700
Registry, Inc (The)*............ 3,360 154,140
SBS Technologies, Inc.*......... 4,500 122,063
SCM Microsystems, Inc*.......... 2,100 50,400
SMART Modular Technologies,
Inc*.......................... 6,400 147,200
Synopsys, Inc.*................. 4,500 160,875
Thermedics Detection Inc*....... 11,000 112,750
Viisage Technology, Inc.*....... 11,600 67,425
-----------
2,235,709
-----------
NETWORK & TELECOMMUNICATION
EQUIPMENT -- 14.59%
Adaptec, Inc.*.................. 4,400 163,350
Advanced Fibre
Communications*............... 7,000 203,875
American Power Conversion
Corp.*........................ 11,800 278,775
CIENA Corporation*.............. 4,000 244,500
Cisco Systems, Inc.*............ 14,100 786,075
Corsair Communications, Inc.*... 9,200 149,500
DSP Communications, Inc.*....... 9,100 109,200
Gilat Satellite Networks Ltd*... 5,000 143,125
Innova Corporation*............. 10,700 163,175
Network Appliance, Inc.*........ 12,400 440,200
NICE-Systems Ltd. -- Sponsored
ADR*.......................... 7,000 294,000
Orckit Communications Ltd.*..... 6,700 124,788
P-COM, Inc*..................... 8,400 144,900
Pairgain Technologies, Inc.*.... 4,700 91,063
Sawtek Inc.*.................... 4,700 123,961
Tellabs, Inc*................... 9,300 491,737
-----------
3,952,224
-----------
</TABLE>
<PAGE> 69
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMMON STOCKS SHARES VALUE
<S> <C> <C>
PHARMACEUTICALS -- 3.96%
Anesta Corp.*................... 7,600 $ 124,450
ChiRex Inc.*.................... 11,300 199,163
Dura Pharmaceuticals, Inc.*..... 5,600 256,900
Nastech Pharmaceutical Co.*..... 5,500 71,500
Penederm Inc.*.................. 12,000 120,000
Sepracor, Inc.*................. 4,600 184,288
Sonus Pharmaceuticals, Inc.*.... 3,500 115,937
-----------
1,072,238
-----------
SEMICONDUCTORS &
EQUIPMENT -- 8.66%
ANADIGICS, Inc.*................ 3,000 90,375
ASM Lithography Holding
NV*(a)........................ 3,800 256,500
Advanced Energy Industries,
Inc.*......................... 6,000 89,625
Analog Devices*................. 4,766 131,959
Benchmarq Microelectronics,
Inc.*......................... 5,000 68,125
CFM Technologies, Inc.*......... 7,600 116,850
Cerprobe Corporation*........... 17,200 298,850
Etec Systems, Inc.*............. 3,900 181,350
Galileo Technology Ltd*......... 4,800 138,600
Intel Corp...................... 5,100 358,275
Maxim Integrated Products,
Inc.*......................... 6,000 207,000
Micrel, Inc.*................... 3,400 95,200
PRI Automation, Inc.*........... 3,200 92,400
Photronics, Inc*................ 6,000 145,500
Sipex Corporation*.............. 2,500 75,625
-----------
2,346,234
-----------
TELECOMMUNICATION
SERVICES -- 1.97%
Nextel Communications, Inc.*.... 7,600 $ 197,600
Transaction Network Services,
Inc.*......................... 5,500 94,876
WorldCom, Inc*.................. 8,000 242,000
-----------
534,476
-----------
TOTAL COMMON STOCKS
(Cost -- $21,848,318)(b)...... 26,014,559
OTHER ASSETS, LESS
LIABILITIES -- 3.95%.......... 1,069,592
-----------
NET ASSETS -- 100%.............. $27,084,151
===========
ADR -- American Depository Receipt
NV -- Non-voting
* Non-income producing security.
(a) Foreign security.
(b) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation....... $ 5,503,282
Gross unrealized depreciation....... (1,337,041)
-----------
Net unrealized appreciation..... $ 4,166,241
===========
Purchases and sales of securities other than
short-term obligations aggregated $23,387,387 and
$11,225,356, respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 70
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $21,848,318)...... $26,014,559
Cash........................................................ 1,088,523
Receivables
Fund shares sold.......................................... 173,176
Dividends and interest.................................... 270
Deferred organization expenses.............................. 42,495
Other assets................................................ 14,334
-----------
Total assets.............................................. 27,333,357
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 193,148
Management fee............................................ 22,556
12b-1 service and distribution fees....................... 15,772
Other payables to related parties......................... 10,638
Accrued expenses............................................ 7,092
-----------
Total liabilities......................................... 249,206
-----------
NET ASSETS.................................................. $27,084,151
===========
CLASS A
Net asset value and redemption price per share
($12,159,480/695,979 shares outstanding).................. $ 17.47
===========
Maximum offering price per share ($17.47 X 100/94.25)*...... $ 18.54
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($8,577,073/493,855 shares outstanding)............. $ 17.37
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($6,347,598/364,799 shares outstanding)............... $ 17.40
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $23,778,648
Accumulated net realized loss on investments.............. (860,738)
Net unrealized appreciation on investments................ 4,166,241
-----------
NET ASSETS.................................................. $27,084,151
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 71
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 2,014
Interest.................................................. 44,778
----------
46,792
----------
EXPENSES
Management fee............................................ $229,616
Transfer agent............................................ 45,539
Administrative services fee............................... 22,962
Custodian fees............................................ 10,292
Blue Sky fees............................................. 22,848
Auditing and accounting fees.............................. 15,000
Shareholder reports....................................... 2,961
Amortization of organization expenses..................... 12,009
Fund accounting........................................... 36,454
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 145,282
Legal..................................................... 18,881
Other..................................................... 8,454
----------
Total expenses............................................ 577,510
----------
NET INVESTMENT LOSS......................................... (530,718)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss......................................... (847,104)
Net unrealized appreciation during the period............. 3,158,134
----------
Net gain on investment transactions..................... 2,311,030
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $1,780,312
==========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 72
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD JULY 22, 1996 (COMMENCEMENT)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR JULY 22,
ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
-------------- ---------------
1997 1996
-------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (530,718) $ (50,867)
Net realized (loss) gain on investments................... (847,104) 61,918
Net unrealized appreciation during the period on
investments............................................. 3,158,134 1,008,107
----------- -----------
Net increase resulting from operations.............. 1,780,312 1,019,158
----------- -----------
Class A distributions
From net realized gain.................................... -- (17,214)
In excess of net realized gain............................ (212) --
----------- -----------
Total distributions to Class A shareholders......... (212) (17,214)
----------- -----------
Class B distributions
From net realized gain.................................... -- (3,926)
In excess of net realized gain............................ (165) --
----------- -----------
Total distributions to Class B shareholders......... (165) (3,926)
----------- -----------
Class C distributions
From net realized gain.................................... -- (3,066)
In excess of net realized gain............................ (102) --
----------- -----------
Total distributions to Class C shareholders......... (102) (3,066)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... 2,928,480 7,567,192
Class B................................................... 4,780,042 3,263,292
Class C................................................... 3,740,708 2,029,658
Class I................................................... -- (6)
----------- -----------
Net increase resulting from Fund share transactions..... 11,449,230 12,860,136
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 13,229,063 13,855,088
NET ASSETS
Beginning of period....................................... 13,855,088 --
----------- -----------
END OF PERIOD............................................. $27,084,151 $13,855,088
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 73
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 22, 1996
CLASS A YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1997 1996
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 16.40 $10.00
------- ------
Income (loss) from investment operations
Net investment loss....................................... (.31) (.06)(a)
Net realized and unrealized gain on investments........... 1.38 6.49
------- ------
Total from investment operations........................ 1.07 6.43
------- ------
Less distributions
From net realized gain.................................... -- .03
------- ------
Total distributions..................................... -- .03
------- ------
Net asset value, end of period.............................. $ 17.47 $16.40
======= ======
Total return(%)............................................. 6.53(b) 64.34(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $12,159 $8,324
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 2.19(d)
Without expense reimbursement(%).......................... 2.11 2.90(d)
Ratio of net investment loss to average net assets(%)....... (1.91) (2.18)(a)(d)
Portfolio turnover rate(%).................................. 54 23
Average commission rate(e).................................. $ .0600 $.0600
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 22, 1996
CLASS B YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1997 1996
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $16.44 $10.00
------ ------
Income (loss) from investment operations
Net investment loss....................................... (.32) (.06)(a)
Net realized and unrealized gain on investments........... 1.25 6.52
------ ------
Total from investment operations........................ .93 6.46
------ ------
Less distributions
From net realized gain.................................... -- .02
------ ------
Total distributions..................................... -- .02
------ ------
Net asset value, end of period.............................. $17.37 $16.44
====== ======
Total return(%)............................................. 5.66(b) 64.59(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $8,577 $3,425
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 2.99(d)
Without expense reimbursement(%).......................... 2.92 3.70(d)
Ratio of net investment loss to average net assets(%)....... (2.72) (2.98)(a)(d)
Portfolio turnover rate(%).................................. 54 23
Average commission rate(e).................................. $.0600 $.0600
</TABLE>
(See Notes to Financial Statements)
<PAGE> 74
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE JULY 22, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1997 1996
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $16.46 $10.00
------ ------
Income (loss) from investment operations
Net investment loss....................................... (.42) (.05)(a)
Net realized and unrealized gain on investments........... 1.36 6.53
------ ------
Total from investment operations........................ .94 6.48
------ ------
Less distributions
From net realized gain.................................... -- .02
------ ------
Total distributions..................................... -- .02
------ ------
Net asset value, end of period.............................. $17.40 $16.46
====== ======
Total return(%)............................................. 5.71(b) 64.84(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $6,348 $2,106
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- 2.95(d)
Without expense reimbursement(%).......................... 2.85 3.66(d)
Ratio of net investment loss to average net assets (%)...... (2.65) (2.94)(a)(d)
Portfolio turnover rate(%).................................. 54 23
Average commission rate(e).................................. $.0600 $.0600
</TABLE>
(a) Net investment loss is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not
reflect a sales charge.
(d) Annualized.
(e) This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets
where trading practices and commission rate structures may
differ.
(See Notes to Financial Statements)
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS
Ivy Global Science & Technology Fund (the 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 and Class I 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$373,000 as of December 31, 1997, which may be applied against any realized net
taxable capital gain of each succeeding fiscal year until fully utilized or
until the expiration date, whichever occurs first. The carryover expires in
2005.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss and non-deductible organization expenses. As a result, Net investment
income (loss) and Net realized gain (loss) on investments and foreign currency
transactions for a reporting period may differ significantly in amount and
character from distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Funds's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
Ivy Mackenzie Distributors, Inc. (IMDI), a wholly owned subsidiary of MIMI,
is the underwriter and dis-
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
tributor of the Fund's shares, and as such, purchases shares from the Fund at
net asset value to settle orders from investment dealers. For the year ended
December 31, 1997, the net amount of underwriting discount retained by IMDI was
$32,035.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net
assets, excluding Class I. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net asset
value attributable to Class B and Class C shares. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$28,111, $63,671, and $53,500 for Class A, Class B and Class C, respectively,
are reflected as 12b-1 service and distribution fees in the Statement of
Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $20,812, $15,344, $9,383, and $0 for Class A, Class B, Class C and
Class I, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Class I were as
follows:
<TABLE>
<CAPTION>
JULY 22, 1996
(COMMENCEMENT)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1997 1996
---------------------- --------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ 466,094 $ 7,484,210 513,259 $7,659,940
Issued on reinvestment of
distributions.................. 20 329 995 16,325
Repurchased..................... (277,596) (4,556,059) (6,793) (109,073)
-------- ----------- ------- ----------
Net increase.................... 188,518 $ 2,928,480 507,461 $7,567,192
======== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
JULY 22, 1996
(COMMENCEMENT)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1997 1996
---------------------- --------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ 377,437 $ 6,237,513 228,288 $3,587,953
Issued on reinvestment of
distributions.................. 15 252 228 3,741
Repurchased..................... (91,906) (1,457,723) (20,207) (328,402)
-------- ----------- ------- ----------
Net increase.................... 285,546 $ 4,780,042 208,309 $3,263,292
======== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
JULY 22, 1996
(COMMENCEMENT)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1997 1996
---------------------- --------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ 284,174 $ 4,497,638 128,623 $2,040,762
Issued on reinvestment of
distributions.................. 10 170 178 2,937
Repurchased..................... (47,327) (757,100) (859) (14,041)
-------- ----------- ------- ----------
Net increase.................... 236,857 $ 3,740,708 127,942 $2,029,658
======== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
JULY 22, 1996
(COMMENCEMENT)
YEAR ENDED TO DECEMBER 31,
DECEMBER 31, 1997 1996
---------------------- --------------------
CLASS I SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Sold............................ -- $ -- 1 $ 10
Repurchased..................... -- -- (1) (16)
-------- ----------- ------- ----------
Net decrease.................... -- $ -- -- $ (6)
======== =========== ======= ==========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Science & Technology Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statements of operations for the year then ended, and the
statement of changes in net assets for the year then ended and the period from
July 22, 1996 (commencement) to December 31, 1996 and the financial highlights
for each of the periods indicated. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for the year then ended and the period July
22, 1996 (commencement) to December 31, 1996 and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IGST123197
<PAGE> 78
DECEMBER 31, 1997 IVY FUNDS
IVY DEVELOPING NATIONS FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
The collapse in emerging markets in the second half of 1997
contributed to what proved to be the worst year for emerging market investors
since the asset class gained popularity in the mid-1980s. The Morgan Stanley
Capital International Emerging Markets Free Index was down 11.6% for the twelve
months ended December 31, 1997, down over 27% from its twelve-month high.
Some say 1997's poor performance by emerging markets, on the heels of
disappointing returns in both 1995 and 1996, was a death knell for emerging
market investing. We disagree. Developing markets account for about 80% of
both the world's population and its natural resources. And, while turmoil in
Asia should hamper growth in emerging economies in 1998, International
Monetary Fund estimates for GDP growth in 1998 still top 5% for developing
Asia and 3.5% for Latin America--both substantially higher than the developed
world.
It is interesting to note that against this backdrop of pessimism
among equity investors, our research indicates that emerging markets are
currently experiencing an unprecedented level of merger and acquisition (M&A)
activity. There was more M&A activity in 1997 than in the two previous years
combined. And, most of '97's activity occurred in the second half of the year,
despite mounting panic in financial markets around the developing world. This
surge in activity by companies based in mature economies implies that many
multinationals view the current crisis of confidence in emerging markets as an
opportunity. So do we. And, we continue to believe that the best opportunities
are to be found in Asia.
The Ivy Developing Nations Fund (formerly known as the Ivy New Century
Fund), which is weighted on the basis of GDP and our long-term view of markets,
continues to have over 50% invested along the Pacific Rim. Although dramatic
sell-offs in Asia negatively impacted the Fund's performance over the course of
1997, as the markets declined we continued to rebalance the Fund to maintain our
weighting of Asian stocks. For the twelve months ended December 31, 1997, the
Fund was down 27.4% (For the Fund's total return with sales charge, and
performance commentary, please refer to the following page.)
According to our research, turmoil in Asia created some of the most
compelling valuations in the world. The region, which has averaged a 60%
multiple premium to South America for the last ten years, is currently trading
at a substantial discount. We believe that these markets are in for a period of
dramatic outperformance, given the significantly undervalued currencies and low
market levels. While it is impossible to say when a rebound will occur, once
the rally begins, prices are likely to rebound quite sharply. We remain firm in
our conviction that the Fund's Asian exposure will make a strong contribution
to investment returns over the long term.
The Fund's 25% exposure to South America proved beneficial in 1997.
Economies in the region showed remarkable strength, reflecting the benefits of
a decade of free market reforms and corporate restructuring. Regional GDP
growth reached 5.5%, its highest level in 20 years. Although growth prospects
for 1998 have been somewhat dampened by the Asian crisis, we believe economic
fundamentals remain largely intact and continue to move in the right direction.
And, valuations in the region are considerably more attractive after a sell-off
in the fourth quarter.
We remain somewhat cautious on prospects for Central Europe, which
represents about 6% of the Fund's assets. To date, markets in the region have
responded to developments at the macro level rather than company fundamentals.
We believe that going forward, developments at the corporate level are likely
to gain increasing importance, particularly as heightened risk aversion had led
many investors to become more discriminating.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 79
IVY DEVELOPING NATIONS FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy Developing Nations Fund
was down 27.4%. This compared to the Morgan Stanley Capital International
Emerging Markets "Free" Index, which was down 11.6% for the same period. The
underperformance of the Fund is attributed to its overweighting in Asia at 58%
as compared to the index which has a 38% allocation to Asia.
PERFORMANCE COMPARISON OF THE FUND
SINCE INCEPTION (11/94) OF A $10,000
INVESTMENT
CHART
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Developing Nations Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Morgan Stanley Capital International Emerging Markets "Free" index is an
unmanaged index of stocks which assumes reinvestment of dividends and, unlike
Fund returns, does not reflect any fees or expenses. It is not possible to
invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY DEVELOPING NATIONS FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
(31.54)% (27.93)% (31.60)% (27.99)%
C: C: C: C:
1 Yr. (31.60)% (31.66)% (29.01)% (28.01)% (29.07)% (28.07)%
- -----------------------------------------------------------------------------------
B: B: B: B:
(10.33)% (9.47)% (12.01)% (11.15)%
C: C: C: C:
Since Inception (10.48)% (12.19)% (17.00)% (17.00)% (17.11)% (17.11)%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 80
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.18% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
AFRICA -- 6.78%
- ---------------------------
SOUTH AFRICA -- 6.78%
Anglo American Corporation
S.A...................... 17,400 $ 702,242
Rembrandt Group Ltd........ 84,800 618,615
------------
1,320,857
------------
ASIA/PACIFIC -- 57.82%
- ---------------------------
CHINA -- 1.09%
Guangdong Kelon Electrical
Holdings -- H Shrs....... 45,000 46,172
Huaneng Power
International, Inc.
ADR*..................... 1,200 27,825
Inner Mongolia Erdos
Cashmere Products Co.
'B'...................... 64,000 21,760
Qingling Motors Company
Ltd...................... 67,000 32,859
Shanghai Diesel Engine Co.
Ltd. 'B'*................ 81,200 10,231
Shanghai Post &
Telecommunications
Equipment 'B'............ 55,900 14,646
Tingyi (Cayman Islands)
Holding Co............... 128,000 16,685
Zhenhai Refining and
Chemical Co. Limited..... 100,000 41,622
------------
211,800
------------
HONG KONG -- 15.42%
C.P. Pokphand.............. 400,000 62,982
Citic Pacific.............. 44,000 174,904
Esprit Asia Holdings Ltd... 400,000 130,352
Gold Peak Industries....... 456,000 253,063
Gold Peak Industries
Warrants*................ 91,200 8,592
Guangdong Investments...... 227,000 150,879
Guangdong Investments
Warrants*................ 30,200 4,132
Guangdong Tannery Ltd...... 9,600 1,103
HSBC Holdings.............. 10,241 252,448
Jardine Matheson Holdings
Ltd...................... 13,500 68,850
Jardine Strategic.......... 109,062 287,924
Jardine Strategic
Warrants*................ 562 22
Li & Fung.................. 450,000 630,141
National Mutual Asia Ltd... 428,000 425,334
Peregrine Investment
Holdings Ltd............. 121,000 85,890
Peregrine Investment
Holdings Ltd.
Warrants*................ 14,900 19
Techtronic Industries
Company.................. 644,000 149,608
Union Bank of Hong Kong
Ltd...................... 113,600 139,283
Wharf Holdings Ltd......... 82,000 179,911
------------
3,005,437
------------
INDONESIA -- 1.45%
PT Astra International
Inc...................... 58,000 15,041
PT Bank Bali -- Foreign
Registered............... 90,000 11,056
PT Bank Dagang
Nasional -- Foreign
Registered............... 301,876 19,228
PT Bank Dagang Nasional
Warrants*................ 43,126 400
PT Citatah -- Foreign
Registered*.............. 65,000 8,576
PT Hanjaya Mandala
Sampoerna................ 72,500 54,756
PT Matahari Putra Prima
TBK...................... 438,000 35,870
PT Mulia Industrindo....... 239,900 27,287
PT Telekomunikasi
Indonesia................ 189,000 100,608
PT Tempo Scan Pacific...... 46,000 3,558
PT Semen Gresik............ 12,000 7,043
------------
283,423
------------
ISRAEL -- 2.27%
Koor Industries
Ltd. -- Sponsored ADR.... 20,200 $ 443,138
------------
EQUITY SECURITIES SHARES VALUE
- ------------------------------------------------------
MALAYSIA -- 8.73%
Arab Malaysian Corporation
Berhad................... 70,000 20,682
Arab Malaysian Finance
Foreign.................. 138,000 27,654
Berjaya Sports Toto
Berhad................... 55,000 140,596
Edaran Otomobil Nasional
Berhad................... 42,000 85,783
Genting Berhad............. 116,000 290,567
Hicom Holdings Berhad...... 180,000 103,587
KFC Holdings (Malaysia)
Berhad................... 97,000 157,000
Land & General Berhad...... 197,000 36,441
Lion Land Berhad........... 300,000 44,703
London & Pacific Insurance
Company Berhad........... 45,200 47,843
Malayan Banking Berhad..... 29,000 84,190
Malaysia British Assurance
Berhad................... 53,000 32,679
Perusahaan Otomobil
Nasional Berhad.......... 88,000 85,912
Public Bank Berhad......... 139,200 43,272
Public Bank Berhad
Rights*.................. 23,200 1,252
Public Bank
Berhad -- Foreign........ 102,000 35,115
Public Bank Berhad
Rights --
Foreign* (a)............. 17,000 874
RHB Capital Berhad......... 122,400 59,119
RHB Sakura Merchant Bankers
Berhad*.................. 2,620 882
Resorts World Berhad....... 91,000 153,133
Sime UEP Properties
Berhad................... 160,000 85,501
Sungei Way Holdings
Berhad................... 200,000 64,742
Technology Resources
Industries Berhad........ 119,000 70,317
Tenaga Nasional Berhad..... 14,000 29,853
------------
1,701,697
------------
PHILIPPINES -- 3.25%
Alaska Milk Corporation*... 1,418,000 55,442
Asian Terminals, Inc....... 677,500 42,451
Bacnotan Cement
Corporation.............. 180,000 8,481
Belle Corporation*......... 607,000 23,733
Belle Corporation
Warrants*................ 61,400 96
Benpres Holdings Corp.
GDR*..................... 15,000 41,625
C & P Homes, Inc........... 810,500 47,941
La Tondena Distillers
Inc...................... 140,000 64,914
Metropolitan Bank & Trust
Company.................. 9,774 66,754
Mondragon International
Philippines, Inc.*....... 1,512,600 26,917
Philippine National
Bank*.................... 74,237 165,596
SM Prime Holdings, Inc..... 339,000 50,979
Southeast Asia Cement
Holdings, Inc.*.......... 992,000 13,177
Universal Robina
Corporation.............. 201,000 24,937
------------
633,043
------------
RUSSIA -- 4.05%
LUKoil Holding Sponsored
ADR...................... 6,500 598,000
Mosenergo Sponsored ADR
144A..................... 5,200 192,400
------------
790,400
------------
SINGAPORE -- 8.67%
Clipsal Industries
Limited.................. 131,000 167,680
DBS Land Limited........... 176,000 269,493
Development Bank of
Singapore -- Foreign
Registered............... 34,000 290,574
Elec & Eltek International
Co. Ltd.................. 25,300 115,874
Fraser & Neave Ltd. ORD.... 90,000 389,925
Singapore Airlines
Ltd. -- Foreign
Registered............... 70,000 456,990
------------
1,690,536
------------
</TABLE>
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
SOUTH KOREA -- 4.92%
Hana Bank.................. 1,770 $ 9,848
Hyundai Motor Company Ltd.
GDR...................... 8,362 13,588
Hyundai Motor Company Ltd.
GDR 144A................. 500 813
Keum Kang Development Ind.
Company.................. 3,800 11,210
Korea Electric Power
Corp..................... 12,000 111,154
Korea Electric Power Corp.
Sponsored ADR............ 12,400 124,775
Pohang Iron & Steel Co.
Ltd...................... 5,000 140,818
Pohang Iron & Steel Co.
Ltd. ADR................. 11,800 205,763
Samsung Electronics........ 8,758 198,417
Samsung Electronics Co.
GDR...................... 31 500
Samsung Electronics Co. GDR
144A Registered.......... 2,662 17,303
Samsung Fire & Marine
Insurance................ 520 59,825
Shinhan Bank............... 11,270 50,201
Ssangyong Oil Refining Co.
Ltd...................... 3,600 15,229
------------
959,444
------------
TAIWAN -- 4.44%
Acer Incorporation*........ 60,000 91,836
Compeq Manufacturing Co*... 29,400 169,198
Far Eastern Department
Stores Ltd............... 166,763 176,631
President Enterprises*..... 129,600 154,328
Systex Corporation*........ 74,412 126,423
Yung Shin Pharmaceuticals
Industries Co............ 71,500 146,646
------------
865,062
------------
THAILAND -- 3.53%
Asia Credit Company PLC.... 10,000 2,129
Asia Credit Company
PLC -- Foreign
Registered............... 57,100 12,156
Bangkok Bank Public Company
Ltd...................... 20,000 35,723
Bangkok Bank Public Company
Ltd -- Foreign
Registered............... 51,000 127,107
Bank of Ayudhya
Ltd -- Foreign
Registered............... 183,450 74,297
Dhana Siam Finance &
Securities Public Company
Limited --
Foreign Registered....... 193,000 36,878
Krung Thai Thanakit PLC --
Foreign Registered....... 24,000 4,337
Robinson Department Store
Public Company
Limited -- Foreign
Registered............... 437,200 9,080
Siam Cement Public Co. Ltd.
(The) -- Foreign
Registered............... 9,300 73,398
Siam Makro Public Company
Limited -- Foreign
Registered............... 123,800 147,844
Thai Airways Int'l. Public
Co., Ltd. -- Foreign
Registered............... 121,300 134,782
Thai Telephone &
Communication Public Co.
Ltd. -- Foreign
Registered*.............. 370,000 30,738
------------
688,469
------------
VIETNAM -- 0.00%
Beta Vietnam Fund
Warrants*................ 370 $ 463
------------
EUROPE -- 7.13%
- ---------------------------
CZECH REPUBLIC -- 0.77%
Restitucni Invest Fund..... 1,200 31,287
SPT Telekom a.s.*.......... 200 21,343
Skoda Plzen a.s.*.......... 2,000 35,302
Zivnobanka -- Investicni
Fond..................... 5,300 61,602
------------
149,534
------------
HUNGARY -- 1.31%
Pick Szeged Rt............. 3,200 255,412
------------
POLAND -- 0.16%
Bank Rozwoju Eksportu
S.A...................... 1,550 32,100
------------
PORTUGAL -- 3.58%
Colep -- Cia. Portuguesa de
Embalagens*.............. 9,500 134,353
Companhia de Seguros
Mundial Confianca
S.A.*.................... 8,000 145,775
Investec-Consultoria
Internacional S.A.*...... 2,100 62,254
Lusomundo SGPS S.A......... 5,800 53,632
Lusomundo SGPS S.A.
Preferred Shares......... 800 7,332
Portugal Telecom S.A.
ADR...................... 4,200 197,400
Sonae Industria e
Investimentos............ 2,400 97,178
------------
697,924
------------
TURKEY -- 1.31%
Cimentas A.S............... 224,690 24,680
Otokar Otobus Karoseri*.... 1,137,500 130,435
Turkiye Garanti Bankasi
A.S...................... 2,041,675 101,039
------------
256,154
------------
NORTH AMERICA -- 0.58%
- ---------------------------
MEXICO -- 0.58%
Grupo Posadas
S.A. -- 'A'*............. 83,785 57,161
Telefonos de Mexico S.A.
ADR Class L.............. 1,000 56,063
------------
113,224
------------
SOUTH AND CENTRAL
AMERICA -- 26.87%
- ---------------------------
ARGENTINA -- 4.94%
Bansud S.A.*............... 15,200 156,589
Cia Naviera Perez
Compancciones 'B'........ 32,252 230,321
Disco S.A. ADR*............ 3,100 139,308
Inversiones y
Representaciones S.A.
(IRSA)................... 52,000 193,475
YPF S.A. Sponsored ADR..... 7,100 242,731
------------
962,424
------------
</TABLE>
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
BRAZIL -- 13.03%
Banco Bradesco S.A.
Preferred................ 8,400,000 $ 82,794
Banco Bradesco S.A.
Preferred (Rights)*
(a)...................... 359,143 1,287
Centrais Electricas
Brasileiras S.A.
(Electrobras)............ 5,000,000 248,651
Centrais Electricas
Brasileiras S.A.
(Electrobras) -- Preferred
B........................ 4,380,000 223,706
Centrais Electricas de
Santa Catarina S.A.
(CELESC)................. 25,000 31,137
Companhia Energetica de
Minas Gerais (CEMIG)..... 800,000 34,759
Companhia Energetica de Sao
Paulo (CESP)............. 900,000 54,031
Companhia Paranaense de
Energia (Copel).......... 2,200,000 24,641
Companhia Paulista de Forca
e Luz (CPFL)............. 270,000 35,564
Companhia Paulista de Forca
e Luz Preferred (CPFL)... 1,568 162
Companhia Siderurgica de
Tubarao.................. 9,900,000 140,159
Companhia Vale do Rio Doce
Preferred Shares (Non
Tradeable* 5,000)........ 7,000 140,813
Electricidade de Sao Paulo
S.A. (Eletropaulo)*...... 250,000 47,042
Elevadores Atlas S.A.
144A..................... 9,200 111,288
Gerdau S.A Preferred*...... 6,300,000 79,031
Itaubanco.................. 266,000 143,008
Marcopolo S.A. -- B........ 400,000 47,311
Petroleo Brasileiro S.A.
(Petrobras).............. 910,000 212,819
Tam Transport Aereos....... 7,300,000 425,172
Telecomunicacoes
Brasileiras S.A.
(Telebras) ADR........... 3,300 384,244
Unibanco-Units............. 1,050,000 71,504
------------
2,539,123
------------
CHILE -- 3.99%
Antofagasta Holdings PLC... 24,463 132,830
Chilgener S.A. Sponsored
ADR...................... 3,590 87,955
Embotelladora Andina S.A.
Sponsored ADR (Class
A)....................... 3,400 70,763
Embotelladora Andina S.A.
Sponsored ADR (Class
B)....................... 3,400 66,088
Empresa Nacional
Electricidad S.A......... 4,900 86,669
Laboratorio Chile S.A.
ADR...................... 4,000 89,000
Quimica Minera Chile S.A.
Sponsored ADR............ 2,400 105,600
Vina Concha y Toro S.A.
ADR...................... 5,500 138,874
------------
777,779
------------
COLOMBIA -- 2.23%
Banco Ganadero S.A. ADR.... 4,700 $ 205,625
Banco Industrial Colombiano
ADR...................... 16,400 229,600
------------
435,225
------------
PERU -- 2.68%
CPT Telefonica del Peru
S.A. -- 'B'.............. 162,000 361,919
Credicorp Ltd.............. 8,868 159,624
------------
521,543
------------
TOTAL EQUITY SECURITIES
(Cost -- $28,542,759).... 19,334,211
CORPORATE BONDS -- 0.70% PRINCIPAL
- --------------------------- ----------
Inversiones y
Representaciones S.A.
"Parcks" 144A Floating
Rate, 4.50%, 07/04/03.... $ 60,000 65,400
Piltel International
Holding Corp.
(Convertible), 1.75%,
07/17/06................. 100,000 70,500
------------
TOTAL CORPORATE BONDS
(Cost -- $158,562)....... 135,900
------------
TOTAL INVESTMENTS -- 99.88%
(Cost --$28,701,321)(Cost
on Federal income tax
basis -- $28,726,695).... 19,470,111
OTHER ASSETS, LESS
LIABILITIES -- 0.12%..... 22,246
------------
NET ASSETS -- 100%......... $ 19,492,357
============
ADR -- American Depository
Receipt
GDR -- Global Depository
Receipt
ORD -- Ordinary
* Non-income producing security.
(a) Securities valued in good faith by the Valuation
Committee of the Board of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation
based on cost for Federal income tax purposes is as
follows:
Gross unrealized appreciation...... $ 2,383,805
Gross unrealized depreciation...... (11,640,389)
------------
Net unrealized depreciation.... $ (9,256,584)
============
Purchases and sales of securities other than
short-term obligations aggregated $22,507,909 and
$11,063,651 respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 83
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $28,701,321)...... $19,470,111
Cash........................................................ 96,088
Cash denominated in foreign currencies (cost -- $68,119).... 51,976
Receivables
Investments sold.......................................... 376,163
Fund shares sold.......................................... 24,520
Dividends and interest.................................... 45,929
Manager for expense reimbursement......................... 22,860
Deferred organization expenses.............................. 18,056
Other assets................................................ 14,422
-----------
Total assets.............................................. 20,120,125
-----------
LIABILITIES
Payables
Investments purchased..................................... 24,625
Fund shares repurchased................................... 535,236
Management fee............................................ 17,648
12b-1 service and distribution fees....................... 12,602
Other payables to related parties......................... 11,999
Accrued expenses............................................ 25,658
-----------
Total liabilities......................................... 627,768
-----------
NET ASSETS.................................................. $19,492,357
===========
CLASS A
Net asset value and redemption price per share
($8,583,617/1,259,334 shares outstanding)................. $ 6.82
===========
Maximum offering price per share ($6.82 X 100/94.25)*....... $ 7.24
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($8,488,350/1,254,655 shares outstanding)........... $ 6.77
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($2,420,390/356,270 shares outstanding)............. $ 6.79
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $29,366,738
Accumulated net realized loss on investments.............. (585,978)
Accumulated net investment loss........................... (39,542)
Net unrealized depreciation on investments and foreign
currency transactions................................... (9,248,861)
-----------
NET ASSETS.................................................. $19,492,357
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 84
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $53,798 foreign taxes withheld.......... $ 621,986
Interest.................................................. 23,459
------------
645,445
------------
EXPENSES
Management fee............................................ $284,290
Transfer agent............................................ 67,307
Administrative services fee............................... 28,429
Custodian fees............................................ 106,909
Blue Sky fees............................................. 26,190
Auditing and accounting fees.............................. 14,284
Shareholder reports....................................... 5,019
Amortization of organization expenses..................... 9,873
Fund accounting........................................... 37,378
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 176,868
Legal..................................................... 20,260
Other..................................................... 8,245
------------
792,264
Expenses reimbursed by manager............................ (22,860)
Fees paid indirectly...................................... (38,141)
------------
Net expenses............................................ 731,263
------------
NET INVESTMENT LOSS......................................... (85,818)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 814,367
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (10,222,275)
------------
Net loss on investment transactions..................... (9,407,908)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ (9,493,726)
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (85,818) $ (54,000)
Net realized gain (loss) on investments and foreign
currency transactions................................... 814,367 (46,120)
Net unrealized (depreciation) appreciation during the
period on investments and foreign currency
transactions............................................ (10,222,275) 948,226
------------ -----------
Net (decrease) increase resulting from operations... (9,493,726) 848,106
------------ -----------
Class A distributions
In excess of net investment income........................ (14,575) (984)
From net realized gain.................................... (382,865) --
In excess of net realized gain............................ (222,371) --
------------ -----------
Total distributions to Class A shareholders......... (619,811) (984)
------------ -----------
Class B distributions
In excess of net investment income........................ (10,338) (623)
From net realized gain.................................... (339,775) --
In excess of net realized gain............................ (197,344) --
------------ -----------
Total distributions to Class B shareholders......... (547,457) (623)
------------ -----------
Class C distributions
In excess of net investment income........................ (2,619) (186)
From net realized gain.................................... (91,727) --
In excess of net realized gain............................ (53,275) --
------------ -----------
Total distributions to Class C shareholders......... (147,621) (186)
------------ -----------
Fund share transactions (Note 4)
Class A................................................... 3,513,031 5,914,397
Class B................................................... 6,879,152 5,096,850
Class C................................................... 1,861,647 1,808,893
------------ -----------
Net increase resulting from Fund share transactions..... 12,253,830 12,820,140
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 1,445,215 13,666,453
NET ASSETS
Beginning period.......................................... 18,047,142 4,380,689
------------ -----------
END OF PERIOD............................................. $ 19,492,357 $18,047,142
============ ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 85
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
----------------------------------- ----------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------ ------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.12 $ 9.05 $ 8.64 $ 10.00
------- ------ ------ -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .01 (.02) .01 --
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.80) 1.09 .54 (1.36)
------- ------ ------ -------
Total from investment operations........................ (2.79) 1.07 .55 (1.36)
------- ------ ------ -------
Less distributions
From net investment income................................ -- -- .01 --
In excess of net investment income........................ .01 -- -- --
From net realized gain.................................... .30 -- .10 --
In excess of net realized gain............................ .20 -- .03 --
------- ------ ------ -------
Total distributions..................................... .51 -- .14 --
------- ------ ------ -------
Net asset value, end of period.............................. $ 6.82 $10.12 $ 9.05 $ 8.64
======= ====== ====== =======
Total return(%)............................................. (27.42)(b) 11.83(b) 6.40(b) (13.50)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 8,584 $9,925 $3,435 $ 611
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 2.31 2.45 2.55 2.20 (d)
Without expense reimbursement(%).......................... 2.39 2.82 7.18 20.74 (d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .09 (.23) .24 .52 (d)
Portfolio turnover rate(%).................................. 42 27 14 --
Average commission rate(f).................................. $ .0020 $.0018 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
---------------------------------- ----------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------ ----- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.04 $ 9.05 $8.64 $ 10.00
------- ------ ----- -------
Income (loss) from investment operations
Net investment loss(a).................................... (.06) (.06) (.02) --
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.76) 1.05 .51 (1.36)
------- ------ ----- -------
Total from investment operations........................ (2.82) .99 .49 (1.36)
------- ------ ----- -------
Less distributions
In excess of net investment income........................ .01 -- -- --
From net realized gain.................................... .28 -- .08 --
In excess of net realized gain............................ .16 -- -- --
------- ------ ----- -------
Total distributions..................................... .45 -- .08 --
------- ------ ----- -------
Net asset value, end of period.............................. $ 6.77 $10.04 $9.05 $ 8.64
======= ====== ===== =======
Total return(%)............................................. (27.93)(b) 10.95(b) 5.62(b) (13.60)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 8,488 $6,269 $ 945 $ 121
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.09 3.20 3.30 2.95 (d)
Without expense reimbursement(%).......................... 3.17 3.57 7.93 21.49 (d)
Ratio of net investment loss to average net assets(%)(a).... (.69) (.98) (.51) (.23)(d)
Portfolio turnover rate(%).................................. 42 27 14 --
Average commission rate(f).................................. $ .0020 $.0018 N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 86
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1997 1996
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.06 $ 9.89
------- ------
Income (loss) from investment operations
Net investment loss(a).................................... (.07) (.02)
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.76) .19
------- ------
Total from investment operations........................ (2.83) .17
------- ------
Less distributions
In excess of net investment income........................ .01 --
From net realized gain.................................... .27 --
In excess of net realized gain............................ .16 --
------- ------
Total distributions..................................... .44 --
------- ------
Net asset value, end of period.............................. $ 6.79 $10.06
======= ======
Total return(%)............................................. (28.01)(b) 1.73(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2,420 $1,854
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.12 3.16(d)
Without expense reimbursement(%).......................... 3.20 3.53(d)
Ratio of net investment loss to average net assets(%)(a).... (.72) (.94)(d)
Portfolio turnover rate(%).................................. 42 27
Average commission rate(f).................................. $ .0020 $.0018
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a
sales charge.
(d) Annualized.
(e) Beginning in 1995, total expenses include fees paid indirectly through
an expense offset arrangement.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures
may differ.
(See Notes to Financial Statements)
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS
Ivy New Century Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 securities valued in good faith by the Valuation Committee of the Board
amounted to $2,161 (.01% of net assets) and have been noted as such in the
investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $674,467. These dividends were
subject to foreign withholding tax in the amount of $53,798. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may apply their proportionate share of such foreign taxes
paid as either a tax credit or itemized deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$914,056 as capital gain dividends (of which, 93.45% is designated 20% rate
gain) for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, passive foreign investment companies, and certain securities sold at
a loss. As a result, Net investment income (loss) and Net realized gain (loss)
on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEES PAID INDIRECTLY -- The Fund has an arrangement with its custodian
whereby a certain percentage of quarterly cumulative credits resulting from cash
balances on deposit with the custodian are used to offset custody fees,
including transaction and out of pocket expenses. For the year, custody fees
were reduced by $38,141 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $13,412.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $35,807, $108,471 and
$32,590, for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $31,250, $27,047, and $9,010, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 869,379 $ 9,079,143 770,476 $ 7,578,070
Issued on reinvestment of
distributions................ 60,778 399,920 -- --
Repurchased................... (651,905) (5,966,032) (169,014) (1,663,673)
-------- ----------- -------- -----------
Net increase.................. 278,252 $ 3,513,031 601,462 $ 5,914,397
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 938,685 $ 9,742,013 605,573 $ 5,942,047
Issued on reinvestment of
distributions................ 41,091 268,328 39 388
Repurchased................... (349,402) (3,131,189) (85,800) (845,585)
-------- ----------- -------- -----------
Net increase.................. 630,374 $ 6,879,152 519,812 $ 5,096,850
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 277,166 $ 2,892,984 186,226 $ 1,829,278
Issued on reinvestment of
distributions................ 14,440 94,723 14 142
Repurchased................... (119,522) (1,126,060) (2,054) (20,527)
-------- ----------- -------- -----------
Net increase.................. 172,084 $ 1,861,647 184,186 $ 1,808,893
======== =========== ======== ===========
</TABLE>
5. SUBSEQUENT EVENTS
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
Effective January 20, 1998, Ivy New Century Fund changed its name to Ivy
Developing Nations Fund.
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Trustees of
Ivy Developing Nations Fund, formerly
Ivy New Century Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IDNF123197
<PAGE> 90
DECEMBER 31, 1997 IVY FUNDS
IVY INTERNATIONAL FUND II
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
The goal of Ivy International Fund II is to provide investors with a
diversified portfolio of large-capitalization foreign stocks from three major
regions of the world: Europe, Asia and South America. In selecting investments
for the Fund, we utilize a strict value discipline that focuses on quantitative
factors such as the long-term earnings capacity of a company, its replacement
value, and its ability to generate cash flow, among others. We also pay close
attention to the quality of management and its level of commitment to increasing
shareholder value. As of year-end, the Ivy International Fund II was invested in
138 companies from 29 countries around the world. From the Fund's inception on
May 13, 1997 through December 31, 1997 the Ivy International Fund II was down
10.3%. (For the Fund's total return with sales charge, and performance
commentary please refer to the following page.)
Europe performed well in 1997 as the cyclical recovery gained momentum
and as the benefits of corporate restructuring began to be reflected in higher
profitability. We believe these two trends should continue in 1998, aided by
even lower interest rates. Many companies are in the midst of aggressive
restructuring programs aimed at increasing profitability and shareholder value.
And retailers and automobile manufacturers, which are industries in which the
Fund is invested, should benefit from the upturn in consumer confidence we are
now beginning to see.
In addition, we believe that as Europe prepares for European Monetary
Union, merger activity is likely to be heightened--providing room for more
earnings gains as industries consolidate. The Ivy International Fund II is
invested in a number of financial services companies, which should not only
benefit from declining interest rates, but should also achieve greater economies
of scale through consolidation. We expect European companies to provide
significant earnings growth in the coming year, despite slower growth in Asia.
Approximately 65% of the Fund is invested in Europe.
In the second half of 1997, Asia experienced a region-wide sell-off in
both currency and stock markets. Many stocks in the region have fallen 80 to 90%
in US dollar terms. According to our research, bargains are now widespread
across the region, particularly in countries like Hong Kong, Singapore and
Malaysia. Although we cannot say when, we expect currencies in Southeast Asia
to stabilize at higher levels and stock prices to rebound from extremely
oversold levels. We are maintaining the Fund's 25% weighting in the region and
believe that stock prices will begin to move far in advance of an economic
recovery. The turmoil in Asia has also put significant pressure on the share
prices of natural resource companies world wide. Although Asia's woes should
impact demand for commodities, many high-quality companies are now trading at
extremely low valuations creating attractive investment opportunities. We have
invested in companies like BHP in Australia, Billiton in the United Kingdom and
CVRD in Brazil, in anticipation of a recovery from oversold levels.
We believe that international diversification is important for
investors. With stock market returns in the US in excess of 30% per year for the
past three years, there has been little incentive for investors to go elsewhere.
But it is important to keep in mind that trees don't grow to the sky and bull
markets don't run forever. Investors with an internationally diversified
portfolio should be well rewarded when the US market takes a breather.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 91
IVY INTERNATIONAL FUND II PERFORMANCE COMMENTARY
From the first full month of its operation (June, 1997) through December 31,
1997 the Ivy International Fund II was down 10.3% compared to the Morgan Stanley
Capital International Europe, Australasia, Far East (EAFE) Index which was down
3.4% for the same period. The difference in performance is attributed primarily
to the Fund's allocation to emerging markets.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (5/97) OF A $10,000
INVESTMENT
CHART
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy International Fund II will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Morgan Stanley Capital International Europe, Australasia, Far East (EAFE)
Index is an unmanaged index of stocks which assumes reinvestment of dividends
and, unlike Fund returns, does not reflect any fees or expenses. It is not
possible to invest in an index. The Lipper Average International Index
represents the performance of the average international fund as measured by
Lipper Analytical Services, Inc.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B, Class C and Class I shares will vary
relative to that of Class A shares based on differences in their respective
sales loads and fees.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
IVY INTERNATIONAL FUND II
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge
Class B** & C***
Average Annual
Total Return Average Annual Total Return
-----------------------------------------------------------
w/ w/o w/ w/o
Reimb. Reimb. Reimb. Reimb.
-----------------------------------------------------------
w/ w/o CDSC w/
CDSC CDSC w/o CDSC
- ----------------------------------------------------------------------------------------
B: B: B: B:
(15.25)% (10.79)% (15.26)% (10.80)%
C: C: C: C:
Since Inception (15.45)% (15.46)% (11.79)% (10.79)% (11.80)% (10.80)%
- ----------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns were higher due to reimbursement of the Fund's expenses. See
Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 92
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 95.82% SHARES VALUE
- ---------------------------------------
<S> <C> <C>
AFRICA -- 2.25%
- ---------------------------------------
SOUTH AFRICA -- 2.25%
Anglo American Corporation of South
Africa Ltd........................... 15,400 $ 621,525
Nampak Limited......................... 100,948 302,863
Rembrandt Group Ltd.................... 68,484 499,590
South African Breweries Ltd............ 30,841 760,512
------------
2,184,490
------------
ASIA/PACIFIC -- 24.69%
- ---------------------------------------
AUSTRALIA -- 4.27%
Australia & New Zealand Banking Group
Ltd.................................. 103,700 685,133
Broken Hill Proprietary Company
Limited.............................. 49,200 456,813
National Australia Bank Ltd............ 51,600 720,493
Pacific Dunlop Limited................. 457,520 968,840
Telstra Corporation Limited*........... 124,000 261,773
Westpac Banking Corp. Ltd.............. 164,000 1,048,907
------------
4,141,959
------------
HONG KONG -- 4.91%
Cheung Kong Holdings Ltd............... 80,000 523,988
Guangdong Investments.................. 1,202,000 798,927
HSBC Holdings.......................... 43,600 1,074,769
Jardine Strategic Holdings Ltd......... 336,000 887,040
New World Development Company Ltd...... 84,000 290,542
Peregrine Investment Holdings Limited.. 370,000 262,639
Swire Pacific Ltd...................... 82,000 449,778
Tsingtao Brewery Co. Ltd Series H*..... 592,000 138,292
Wheelock & Company, Ltd................ 285,000 332,881
------------
4,758,856
------------
INDONESIA -- 0.37%
PT Astra International................. 275,000 71,317
PT Telekomunikasi Indonesia............ 300,000 159,695
Semen Gresik........................... 212,500 124,719
------------
355,731
------------
JAPAN -- 4.75%
Canon Inc.............................. 36,000 841,710
Fuji Photo Film ORD.................... 26,000 999,838
Matsushita Electric Industrial Co...... 58,000 852,016
Sharp Corp............................. 134,000 925,481
Sony Corp.............................. 11,000 981,379
------------
4,600,424
------------
MALAYSIA -- 2.25%
Arab Malaysian Corporation............. 225,000 66,476
Berjaya Sports Toto Bhd................ 82,000 209,615
Genting Berhad......................... 139,000 348,182
Land & General Berhad.................. 230,000 42,544
Perusahaan Otomobil Nasional Berhad.... 184,000 179,634
RHB Capital Berhad..................... 263,000 127,028
RHB Sakura Merchant Bankers Berhad*.... 2,050 690
Sime UEP Properties Berhad............. 187,000 99,929
Telekom Malaysia Bhd................... 375,000 1,107,938
------------
2,182,036
------------
NEW ZEALAND -- 2.36%
Fletcher Challenge Building............ 197,123 402,900
Fletcher Challenge Energy.............. 85,488 299,323
Fletcher Challenge Forestry............ 320,042 265,742
Fletcher Challenge Paper............... 60,540 79,094
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Telecom Corp. of New Zealand Ltd....... 170,000 $ 824,238
Tourism Holdings Limited............... 601,089 411,849
------------
2,283,146
------------
PHILIPPINES -- 0.43%
Benpres Holdings Corporation GDR*...... 109,900 304,973
Metro Pacific Corporation.............. 3,826,410 107,411
------------
412,384
------------
SINGAPORE -- 5.09%
Clipsal Industries Ltd................. 377,000 482,560
DBS Land Limited....................... 205,000 313,899
Development Bank of Singapore Limited.. 98,000 837,537
Elec & Eltek International Co. Ltd..... 132,300 605,934
Fraser & Neave Ltd Ordinary............ 185,000 801,513
Jardine Matheson Holdings Ltd.......... 119,600 609,960
Singapore Airlines Ltd................. 196,000 1,279,572
------------
4,930,975
------------
THAILAND -- 0.26%
Asia Credit Company PLC -- Foreign
Registered........................... 48,300 10,282
Bankok Bank Public Company
Limited -- Foreign Registered........ 91,600 228,293
Dhana Siam Finance & Secs. Public Co.
Ltd -- Foreign Registered............ 6,800 1,299
Krung Thai Bank Public Company
Limited -- Foreign Registered........ 8,300 1,724
Krung Thai Thanakit PLC -- Foreign
Registered........................... 3,600 650
Nava Finance and Securities Public
Company Limited -- Foreign
Registered........................... 7,300 1,061
Robinson Department Store Public
Company Limited -- Foreign
Registered........................... 630,800 13,101
------------
256,410
------------
EUROPE -- 61.85%
- ---------------------------------------
DENMARK -- 1.20%
BG Bank A/S............................ 6,200 417,425
Den Danske Bank........................ 3,000 400,017
Unidanmark A/S......................... 4,700 345,265
------------
1,162,707
------------
FINLAND -- 1.91%
Enso OY -- R Shares.................... 63,474 491,894
Rauma OY............................... 43,200 674,320
UPM -- Kymmene Corp.................... 34,179 684,147
------------
1,850,361
------------
FRANCE -- 12.35%
Banque Nationale de Paris.............. 15,300 813,594
Compagnie Financiere de Paribas........ 13,800 1,199,728
Elf Aquitaine S.A...................... 5,904 686,984
Galeries Lafayette..................... 2,600 1,434,873
Groupe Danone.......................... 6,600 1,179,382
Pernod-Ricard.......................... 18,100 1,065,084
Peugeot Citroen........................ 9,020 1,138,021
Schneider S.A.......................... 18,709 1,016,330
Societe Generale....................... 7,200 981,405
Societe Generale d'Entreprises SA*..... 21,000 544,560
Suez Lyonnaise des Eaux................ 9,264 1,025,593
Total S.A. ADR......................... 16,000 888,000
------------
11,973,554
------------
</TABLE>
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 95.82% SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
GERMANY -- 3.54%
Daimler-Benz AG........................ 10,000 $ 706,323
Deutsche Lufthansa AG.................. 20,400 383,484
Merck KGaA............................. 29,380 988,569
Volkswagen AG.......................... 2,418 1,351,519
------------
3,429,895
------------
IRELAND -- 1.09%
Bank of Ireland........................ 68,626 1,053,518
------------
ITALY -- 3.02%
Banco Popolare di Milano............... 167,000 1,048,475
Fiat S.p.A............................. 417,200 1,214,083
Gucci Group............................ 16,600 668,184
------------
2,930,742
------------
NETHERLANDS -- 6.99%
ABN Amro Bank.......................... 33,685 656,344
Akzo Nobel NV.......................... 5,401 931,415
Fortis Amev NV......................... 30,645 1,336,317
Hunter Douglas NV...................... 24,000 840,557
ING Groep NV........................... 28,800 1,213,244
Philips Electronics NV................. 18,158 1,089,179
Unilever NV ADR........................ 11,400 711,788
------------
6,778,844
------------
NORWAY -- 0.91%
Norsk Hydro Sponsored ADR.............. 17,300 882,300
------------
PORTUGAL -- 1.73%
Lusomundo-SGPS S.A. Preferred Shares... 55,021 504,287
Portugal Telecom S.A. ADR.............. 24,900 1,170,300
------------
1,674,587
------------
SPAIN -- 2.88%
Endesa S.A -- Sponsored ADR............ 25,000 454,688
Repsol SA -- Sponsored ADR............. 9,500 404,344
Telefonica de Espana S.A. ADR.......... 21,200 1,930,525
------------
2,789,557
------------
SWEDEN -- 7.07%
AssiDoman AB........................... 46,749 1,184,285
Astra AB "B" Shares.................... 58,868 990,486
Electrolux AB.......................... 14,000 972,227
S.K.F. AB Series "B"................... 59,100 1,258,816
Stora Kopparbergs Bergslags Aktiebolag
(STORA).............................. 46,673 579,415
Trelleborg AB "B" Free Shares.......... 54,600 688,146
Volvo AB B Shares...................... 43,983 1,180,735
------------
6,854,110
------------
SWITZERLAND -- 4.34%
Holderbank Financiere Glaris AG........ 1,527 1,247,940
Nestle AG Registered................... 998 1,497,803
SMH AG Bearer.......................... 2,640 1,458,873
------------
4,204,616
------------
UNITED KINGDOM -- 14.82%
Bank of Scotland....................... 105,346 955,083
Barclays PLC........................... 41,506 1,102,948
Barclays PLC ADR....................... 500 54,594
Billiton Plc........................... 407,200 1,040,186
Cadbury Schweppes plc.................. 128,135 1,275,542
Corporate Services Group Plc........... 218,000 767,612
Diageo plc............................. 66,601 612,034
Gallaher Group Plc..................... 212,000 1,126,704
Hanson PLC ADR......................... 17,700 408,206
Imperial Chemical Industries plc....... 85,060 1,315,603
National Westminster Bank PLC.......... 66,662 1,107,277
Next Plc............................... 41,000 466,833
Rio Tinto plc.......................... 38,200 443,437
Safeway plc............................ 230,000 1,305,625
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------------------------------
<S> <C> <C>
Shell Transport & Trading Co........... 159,040 $ 1,155,337
Tate & Lyle PLC........................ 106,000 875,550
Waste Management International
plc* -- Sponsored ADR................ 56,800 355,000
------------
14,367,571
------------
LATIN AMERICA -- 6.41%
- ---------------------------------------
ARGENTINA -- 1.83%
Renault Argentina S.A.................. 34,080 47,721
Telecom Argentina S.A. Sponsored ADR... 12,000 429,000
Telefonica De Argentina S.A............ 12,600 469,350
YPF S.A. Sponsored ADR................. 24,000 820,500
------------
1,766,571
------------
BRAZIL -- 2.85%
Companhia Vale do Rio Doce Preferred... 43,000 864,993
Telecomunicacoes Brasileiras S.A. ADR
(Telebras)........................... 16,300 1,897,931
------------
2,762,924
------------
CHILE -- 1.73%
A.F.P Provida S.A. Sponsored ADR....... 22,000 375,375
Cia de Telecomunicaciones de Chile S.A.
Sponsored ADR........................ 18,200 543,725
Empresa Nacional de Electricidad S.A... 11,900 210,481
Santa Isabel S.A. ADR.................. 11,300 197,750
Vina Concha y Toro S.A. ADR............ 14,000 353,501
------------
1,680,832
------------
NORTH AMERICA -- 0.62%
- ---------------------------------------
CANADA -- 0.44%
Inco Limited........................... 25,000 424,522
------------
MEXICO -- 0.18%
Sanluis Corporacion S.A. de C.V........ 12,130 98,553
Tubos de Acero de Mexico S.A. --
Sponsored ADR*....................... 3,300 71,364
------------
169,917
------------
TOTAL EQUITY SECURITIES
(Cost -- $105,929,036)(a)............ 92,863,539
OTHER ASSETS, LESS
LIABILITIES -- 4.18%................. 4,064,294
------------
NET ASSETS -- 100%..................... $ 96,927,833
============
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
NV -- Non-voting
ORD -- Ordinary
* Non-Income producing security.
(a) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation.................... $ 3,850,158
Gross unrealized depreciation.................... (13,065,496)
------------
Net unrealized depreciation................ $(13,065,496)
============
Purchases and sales of securities other than short-term obligations
aggregated $111,179,768 and $5,621,253, respectively, for the period
ended December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 94
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $105,929,036)..... $ 92,863,539
Cash........................................................ 3,062,898
Cash denominated in foreign currencies (cost -- $86,375).... 87,487
Receivables
Fund shares sold.......................................... 836,792
Dividends and interest.................................... 219,276
Manager for expense reimbursement......................... 47,141
Deferred organization expense............................... 56,625
Other assets................................................ 12,522
------------
Total assets............................................ 97,186,280
------------
LIABILITIES
Payables
Fund shares repurchased................................... 36,269
Management fee............................................ 80,376
12b-1 service and distribution fees....................... 74,568
Other payables to related parties......................... 35,756
Accrued expenses............................................ 31,478
------------
Total liabilities....................................... 258,447
------------
NET ASSETS.................................................. $ 96,927,833
============
CLASS A
Net asset value and redemption price per share
($16,201,975/1,804,530 shares outstanding)................ $ 8.98
============
Maximum offering price per share ($8.98 X 100/94.25)*....... $ 9.53
============
CLASS B
Net asset value, offering price, and redemption price** per
share ($53,652,358/6,005,239 shares outstanding).......... $ 8.93
============
CLASS C
Net asset value, offering price, and redemption price*** per
share ($27,073,500/3,030,614 shares outstanding).......... $ 8.93
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $109,702,792
Undistributed net realized gain on investments............ 294,799
Net unrealized depreciation on investments and foreign
currency transactions................................... (13,069,758)
------------
NET ASSETS.................................................. $ 96,927,833
============
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
*** Subject to a maximum contingent deferred sales charge of 1%.
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $74,934 foreign taxes withheld.......... $ 641,492
Interest.................................................. 118,335
------------
759,827
------------
EXPENSES
Management fee............................................ $413,862
Transfer agent............................................ 84,604
Administrative services fee............................... 41,386
Custodian fees............................................ 122,988
Blue Sky fees............................................. 5,140
Auditing and accounting fees.............................. 4,317
Shareholder reports....................................... 1,413
Amortization of organization expenses..................... 6,924
Fund accounting........................................... 41,178
Trustees' fees............................................ 4,235
12b-1 service and distribution fees....................... 358,530
Legal..................................................... 14,242
Other..................................................... 3,684
------------
1,102,503
Expenses reimbursed by manager............................ (123,177)
------------
Net expenses............................................ 979,326
------------
NET INVESTMENT LOSS......................................... (219,499)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on
Investments and foreign currency transactions........... 375,549
Forward foreign currency contracts...................... 131,826
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (13,069,758)
------------
Net loss on investment transactions..................... (12,562,383)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(12,781,882)
============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 95
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (219,499)
Net realized gain on investments and foreign currency
transactions............................................ 507,375
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (13,069,758)
------------
Net decrease resulting from operations.................. (12,781,882)
------------
Fund share transactions (Note 4)
Class A................................................... 18,898,090
Class B................................................... 60,033,750
Class C................................................... 30,777,875
Class I................................................... --
------------
Net increase resulting from Fund share transactions..... 109,709,715
------------
NET ASSETS AT END OF PERIOD................................. $ 96,927,833
============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD MAY 13, 1997
(COMMENCEMENT)
TO DECEMBER 31, 1997
-----------------------------
CLASS A CLASS B CLASS C
SELECTED PER SHARE DATA* ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $10.01 $10.01 $ 10.01
------- ------- -------
Income (loss) from investment operations
Net investment loss(a).................................... -- (.02) (.02)
Net realized and unrealized loss on investment
transactions............................................ (1.03) (1.06) (1.06)
------- ------- -------
Total from investment operations........................ (1.03) (1.08) (1.08)
------- ------- -------
Net asset value, end of period.............................. $ 8.98 $ 8.93 $ 8.93
======= ======= =======
Total return(%)(b).......................................... (10.29) (10.79) (10.79)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $16,202 $53,652 $27,074
Ratio of expenses to average net assets(%)
With expense reimbursement(%)............................. 1.80 2.63 2.63
Without expense reimbursement(%).......................... 2.11 2.94 2.94
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .12 (.71) (.71)
Portfolio turnover rate(%).................................. 10 10 10
Average commission rate(c).................................. $.0250 $.0250 $ .0250
</TABLE>
(a) Net investment loss is net of expenses reimbursed by manager.
(b) Total return represents aggregate total return and does not reflect a sales
charge.
(c) This amount may vary from period to period and fund to fund depending on the
mix of trades executed in various markets where trading practices and
commission rate structures may differ.
* Based on average shares outstanding.
(See Notes to Financial Statements)
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS
Ivy International Fund II (the 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 and Class I 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $716,426. These dividends were
subject to withholding tax in the amount of $74,934. The Fund intends to elect
to pass through to its shareholders their proportionate share of such taxes.
Shareholders may report their share of such foreign taxes paid as either a tax
credit or itemized deduction.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts
may be entered into for purposes of hedging specific securities denominated in
foreign currencies. Forward contracts are marked to market daily, and the change
in market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and are being amortized on a
straight-line basis over a five year period.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated securities
and non-deductible organization expense. As a result, Net investment income
(loss) and Net realized gain (loss) on investments and foreign currency
transactions for a reporting period may differ significantly in amount and
character from distributions during such period. Accordingly, the Fund may make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
plus certain out-of-pocket expenses. Such fees and
expenses are reflected as Administrative services fee and Fund accounting in the
Statement of Operations.
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. From May 13, 1997 (commencement) to December 31, 1997, the net amount
of underwriting discount retained by IMDI was $64,357.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net
assets, excluding Class I. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net asset
value attributable to Class B and Class C shares. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$18,443, $218,274 and $121,813, for Class A, Class B and Class C, respectively,
are reflected as 12b-1 service and distribution fees in the Statement of
Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $14,768, $44,580, $25,256, and $0, for Class A, Class B, Class C and
Class I, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions from May 13, 1997 (commencement) to December 31,
1997, for Class A, Class B, Class C and Class I were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- ------- ---------- ------------
<S> <C> <C>
Sold.............................................. 3,012,394 $ 30,130,174
Repurchased....................................... (1,207,864) (11,232,084)
---------- ------------
Net increase...................................... 1,804,530 $ 18,898,090
========== ============
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- ------- ---------- ------------
<S> <C> <C>
Sold.............................................. 6,385,899 $ 63,560,068
Repurchased....................................... (380,660) (3,526,318)
---------- ------------
Net increase...................................... 6,005,239 $ 60,033,750
========== ============
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------- ---------- ------------
<S> <C> <C>
Sold.............................................. 3,698,302 $ 36,867,171
Repurchased....................................... (667,688) (6,089,296)
---------- ------------
Net increase...................................... 3,030,614 $ 30,777,875
========== ============
</TABLE>
<TABLE>
<CAPTION>
CLASS I SHARES AMOUNT
- ------- ---------- ------------
<S> <C> <C>
Sold.............................................. 1 $ 10
Repurchased....................................... (1) (10)
---------- ------------
Net increase...................................... -- --
========== ============
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Fund II (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the period May 13, 1997 (commencement) to December 31,
1997. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights 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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, and the results of its operations, changes in its
net assets, and the financial highlights for the period May 13, 1997
(commencement) to December 31, 1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IIF2123197
<PAGE> 98
IVY FUNDS
DECEMBER 31, 1997
IVY PAN-EUROPE FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the share-holders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
Three main themes are underway in Europe: corporate restructuring, a
strengthening economy and European Monetary Union (EMU). According to our
research, corporate restructuring is in its early days in Europe. Weak economic
activity and strong currencies during the 1990s have pressured profits and
caused companies to look for other ways to return to profitability. European
companies have begun to aggressively restructure through headcount reduction,
assets sales, acquisitions and productivity investments.
The second part of the European story is the cyclical recovery that now
appears to be firmly in place. The recovery has been led by exports that started
to soar two years ago; consumer spending is also gaining momentum. For example,
one of the best indicators of rising consumer spending is auto
registrations--which grew by 4.5% in 1997. And we expect auto sales to
experience reasonably comparable growth this year.
Finally, the birth of the Eurozone in 1999 obliges countries that want to
participate to force their economies to converge. This has contributed to lower
interests rates, reduced budget deficits and keeping inflation under strict
control. Another aspect of EMU is the consolidation of various industrial
sectors in Europe like banks, insurance, paper, defense and aerospace. The
underlying industrial logic for consolidation has been held back until recently
primarily by political and regulatory constraints. The single market and EMU are
creating a "merged" European economy. For most industries, the appropriate
denominator of scale is regional or even global, rather than national.
Due to the strengthening of the US dollar in 1997. Europe (including the
UK) was up by 20% while the US market gained 34%. Since its inception on May
13, 1997 through December 31, 1997, the Ivy Pan-Europe Fund was up 6.5%. (For
the Fund's total return with sales charge, and performance commentary, please
refer to the following page.)
For 1998, we believe the outlook for Europe remains positive. According to
our research, it is the area of the world most insulated from the Asian crisis.
Economic fundamentals are strong and even if a slowdown in exports occurs,
consumer spending is likely to more than offset it. For example, goods exported
to Asia and Japan represent around 1.7% of the European GDP, while it accounts
for 2.2% in the US and 3.3% in Japan. Our research indicates that GDP in Europe
is now expected to grow by 2.7%, while it was anticipated to grow by 3.0% before
the crisis. In 1996, Europe's GDP grew by 2.4%. This demonstrates how vigorous
the recovery is. Earnings should progress significantly and we do not expect any
major changes in exchange rates in 1998. The introduction of EMU next year will
continue to force governments to lower interest rates, which will continue to
keep European currencies fairly low against the US dollar mainly. We believe
that together these factors create a favorable environment for European equity
markets.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTORS
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributor, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO IVY MACKENZIE]
<PAGE> 99
IVY PAN-EUROPE FUND PERFORMANCE COMMENTARY
From its first full month of operation, (June, 1997) through December 31, 1997
the Ivy Pan-Europe Fund was up 6.5% as compared to the Morgan Stanley Capital
International Europe Index which was up 13.7% for the same period. The
difference in performance is attributed primarily the number of medium-and
smaller-size companies in the Fund; these sectors underperformed larger-cap
stocks. In addition, the overweighting of multinational stocks with ties to Asia
held back the Fund's performance.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (5/97) OF A $10,000
INVESTMENT
CHART
All charts and tables reflect past results and assume reinvestment of dividends
and distributions from capital gains. Future results will, of course, be
different. The investment return and principal value of Ivy Pan-Europe Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Morgan Stanley Capital International Europe Index is an unmanaged index of
stocks which assumes reinvestment of dividends and, unlike Fund returns, does
not reflect any fees or expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B shares will vary relative to that of Class
A shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
IVY PAN-EUROPE FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge
Class B**
Average Annual
Total Return Average Annual Total Return
-----------------------------------------------------------
w/ w/o w/ w/o
Reimb. Reimb. Reimb. Reimb.
-----------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B: B: B: B:
Since Inception (.53)% (9.50)% .26% 5.26% (3.56)% 1.27%
- ----------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
Total returns were higher due to reimbursement of the Fund's expenses. See
Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 100
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 77.76% SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
AUSTRIA -- 0.49%
Creditanstalt-Bankverein..................... 50 $ 2,798
Julius Meinl International AG................ 12 361
--------------
3,159
--------------
BELGIUM -- 0.59%
Solvay S.A................................... 60 3,773
--------------
CZECH REPUBLIC -- 0.37%
SPT Telekom a.s*............................. 22 2,348
--------------
DENMARK -- 2.94%
Unidanmark A/S............................... 258 18,953
--------------
FINLAND -- 3.33%
Enso OY -- R Shares.......................... 371 2,875
Pohjola Insurance Group B.................... 436 16,174
UPM -- Kymmene Corp.......................... 123 2,462
--------------
21,511
--------------
FRANCE -- 14.59%
Assurances Banque Populaire.................. 29 3,182
Assurances Banque Populaire
Certificates*(b)............................ 6 34
Banque Nationale de Paris.................... 337 17,920
Bongrain S.A................................. 8 3,378
Bouygues..................................... 146 16,551
Elf Gabon.................................... 7 1,143
Eurotunnel S.A.*............................. 1,300 1,253
France Telecom S.A*.......................... 9 326
Groupe Danone................................ 96 17,155
Scor......................................... 316 15,117
Societe Generale............................. 110 14,994
Societe Generale d'Enterprise (SGE)*......... 64 1,660
Usinor Sacilor............................... 96 1,387
--------------
94,100
--------------
GERMANY -- 3.62%
BMW AG....................................... 3 2,244
Daimler-Benz AG.............................. 39 2,755
Dyckerhoff AG................................ 19 5,368
Leica Camera AG.............................. 221 3,749
Merck KGaA................................... 242 8,143
Volkswagen AG................................ 2 1,118
--------------
23,377
--------------
HUNGARY -- 0.23%
BorsodChem GDR 144A.......................... 41 1,478
--------------
ITALY -- 4.57%
Fiat S.p.A................................... 3,791 11,032
Gucci Group NV............................... 150 6,037
Safilo S.p.A................................. 477 12,410
--------------
29,479
--------------
NETHERLANDS -- 6.17%
Akzo Nobel NV................................ 41 7,071
Fortis Amev NV............................... 58 2,529
Hagemeyer NV................................. 63 2,632
Hoogovens NV................................. 62 2,542
ING Groep NV................................. 56 2,359
Nedlloyd Groep NV............................ 365 8,282
Philips Electronics NV....................... 240 14,396
--------------
39,811
--------------
NORWAY -- 2.25%
Bergesen..................................... 276 6,440
Saga Petroleum ASA-B Shares.................. 240 3,646
Saga Petroleum Series A Free................. 256 4,410
--------------
14,496
--------------
PORTUGAL -- 1.86%
Cimpor Cimentos.............................. 67 1,758
Portugal Telecom S.A......................... 120 5,574
Portugal Telecom S.A. ADR.................... 100 4,700
--------------
12,032
--------------
RUSSIA -- 0.43%
LUKoil Holding Co. -- Sponsored ADR.......... 30 2,760
--------------
SPAIN -- 3.13%
Corp. Financiera Reunida, S.A. (COFIR)*...... 1,647 $ 8,807
Grupo Anaya S.A.............................. 108 1,984
Telefonica de Espana......................... 170 4,852
Telefonica de Espana S.A. ADR................ 50 4,553
--------------
20,196
--------------
SWEDEN -- 8.88%
ABB AB -- B Shares........................... 926 10,912
AssiDoman AB................................. 55 1,393
Astra AB "B" Shares.......................... 101 1,700
Electrolux AB................................ 204 14,167
Granges AB*.................................. 12 188
S.K.F. AB Series "B"......................... 590 12,567
Sandvik AB -- "B" Shares..................... 264 7,553
Stora Kopparbergs Bergslags Aktiebolag
(STORA)..................................... 100 1,241
Volvo AB B Shares............................ 284 7,624
--------------
57,345
--------------
SWITZERLAND -- 8.85%
Edipresse S.A................................ 19 5,523
Fotolabo S.A................................. 8 1,783
Georg Fischer AG Bearer...................... 6 8,227
Holderbank Financiere Glaris AG.............. 6 4,904
Jelmoli Holding AG Bearer.................... 5 4,319
Nestle AG Registered......................... 14 21,011
Pargesa Holding S.A.......................... 2 2,468
Sulzer AG Registered......................... 14 8,888
--------------
57,123
--------------
UNITED KINGDOM -- 15.46%
Albert Fisher Group PLC...................... 5,310 3,189
Barclays PLC................................. 342 9,088
British Steel plc............................ 1,505 3,263
Cadbury Schweppes PLC........................ 475 4,728
Corporate Services Group PLC................. 1,760 6,197
Gallaher Group PLC........................... 3,873 20,584
HSBC Holdings plc............................ 107 2,766
Hanson PLC Sponsored ADR..................... 150 3,459
Hazelwood Foods PLC.......................... 1,115 3,018
Imperial Chemical Industries PLC............. 551 8,522
Jarvis Hotels PLC............................ 609 1,518
National Westminster Bank PLC................ 240 3,986
Next PLC..................................... 310 3,530
PizzaExpress PLC............................. 376 4,640
Shell Transport & Trading Co................. 1,407 10,221
Standard Chartered PLC....................... 193 2,207
Tate and Lyle PLC............................ 480 3,965
Waterford Wedgwood PLC....................... 1,967 2,589
Willis Corroon Group PLC..................... 958 2,342
--------------
99,812
--------------
TOTAL EQUITY SECURITIES
(Cost -- $518,335)(a)....................... 501,753
OTHER ASSETS, LESS LIABILITIES -- 22.24%..... 143,478
--------------
NET ASSETS -- 100%........................... $ 645,231
==============
ADR -- American Depository Receipt
NV -- Non-voting
* Non-Income producing security.
(a) Cost is the same for Federal income tax purposes.
(b) Security valued in good faith by the Valuation Committee of the
Board of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation.................... $ 22,274
Gross unrealized depreciation.................... (38,856)
------------
Net unrealized depreciation.................. $ (16,582)
============
Purchases and sales of securities other than short-term obligations
aggregated $528,753 and $12,350, respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 101
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $518,335)......... $501,753
Cash........................................................ 123,649
Receivables
Fund shares sold.......................................... 6,516
Dividends and interest.................................... 734
Manager for expense reimbursement......................... 18,269
Deferred organization expenses.............................. 57,983
Other assets................................................ 9,126
--------
Total assets.............................................. 718,030
--------
LIABILITIES
Payables
Management fee............................................ 523
12b-1 service and distribution fees....................... 177
Other payables to related parties......................... 60,205
Accrued expenses............................................ 11,894
--------
Total liabilities......................................... 72,799
--------
NET ASSETS.................................................. $645,231
========
CLASS A
Net asset value and redemption price per share
($575,250/54,486 shares outstanding)...................... $ 10.56
========
Maximum offering price per share ($10.56 X 100/94.25)*...... $ 11.20
========
CLASS B
Net asset value, offering price and redemption price** per
share ($69,981/6,637 shares outstanding).................. $ 10.54
========
NET ASSETS CONSIST OF
Capital paid-in........................................... $661,790
Undistributed net realized gain on investments............ 31
Net unrealized depreciation on investments and foreign
currency transactions................................... (16,590)
--------
NET ASSETS.................................................. $645,231
========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum contingent deferred sales charge of 5%.
STATEMENT OF OPERATIONS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $263 foreign taxes withheld............. $ 3,085
Interest.................................................. 285
------------
3,370
------------
EXPENSES
Management fee............................................ $ 1,974
Transfer agent............................................ 416
Administrative services fee............................... 198
Custodian fees............................................ 19,980
Blue Sky fees............................................. 588
Auditing and accounting fees.............................. 3,853
Shareholder reports....................................... 41
Fund accounting........................................... 11,543
Trustees' fees............................................ 4,235
12b-1 service and distribution fees....................... 561
Legal..................................................... 11,948
Other..................................................... 596
------------
55,933
Expenses reimbursed by manager............................ (51,522)
------------
Net expenses............................................ 4,411
------------
NET INVESTMENT LOSS......................................... (1,041)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 1,919
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (16,590)
------------
Net loss on investment transactions..................... (14,671)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ (15,712)
============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 102
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MAY 13, 1997 (COMMENCEMENT) TO DECEMBER 31, 1997
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (1,041)
Net realized gain on investments and foreign currency
transactions............................................ 1,919
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (16,590)
--------
Net decrease resulting from operations.................. (15,712)
--------
Distributions to shareholders from net realized gain
Class A................................................... (805)
Class B................................................... (42)
--------
Total distributions to shareholders..................... (847)
--------
Fund share transactions (Note 4)
Class A................................................... 589,270
Class B................................................... 72,520
Class C................................................... --
--------
Net increase resulting from Fund share transactions..... 661,790
--------
NET ASSETS AT END OF PERIOD................................. $645,231
========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 13, 1997
(COMMENCEMENT) TO
DECEMBER 31, 1997
--------------------
CLASS A CLASS B
SELECTED PER SHARE DATA ------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $10.02 $10.02
------ ------
Income (loss) from investment operations
Net investment loss(a).................................... (.02) (.03)
Net realized and unrealized gain on investment
transactions............................................ .58 .56
------ ------
Total from investment operations........................ .56 .53
------ ------
Less distributions
From net realized gain.................................... .02 .01
------ ------
Total distributions..................................... .02 .01
------ ------
Net asset value, end of period.............................. $10.56 $10.54
====== ======
Total return(%)(b).......................................... 5.54 5.26
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 575 $ 70
Ratio of expenses to average net assets
With expense reimbursement(%)(c).......................... 2.20 3.29
Without expense reimbursement(%)(c)....................... 28.41 29.50
Ratio of net investment loss to average net
assets(%)(a)(c)........................................... (.48) (1.58)
Portfolio turnover rate(%).................................. 5 5
Average commission rate(d).................................. $.0300 $.0300
</TABLE>
(a) Net investment loss is net of expenses reimbursed by manager.
(b) Total return represents aggregate total return and does not reflect a sales
charge.
(c) Annualized.
(d) This amount may vary from period to period and fund to fund depend on the
mix of trades executed in various markets where trading practices and
commission rate structures may differ.
(See Notes to Financial Statements)
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS
Ivy Pan-Europe Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 the security valued in good faith by the Valuation Committee of the
Board amounted to $34 and has been noted as such in the investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $3,348. These dividends were
subject to foreign withholding tax in the amount of $263. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of such foreign taxes paid as either
a tax credit or itemized deduction.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
DEFERRED ORGANIZATION EXPENSES -- Expenses incurred by the Fund in
connection with its organization have been deferred and will be amortized on a
straight-line basis for a period not to exceed five years.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities. As a result, Net investment income (loss) and Net realized gain
(loss) on investments and foreign currency transactions for a reporting period
may differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of the Fund's average net assets. The
voluntary expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. From May 13, 1997 (commencement) to December 31, 1997, the net amount
of underwriting discount retained by IMDI was $418.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $471, $90 and $0, for
Class A, Class B and Class C, respectively, are reflected as 12b-1 service and
distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $375, $41 and $0, for Class A, Class B and Class C, respectively,
are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions from May 13, 1997 (commencement) to December 31,
1997, for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- ------- ------- ---------
<S> <C> <C>
Sold.................................................... 81,901 $ 893,474
Issued on reinvestment of distributions................. 77 804
Repurchased............................................. (27,492) (305,008)
------- ---------
Net increase............................................ 54,486 $ 589,270
======= =========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- ------- ------- ---------
<S> <C> <C>
Sold.................................................... 6,634 $ 72,488
Issued on reinvestment of distributions................. 4 42
Repurchased............................................. (1) (10)
------- ---------
Net increase............................................ 6,637 $ 72,520
======= =========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------- ------- ---------
<S> <C> <C>
Sold.................................................... 1 $ 10
Repurchased............................................. (1) (10)
------- ---------
Net increase............................................ -- $ --
======= =========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Pan-Europe Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations, statement of changes in net assets, and
financial highlights for the period May 13, 1997 (commencement) to December 31,
1997. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights 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 financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, and the results of its operations, changes in its
net assets, and the financial highlights for the period May 13, 1997
(commencement) to December 31, 1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IPEF123197
<PAGE> 106
DECEMBER 31, 1997 IVY FUNDS
IVY CHINA REGION FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
Stock markets in the China region were very volatile in 1997. The first
half of the year was dominated by the anticipation of the handover of Hong Kong
to China on July 1, and by the death of China's President, Deng Xiaopeng. During
this period, stock markets throughout the China region performed well, led by
red-chips which were up 88%. Other benchmarks were also up: H-shares were up 4%,
the Taiwan market was up 30% and Hong Kong's Hang Seng Index returned 13%. Then
came July, which was a turning point for many markets in Asia as the impact of
Thailand's devaluation began to spread to other countries. The markets of the
China region, however, continued to perform well as investors breathed a sigh of
relief that the handover was accomplished smoothly. In the ensuing two months,
the red-chips earned another 17% and the H-shares added an additional 70%. But
by September the turmoil in Southeast Asia had become pervasive throughout Asia
and China region stocks--unable to escape the panic in the financial markets--
quickly reversed direction. From September to year-end, the sell-off was
severe--red-chips and H-shares lost nearly 60% of their value and the Hang
Seng fell by 35%. As a result, for the twelve months ended December 31, 1997,
the Ivy China Region Fund was down 21.9%. This compares favorably, however, to
the average China fund as tracked by Lipper Analytical Services, which was down
23.6%, and the Hang Seng Index, which ended 1997 down 32.5%. (For the Fund's
total return with sales charge, and performance commentary, please refer to the
following page.)
While currencies in the China region have remained firm against the US
dollar, throughout Asia interest rates have risen dramatically--first as central
banks vigorously defended their currencies, and then as investors began to
demand increasingly high returns to compensate for greater uncertainty. The real
impact on Hong Kong's interest rate sensitive market has been widespread--with
property developers, retailers and financial institutions all feeling the brunt
of lower real estate prices. Also, speculation that Hong Kong authorities,
unwilling to suffer the pain of higher rates, would unpeg the Hong Kong dollar,
added still another level of perceived risk.
Our research indicates that the currencies in the China region,
specifically the Hong Kong dollar and the Chinese renminbi, are not
fundamentally overvalued. First, China still offers the best combination of
low-cost, highly skilled workers in Asia, making it attractive to multinational
companies looking to establish an Asian manufacturing base. Second, the combined
foreign reserves of Hong Kong and China total more than $200 billion. Third,
China's trade account is in a strong surplus position, and a devaluation would
cause friction with the US (a critical export destination) over trade
imbalances. And finally, a devaluation would negatively impact China's ability
to attract foreign direct investment, which is crucial to the country's
long-term development.
Stock market valuations in the China region are near record low levels.
According to our research, common yardsticks such as price-to-earnings and
price-to-book value indicate that there are many bargains to be found at this
juncture. Panic selling in response to the Asian crisis has been indiscriminate.
Our research points to many high-quality companies with solid balance sheets
that are trading at prices well below levels suggested by fundamental analysis.
We believe that once currency and stock markets in Asia stabilize, foreign and
local investors will return. At the turning point--when sentiment reverses from
extreme pessimism--stock prices could rise very sharply. Precisely timing this
move is nearly impossible; we believe that the best approach is to continue to
buy high-quality, undervalued companies on weakness, hold low cash positions,
and be positioned in fundamentally strong companies that should participate in
the next stage of economic growth in the China region.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 107
IVY CHINA REGION FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy China Region Fund was
down 21.9%. The Fund's two most relevant benchmarks, the Lipper China Fund
Average and the Hang Seng Index were down 23.6% and 32.5% respectively. The
similarity in performance of the Lipper average as compared to the Fund reflects
the resemblance of investments by the funds within the category to the Ivy China
Region Fund. The outperformance of the Fund as compared to the Hang Seng Index
is attributed to the Fund's diversification in China and Taiwan, as well as Hong
Kong, whereas the index is comprised of Hong Kong-only stocks.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (10/93)
OF A $10,000 INVESTMENT
(GRAPH)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------
IVY CHINA REGION FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
-------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
(26.44)% (22.57)% (26.60)% (22.73)%
C: C: C: C:
1 Yr. (26.43)% (26.56)% (23.46)% (22.46)% (23.63)% (22.63)%
- -----------------------------------------------------------------------------------
B: B: B: B:
(5.52)% (5.06)% (5.86)% (5.40)%
C: C: C: C:
Since Inception (5.69)% (6.05)% (9.38)% (9.38)% (9.51)% (9.51)%
- -----------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns were higher due to reimbursement of the Fund's expenses. See
Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy China Region Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Lipper China Fund Average and the Hang Seng Index are unmanaged indices of
stocks which assumes reinvestment of dividends and, unlike Fund returns, does
not reflect any fees or expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 108
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.38% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
AMERICAS -- 0.46%
- ---------------------------
UNITED STATES -- 0.46%
Amway Asia Pacific Ltd..... 5,000 $ 97,500
-----------
ASIA/PACIFIC -- 98.92%
- ---------------------------
CHINA -- 14.95%
Anhui Expressway Co.
Ltd...................... 686,000 115,097
China Southern Airlines
Company Limited*......... 834,000 215,274
China Southern Glass
Co. -- Class B........... 342,137 96,262
Guangdong Kelon Elec
Holding.................. 266,000 272,926
Inner Mongolia Erdos
Cashmere Products
Co. -- Class B........... 681,000 231,540
Qinling Motors Company
Ltd...................... 1,100,000 539,475
Shanghai China
International Travel
Service Co.,
Ltd. -- Class B.......... 215,000 73,100
Shanghai Dazhong Taxi
Company --
Class B*................. 639,000 477,972
Shanghai Diesel Engine Co.
Ltd. --
Class B.................. 648,000 81,648
Shanghai Industrial Sewing
Machine Co. Ltd. -- Class
B*....................... 250,000 22,000
Shanghai Narcissus Electric
Appliances Industrial
Company Ltd. -- Class
B*....................... 467,500 44,880
Shanghai Post & Telecom
Eq. -- Class B........... 510,900 133,856
Shanghai Shangling Electric
Appliances Co.
Ltd. -- Class B*......... 312,000 64,272
Shanghai Worldbest Co.,
Ltd...................... 240,000 121,440
Shenzhen Konka Electronics
Group Limited -- Class
B........................ 260,000 280,527
Zhenhai Refining and
Chemical Company
Limited.................. 900,000 374,600
-----------
3,144,869
-----------
HONG KONG -- 68.66%
Asia Satellite Telecom
ADR...................... 4,000 67,250
CDL Hotels International
Limited.................. 840,000 254,767
Chen Hsong Holdings........ 850,000 257,800
Cheung Kong Holdings Ltd... 123,000 805,632
Cheung Kong Infrastructure
Holdings................. 96,000 271,338
China Resources Enterprise
Limited.................. 128,000 285,793
China Travel International
Investment Hong Kong
Ltd...................... 864,400 273,323
Citic Pacific Ltd.......... 161,000 639,988
Esprit Asia Holdings Ltd... 696,000 226,812
Founder Hong Kong Ltd...... 348,000 215,584
Giordano Holdings Ltd...... 776,000 267,905
Gold Peak Industries....... 923,000 512,231
Gold Peak Industries
Warrants 2000*........... 184,600 17,392
Guangdong Investments...... 799,000 531,067
Guangdong Investments
Warrants*................ 79,900 10,931
Guangdong Tannery Ltd...... 39,950 4,589
Guangzhou Investment
Company Ltd.............. 910,000 189,087
HSBC Holdings.............. 36,867 908,796
Hang Seng Bank............. 13,900 134,098
Henderson Land Development
Company Ltd.............. 52,000 244,958
Hong Kong & China Gas
Company Ltd.............. 223,200 432,097
Hong Kong Land Holdings
Ltd...................... 152,000 291,840
Hong Kong
Telecommunications
Limited.................. 189,600 390,296
Jardine International Motor
Holdings Co.............. 136,000 73,720
Jardine Strategic Holdings
Ltd...................... 200,250 528,660
Jardine Strategic Holdings
Warrants*................ 13,250 530
Johnson Electric Holdings
Ltd...................... 144,400 415,592
Kumagai Gumi (Hong Kong)
Ltd...................... 360,000 274,126
Lamex Holdings............. 650,000 $ 83,890
Li & Fung.................. 615,800 862,313
Manhattan Card Company
Ltd...................... 868,000 305,268
Melco International
Development Ltd.......... 15,900 3,796
National Mutual Asia Ltd... 440,000 437,259
New World Development
Company Ltd.............. 80,535 278,558
New World Infrastructure
Ltd.*.................... 133 300
Ng Fung Hong Limited....... 324,000 340,799
Peregrine Investment
Holdings Limited......... 262,000 185,977
Peregrine Investment
Holdings Limited
Warrants*................ 26,200 34
Realty Development 'A'..... 13,000 35,234
Semi-Tech (Global)......... 312,000 51,139
Semi-Tech (Global) Warrants
1998*.................... 7,800 282
Shanghai Industrial
Holdings Limited......... 63,000 234,168
Shangri-La Asia Ltd........ 280,000 236,698
Sime Darby (Hong Kong)..... 182,000 89,259
Siu-Fung Ceramics Holdings,
Ltd.*(a)................. 1,110,327 45,856
Sun Hung Kai Properties
Ltd...................... 42,800 298,286
Swire Pacific Ltd. Class
A........................ 59,500 326,363
Techtronic Industries Co... 1,888,000 438,601
Tingyi (Cayman Island)
Holding Co............... 1,810,000 235,937
Tsingtao Brewery Co. Ltd.
Series H*................ 600,000 140,160
Union Bank of Hong Kong
Ltd...................... 366,833 449,767
Wharf Holdings Ltd......... 210,000 460,748
Wo Kee Hong Holdings Ltd.
Warrants*................ 112,400 261
Yue Yuen Industrial
Holdings................. 179,200 379,295
-----------
14,446,450
-----------
MALAYSIA -- 0.09%
Leader Universal
Holdings -- Class A...... 61,666 19,011
-----------
SINGAPORE -- 2.62%
Clipsal Industries
Limited.................. 175,000 224,000
Elec & Eltek International
Co. Ltd.................. 71,500 327,470
-----------
551,470
-----------
SOUTH KOREA -- 1.91%
Daewoo Corporation......... 400 1,086
Hyundai Motor Co, Ltd...... 5,510 60,791
Keum Kang Development Ind.
Company.................. 8,800 25,959
Korea Electric Power
Corporation.............. 10,300 95,407
L.G. Electronics........... 8,000 60,887
Pohang Iron & Steel Co.
Ltd...................... 2,000 56,327
Samsung Electronics Co.
GDR...................... 640 4,160
Samsung Electronics Co. GDR
144A Registered*......... 300 4,838
Samsung Electronics Co. New
Common................... 2,446 55,415
Samsung Heavy
Industries*.............. 509 1,129
Shinhan Bank............... 8,000 35,635
-----------
401,634
-----------
TAIWAN -- 10.30%
Acer Incorporation*........ 163,750 250,635
Compeq Manufacturing Co*... 56,000 322,282
Far Eastern Department
Stores Ltd............... 490,704 519,740
President Enterprises*..... 244,800 291,509
Systex Corporation*........ 188,530 320,305
Yung Shin Pharmaceuticals
Industries Co............ 225,400 462,295
-----------
2,166,766
-----------
THAILAND -- 0.18%
Bank of Ayudhya -- Foreign
Registered............... 68,750 27,843
Krung Thai Bank Public
Company
Limited -- Foreign
Registered............... 50,000 10,384
-----------
38,227
-----------
</TABLE>
(See Notes to Financial Statements)
<PAGE> 109
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
VIETNAM -- 0.21%
The Vietnam Fund Limited... 7,800 $ 44,850
-----------
TOTAL EQUITY SECURITIES
(Cost -- $25,608,272).... 20,910,777
-----------
CONVERTIBLE CORPORATE
BONDS -- 0.80% PRINCIPAL
- --------------------------- -----------
Piltel International
Holding Corp., 1.75%,
07/17/06
(Cost -- $240,000)....... $ 240,000 169,200
-----------
TOTAL INVESTMENTS --100.18%
(Cost -- $25,848,272)
(Cost on Federal income
tax
basis -- $25,909,334).... 21,079,977
OTHER ASSETS, LESS
LIABILITIES -- (0.18%)... (37,961)
-----------
NET ASSETS -- 100%......... $21,042,016
===========
ADR -- American Depository
Receipt
GDR -- Global Depository
Receipt
* Non-income producing security.
(a) Securities valued in good faith by the Valuation
Committee of the Board of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation
based on cost for Federal income tax purposes is as
follows:
Gross unrealized appreciation....... $ 2,948,487
Gross unrealized depreciation....... (7,777,844)
-----------
Net unrealized depreciation..... $(4,829,357)
===========
Purchases and sales of securities other than
short-term obligations aggregated $8,129,926 and
$4,995,351, respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 110
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $25,848,272)...... $21,079,977
Cash........................................................ 74,323
Cash denominated in foreign currencies (cost -- $54,272).... 53,385
Receivables
Investments sold.......................................... 46,678
Fund shares sold.......................................... 5,415
Dividends and interest.................................... 30,484
Manager for expense reimbursement......................... 5,100
Other assets................................................ 20,865
-----------
Total assets............................................ 21,316,227
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 214,684
Management fee............................................ 18,613
12b-1 service and distribution fees....................... 11,370
Other payables to related parties......................... 14,435
Accrued expenses............................................ 15,109
-----------
Total liabilities......................................... 274,211
-----------
NET ASSETS.................................................. $21,042,016
===========
CLASS A
Net asset value and redemption price per share
($12,020,138/1,495,420 shares outstanding)................ $ 8.04
===========
Maximum offering price per share ($8.04 x 100/94.25)*....... $ 8.53
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($7,892,718/991,262 shares outstanding)............. $ 7.96
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($1,129,160/142,140 shares outstanding)............. $ 7.94
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $28,301,600
Accumulated net realized loss on investments.............. (2,487,121)
Accumulated net investment loss........................... (3,240)
Net unrealized depreciation on investments and foreign
currency transactions................................... (4,769,223)
-----------
NET ASSETS.................................................. $21,042,016
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 111
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $11,754 foreign taxes withheld.......... $ 692,047
-----------
EXPENSES
Management fee............................................ $277,601
Transfer agent............................................ 100,600
Administrative services fee............................... 27,760
Custodian fees............................................ 83,331
Blue Sky fees............................................. 29,278
Auditing and accounting fees.............................. 14,277
Shareholder reports....................................... 6,515
Fund accounting........................................... 37,169
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 151,820
Legal..................................................... 22,904
Other..................................................... 18,262
-----------
776,729
Expenses reimbursed by manager............................ ........ (18,377)
Fees paid indirectly...................................... ........ (65,117)
-----------
Net expenses............................................ ........ 693,235
-----------
NET INVESTMENT LOSS......................................... ........ (1,188)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (897,380)
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (6,275,142)
-----------
Net loss on investment transactions..................... (7,172,522)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(7,173,710)
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 112
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment (loss) income.............................. $ (1,188) $ 10,485
Net realized loss on investments and foreign currency
transactions............................................ (897,380) (1,001,126)
Net unrealized (depreciation) appreciation during the
period on investments and foreign currency
transactions............................................ (6,275,142) 5,263,221
----------- ------------
Net (decrease) increase resulting from operations....... (7,173,710) 4,272,580
----------- ------------
Class A distributions
From net investment income................................ -- (46,722)
In excess of net investment income........................ -- (30,983)
----------- ------------
Total distributions to Class A shareholders............. -- (77,705)
----------- ------------
Class C distributions
From net investment income................................ -- (3,703)
----------- ------------
Total distributions to Class C shareholders............. -- (3,703)
----------- ------------
Fund share transactions (Note 5)
Class A................................................... 1,133,531 (231,044)
Class B................................................... 1,383,129 597,206
Class C................................................... 965,525 416,039
----------- ------------
Net increase resulting from Fund share transactions..... 3,482,185 782,201
----------- ------------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (3,691,525) 4,973,373
NET ASSETS
Beginning of period....................................... 24,733,541 19,760,168
----------- ------------
END OF PERIOD............................................. $21,042,016 $ 24,733,541
=========== ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 113
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
---------------------------------------------- ----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.30 $ 8.58 $ 8.61 $ 11.55 $ 10.00
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .02(b) .03 .14 .05 (.01)
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.28)(b) 1.74 (.01) (2.91) 1.57
------- ------- ------- ------- -------
Total from investment operations........................ (2.26) 1.77 .13 (2.86) 1.56
------- ------- ------- ------- -------
Less distributions
From net investment income................................ -- .03 .14 .05 --
In excess of net investment income........................ -- .02 -- .03 --
In excess of net realized gain............................ -- -- .02 -- --
From capital paid-in...................................... -- -- -- -- .01
------- ------- ------- ------- -------
Total distributions..................................... -- .05 .16 .08 .01
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 8.04 $ 10.30 $ 8.58 $ 8.61 $ 11.55
======= ======= ======= ======= =======
Total return(%)............................................. (21.94)(c) 20.50(c) 1.59(c) (24.88)(c) 15.65(g)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $12,020 $15,290 $12,855 $13,180 $ 8,371
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.44 2.20 2.20 2.20 1.98(e)
Without expense reimbursement(%).......................... 2.51 2.48 2.73 2.76 2.45(e)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .28 .32 1.61 .55 (.91)(e)
Portfolio turnover rate(%).................................. 20 22 25 4 --
Average commission rate(f).................................. $ .0050 $ .0050 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
---------------------------------------------- ----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.28 $ 8.58 $ 8.61 $ 11.55 $ 10.00
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... (.04)(b) (.04) .08 (.02) (.02)
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.28)(b) 1.74 (.02) (2.92) 1.57
------- ------- ------- ------- -------
Total from investment operations........................ (2.32) 1.70 .06 (2.94) 1.55
------- ------- ------- ------- -------
Less distributions
From net investment income................................ -- -- .08 -- --
In excess of net realized gain............................ -- -- .01 -- --
------- ------- ------- ------- -------
Total distributions..................................... -- -- .09 -- --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 7.96 $ 10.28 $ 8.58 $ 8.61 $ 11.55
======= ======= ======= ======= =======
Total return(%)............................................. (22.57)(c) 19.67(c) .83(c) (25.45)(c) 15.50(g)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 7,893 $ 8,995 $ 6,905 $ 7,336 $ 3,565
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 3.17 2.95 2.95 2.95 2.74(e)
Without expense reimbursement(%).......................... 3.24 3.23 3.48 3.51 3.20(e)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. (.45) (.43) .86 (.20) (1.66)(e)
Portfolio turnover rate(%).................................. 20 22 25 4 --
Average commission rate(f).................................. $ .0050 $ .0050 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 114
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------- ----------------
1997 1996
SELECTED PER SHARE DATA ---------------- ----------------
<S> <C> <C>
Net asset value, beginning of period........................ $10.24 $ 9.44
------ ------
Income (loss) from investment operations
Net investment loss(a).................................... (.03)(b) --
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.27)(b) .89
------ ------
Total from investment operations........................ (2.30) .89
------ ------
Less distributions
In excess of net investment income........................ -- .09
------ ------
Total distributions..................................... -- .09
------ ------
Net asset value, end of period.............................. $ 7.94 $10.24
====== ======
Total return(%)............................................. (22.46)(c) 9.39(g)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,129 $ 449
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 3.05 2.71(e)
Without expense reimbursement(%).......................... 3.12 2.99(e)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. (.33) (.19)(e)
Portfolio turnover rate(%).................................. 20 22
Average commission rate(f).................................. $.0050 $.0050
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed by manager.
(b) Based on average shares outstanding
(c) Total return does not reflect a sales charge.
(d) Beginning in 1995, total expenses include fees paid indirectly, if any,
through an expense offset arrangement.
(e) Annualized.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
(g) Total return represents aggregate total return and does not reflect a
sales charge.
(See Notes to Financial Statements)
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS
Ivy China Region Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 securities valued in good faith by the Valuation Committee of the Board
amounted to $45,856 (.20% of net assets) and have been noted as such in the
investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $702,046. These dividends were
subject to foreign withholding tax in the amount of $11,754. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of such foreign taxes paid as either
a tax credit or itemized deduction.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,916,000 as of December 31, 1997, which may be applied against any realized
net taxable capital gain of each succeeding fiscal year until fully utilized or
until the expiration date, whichever occurs first. The carryover expires
$264,000 in 2002, $203,000 in 2003, $1,033,000 in 2004 and $416,000 in 2005.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, passive foreign investment companies, and certain securities sold at
a loss. As a result, Net investment income (loss) and Net realized gain (loss)
on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FEES PAID INDIRECTLY -- The Fund has an arrangement with its custodian
whereby a certain percentage of quarterly cumulative credits resulting from cash
balances on deposit with the custodian are used to offset custody fees,
including transaction and out-of-pocket expenses. For the period, custody fees
were reduced by $65,117 under this arrangement.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
of the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $16,806.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $41,926, $99,827 and
$10,067, for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $62,895, $35,343 and $2,362, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. CONCENTRATION OF CREDIT RISK
The Fund primarily invests in equity securities of companies in the China
region. Therefore, the Fund is more susceptible to factors adversely affecting
securities within the China region than is an equity fund that is not
concentrated in such securities to the same extent.
5. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,028,607 $ 21,422,934 1,537,034 $ 14,512,385
Issued on reinvestment of
distributions........... -- -- 6,616 68,426
Repurchased.............. (2,017,783) (20,289,403) (1,556,713) (14,811,855)
---------- ------------ ---------- ------------
Net increase............. 10,824 $ 1,133,531 (13,063) $ (231,044)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 1,013,613 $ 10,381,225 998,886 $ 9,546,623
Repurchased.............. (897,479) (8,998,096) (928,212) (8,949,417)
---------- ------------ ---------- ------------
Net increase............. 116,134 $ 1,383,129 70,674 $ 597,206
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 234,668 $ 2,360,065 50,214 $ 474,632
Issued on reinvestment of
distributions........... -- -- 324 3,314
Repurchased.............. (136,401) (1,394,540) (6,665) (61,907)
---------- ------------ ---------- ------------
Net increase............. 98,267 $ 965,525 43,873 $ 416,039
========== ============ ========== ============
</TABLE>
6. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy China Region Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02ICRF123197
<PAGE> 118
DECEMBER 31, 1997 IVY FUNDS
IVY GROWTH WITH INCOME FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
In 1997, the US stock market recorded its third consecutive year of
double-digit gains; the S&P 500 returned 34% and the Dow Jones Industrial
Average returned 26%. The increases in the indices continued to be driven by
large-company stocks: the median large-capitalization stock gained 29%, the
median mid-cap stock gained 21% and the median-small cap stock gained about
16%. Furthermore, more than 40% of the gains in the S&P 500 in 1997 came from
the top 25 performers, almost all of which were mega-cap stocks--the largest
of the large. Against this backdrop, for the twelve months ended December 31,
1997, the Ivy Growth with Income Fund returned 21.6%. (For the Fund's total
return with sales charge, and performance commentary, please refer to the
following page.) The Fund is invested primarily in a blend of large- and
mid-cap stocks, and also has a portion of its assets in a mix of cash and real
estate investment trusts (REITs).
The economic focus has been on the difficulties in Asia and the
possible consequences they will have on the US economy. According to our
research, as consumption and expansion in the Asian countries slow down and as
imports become cheaper--owing to the steep decline of several Asian
currencies--the recent turmoil in Asia is likely to contribute to lackluster
revenue growth in the US. Paradoxically, however, the Asian turmoil may boost
US equity prices in the short term if investors are attracted to the US
market's safe haven status and the deflationary effects the turmoil may have in
keeping a lid on interest rates. Nevertheless, we continue to be concerned with
valuation levels of many US companies, given that the S&P 500 is at the high
end of its historical valuation range by almost every measure.
Within this environment, we have maintained a position in both cash
and REITs and stand ready to invest the cash as attractive investments surface
or in the event the market experiences a broad decline. REITs remain attractive
given that their performance is correlated less with the general market than
are many other sectors and that they combine good dividend yields with decent
earnings growth and reasonable price-to-cash earnings ratios.
In managing the Fund, we continue to employ a value approach in which
holdings generally have price-to-earnings ratios which, according to our
research, are relatively low when compared to the companies' long-term earnings
growth rates. Within this style, our focus has been on finding well-managed
companies, with solid franchises, good long-term prospects and selling at
attractive prices. In the current environment, this usually means that we are
purchasing stock of companies that are experiencing short-term disappointments
and are out of favor. Most stocks appear at least fully valued these days, but
companies that disappoint Wall Street, even if they are of high quality, can
drop to attractive levels when investors focus too much on the short-term.
The principle goal of the Ivy Growth with Income Fund is to provide
long-term capital growth while controlling risk. We also strive to minimize the
taxable capital gains our shareholders will have to report by keeping turnover
as low as possible. The relatively conservative nature of the Fund and its
aversion to paying taxes should be attractive to investors wishing to
participate in the equity market while avoiding the added volatility and tax
implications of more aggressive funds.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 119
IVY GROWTH WITH INCOME FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy Growth with Income Fund
was up 21.6% as compared to the S&P 500 and Dow Jones Industrial Average, which
were up 34.2% and 26.8%, respectively, for the same period. The difference in
the Fund's performance relative to the two benchmarks is attributed to the
Fund's investment in mid-cap stocks (whose performance is in line with the
performance of the Fund) and the Fund's allocation to REITs (which on average
were up 17% in 1997). The two indices follow large-cap orientation.
Additionally, as our research indicates that many quality companies are
overvalued, we have held cash in the Fund to take advantage of opportunities
that may present themselves in periods of market weakness.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (4/84) OF A $10,000
INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
IVY GROWTH WITH INCOME FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
--------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
--------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- 15.74% 20.74%
C: C: C: C:
1 Yr. -- 14.58% -- -- 19.70% 20.70%
- ------------------------------------------------------------------------------------
5 Yr. -- 14.22% -- -- -- --
- ------------------------------------------------------------------------------------
10 Yr. 14.61% 14.59% -- -- -- --
- ------------------------------------------------------------------------------------
B: B: B: B:
-- -- 13.96% 14.25%
C: C: C: C:
Since Inception 15.46% 15.45% -- -- 20.00% 20.00%
- ------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gains distributions. Future results will, of course, be different.
The investment return and principal value of the Ivy Growth with Income Fund
will fluctuate and at redemption may be worth more or less than the amount of
the original investment.
The Lipper Average Growth with Income index and the S&P 500 are unmanaged
indices of stocks which assume reinvestment of dividends and, unlike Fund
returns, do not reflect any fees or expenses. It is not possible to invest in an
index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 120
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 77.00% SHARES VALUE
- --------------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 6.22%
Crown Cork & Seal Company,
Inc....................... 52,000 $ 2,606,500
Du Pont (E.I.) De Numours &
Company................... 14,000 840,875
Ferro Corporation.......... 21,000 510,563
Harsco Corporation......... 38,000 1,638,750
Union Carbide Corporation
Holding Company........... 6,000 257,625
-----------
5,854,313
-----------
CAPITAL GOODS -- 7.52%
AGCO Corporation........... 52,000 1,521,000
American Standard
Companies, Inc.*.......... 17,200 658,975
Fluor Corporation.......... 6,500 242,938
Foster Wheeler
Corporation............... 14,000 378,875
General Electric Company... 14,000 1,027,250
Johnson Controls, Inc...... 13,000 620,750
Kaydon Corporation......... 19,000 619,875
Tecumseh Products
Company................... 8,300 404,625
Tenneco Inc.*.............. 14,000 553,000
Tyco International Ltd..... 23,392 1,054,102
-----------
7,081,390
-----------
COMMERCIAL SERVICES --8.59%
Banta Corp................. 54,500 1,471,500
Electronic Data Systems
New....................... 77,000 3,383,188
First Data Corp............ 72,500 2,120,625
Harte-Hanks
Communications............ 30,000 1,113,750
-----------
8,089,063
-----------
CONSUMER
NON-DURABLES -- 7.35%
Hasbro, Inc................ 10,500 330,750
Mattel, Inc................ 37,500 1,396,875
Nine West Group, Inc.*..... 76,000 1,971,250
PepsiCo, Inc............... 30,000 1,093,125
Scholastic Corporation*.... 17,500 656,250
Tupperware Corporation..... 17,200 479,450
Warnaco Group, Inc......... 31,600 991,450
-----------
6,919,150
-----------
CONSUMER SERVICES -- 9.32%
Brunswick Corporation...... 12,000 363,750
Carnival Corporation Class
A......................... 29,000 1,605,875
Federated Department
Stores, Inc.*............. 13,000 559,813
J.C. Penney Co., Inc....... 15,481 933,698
Lowe's Companies, Inc...... 17,000 810,688
McDonald's Corporation..... 38,000 1,814,500
Royal Caribbean Cruises
Ltd....................... 16,000 853,000
Sears, Roebuck & Co........ 14,000 633,500
Sun International Hotels
Ltd.*..................... 15,000 564,375
Sunglass Hut International,
Inc.*..................... 33,000 208,313
Tricon Global Restaurants,
Inc.*..................... 14,800 430,123
-----------
8,777,635
-----------
ENERGY -- 5.25%
Dresser Industries, Inc.... 17,000 712,938
Enron Corporation.......... 29,000 1,205,312
Helmerich & Payne, Inc..... 10,500 712,688
Noble Drilling
Corporation*.............. 27,000 826,875
Nuevo Energy Company*...... 16,800 684,600
Schlumberger, Ltd.......... 10,000 805,000
-----------
4,947,413
-----------
FINANCIAL SERVICES --16.86%
AMBAC, Inc................. 23,200 1,067,200
Aegon NV(a)................ 6,573 589,105
Bankers Trust New York
Corp...................... 5,000 562,188
Exel Limited............... 23,000 1,457,625
Federal National Mortgage
Association............... 33,000 1,883,063
First Chicago NBD
Corporation............... 10,000 835,000
First Union Corporation.... 18,000 922,500
Freddie Mac................ 45,000 1,887,187
J.P. Morgan & Company
Inc....................... 6,500 733,687
NationsBank Corporation.... 17,400 1,058,138
Norwest Corporation........ 17,800 687,525
Penncorp Financial Group,
Inc....................... 17,000 606,688
Providian Corporation...... 24,000 1,084,500
Terra Nova (Bermuda)
Holdings Ltd(a)........... 32,000 840,000
Travelers, Inc............. 30,840 1,661,503
-----------
15,875,909
-----------
HEALTHCARE -- 6.94%
Allegiance Corporation..... 18,000 $ 637,875
Boston Scientific
Corporation*.............. 10,000 458,750
Columbia/HCA Healthcare
Corp...................... 33,000 977,625
Elan Corp. PLC -- Sponsored
ADR*(a)................... 31,000 1,586,813
Medpartners, Inc.*......... 41,500 928,563
Pharmacia & Upjohn, Inc.... 16,000 586,000
US Surgical Corp........... 46,500 1,363,030
-----------
6,538,656
-----------
TECHNOLOGY -- 7.60%
Bell & Howell Company*..... 49,000 1,185,188
Cabletron Systems, Inc.*... 20,000 300,000
Cisco Systems, Inc.*....... 13,500 752,625
Hewlett-Packard Company.... 14,500 906,250
Intel Corp................. 18,000 1,264,500
International Business
Machines Corporation...... 9,500 993,344
KLA Instruments
Corporation*.............. 8,000 309,000
Microsoft Corporation*..... 8,000 1,034,000
Oracle Corporation*........ 18,450 411,666
-----------
7,156,573
-----------
UTILITIES -- 1.35%
Citizens Utilities Company
Class B*.................. 132,354 1,273,910
-----------
TOTAL COMMON STOCKS
(Cost -- $56,628,670)..... 72,514,012
-----------
REAL ESTATE INVESTMENT
TRUSTS (REITS) -- 9.37%
- ---------------------------
Amli Residential Properties
Trust..................... 25,000 556,250
Apartment Investment &
Management Co............. 32,000 1,176,000
Arden Realty Group, Inc.... 22,000 676,500
Boykin Lodging Company..... 18,000 475,875
Developers Diversified
Realty Corporation........ 14,000 535,500
Duke Realty Investments,
Inc....................... 49,000 1,188,250
Equity Residential
Properties Trust.......... 12,000 606,750
First Industrial Realty
Trust, Inc................ 22,000 794,750
Spieker Properties, Inc.... 24,000 1,029,000
Storage Trust Realty....... 33,000 868,312
Storage USA, Inc........... 16,000 639,000
Sunstone Hotel Investors,
Inc....................... 16,000 276,000
-----------
TOTAL REITS
(Cost -- $6,333,652)...... 8,822,187
-----------
TOTAL INVESTMENTS -- 86.37%
(Cost -- $62,962,322)
(Cost on Federal income
tax
basis -- $62,911,474)..... 81,336,199
OTHER ASSETS, LESS
LIABILITIES -- 13.63%..... 12,832,500
-----------
NET ASSETS -- 100%......... $94,168,699
===========
ADR -- American Depository
Receipt
NV -- Non-voting
* Non-income producing
security
(a) Foreign security
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation
based on cost for Federal income tax purposes is
as follows:
Gross unrealized appreciation.... $20,935,466
Gross unrealized depreciation.... (2,510,741)
-----------
Net unrealized
appreciation....................... $18,424,725
===========
Purchases and sales of securities (other than
short-term obligations) aggregated $26,927,898 and
$35,975,249, respectively, for the period ended
December 31, 1997.
Transactions in written call options during the
year ended December 31, 1997 were:
</TABLE>
<TABLE>
<CAPTION>
NUMBER PREMIUMS
OF RECEIVED/
CONTRACTS (PAID)
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1997...................... 1,490 $ 352,241
Contracts written................................... 135 36,790
Contracts closed.................................... (1,625) (389,031)
------ ---------
Outstanding at December 31, 1997.................... -- $ --
====== =========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 121
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $62,962,322)...... $81,336,199
Cash........................................................ 12,786,469
Receivables
Fund shares sold.......................................... 99,575
Dividends and interest.................................... 91,978
Other assets................................................ 36,213
-----------
Total assets.............................................. 94,350,434
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 21,985
Fund shares repurchased................................... 25,315
Management fee............................................ 57,372
12b-1 service and distribution fees....................... 33,006
Other payables to related parties......................... 35,272
Accrued expenses............................................ 8,785
-----------
Total liabilities......................................... 181,735
-----------
NET ASSETS.................................................. $94,168,699
===========
CLASS A
Net asset value and redemption price per share
($69,742,296/5,538,514 shares outstanding)................ $ 12.59
===========
Maximum offering price per share ($12.59 X 100/94.25)*...... $ 13.36
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($20,070,803/1,601,100 shares outstanding).......... $ 12.54
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($4,355,600/350,084 shares outstanding)............. $ 12.44
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $81,240,103
Accumulated net realized loss on investments.............. (5,483,970)
Undistributed net investment income....................... 38,689
Net unrealized appreciation on investments................ 18,373,877
-----------
NET ASSETS.................................................. $94,168,699
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 122
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 1,477,430
Interest.................................................. 332,929
-----------
1,810,359
-----------
EXPENSES
Management fee............................................ $624,013
Transfer agent............................................ 217,740
Administrative services fee............................... 83,202
Custodian fees............................................ 9,888
Blue Sky fees............................................. 28,220
Auditing and accounting fees.............................. 16,774
Shareholder reports....................................... 9,377
Fund accounting........................................... 92,373
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 308,189
Legal..................................................... 19,411
Other..................................................... 29,515
-----------
Total expenses............................................ 1,445,914
-----------
NET INVESTMENT INCOME....................................... 364,445
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) on
Investments............................................. 10,191,136
Options................................................. (553,068)
Net unrealized appreciation during the period on
Investments............................................. 6,207,015
Options................................................. 223,772
-----------
Net gain on investment transactions................... 16,068,855
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $16,433,300
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 123
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 364,445 $ 409,831
Net realized gain (loss) on
Investments............................................. 10,191,136 12,587,897
Options................................................. (553,068) (136,689)
Net unrealized appreciation (depreciation) during the
period on
Investments............................................. 6,207,015 1,131,380
Options................................................. 223,772 (223,772)
----------- -----------
Net increase resulting from operations................ 16,433,300 13,768,647
----------- -----------
Class A distributions
From net investment income................................ (181,666) (409,831)
In excess of net investment income........................ -- (170,374)
From net realized gain.................................... (5,979,580) (8,490,622)
----------- -----------
Total distributions to Class A shareholders........... (6,161,246) (9,070,827)
----------- -----------
Class B distributions
From net investment income................................ (46,840) --
In excess of net investment income........................ -- (84,427)
From net realized gain.................................... (1,644,525) (1,738,301)
----------- -----------
Total distributions to Class B shareholders........... (1,691,365) (1,822,728)
----------- -----------
Class C distributions
From net investment income................................ (1,929) --
In excess of net investment income........................ -- (39)
From net realized gain.................................... (380,885) (3,730)
----------- -----------
Total distributions to Class C shareholders............. (382,814) (3,769)
----------- -----------
Class D distributions
From net investment income................................ (915) --
In excess of net investment income........................ -- (7,039)
From net realized gain.................................... (1,831) (103,094)
----------- -----------
Total distributions to Class D shareholders........... (2,746) (110,133)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (482,774) 1,711,001
Class B................................................... 5,280,128 4,351,868
Class C................................................... 4,566,407 29,562
Class D................................................... (931,565) (476,754)
----------- -----------
Net increase resulting from Fund share transactions... 8,432,196 5,615,677
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 16,627,325 8,376,867
NET ASSETS
Beginning of period....................................... 77,541,374 69,164,507
----------- -----------
END OF PERIOD............................................. $94,168,699 $77,541,374
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 38,689 $ 48,589
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 124
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 11.38 $ 10.98 $ 9.08 $ 9.70 $ 9.21
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income..................................... .08 .08 .11 .17 .08
Net realized and unrealized gain (loss) on investment
transactions............................................ 2.37 2.16 2.13 (.36) 1.30
------- ------- ------- ------- -------
Total from investment operations........................ 2.45 2.24 2.24 (.19) 1.38
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .03 .08 .08 .17 .06
In excess of net investment income........................ -- .03 -- .01 --
From net realized gain.................................... 1.21 1.73 .26 .25 .83
------- ------- ------- ------- -------
Total distributions..................................... 1.24 1.84 .34 .43 .89
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 12.59 $ 11.38 $ 10.98 $ 9.08 $ 9.70
======= ======= ======= ======= =======
Total return(%)(a).......................................... 21.57 20.46 24.93 (2.03) 15.07
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $69,742 $63,219 $59,054 $26,017 $22,669
Ratio of expenses to average net assets(%).................. 1.59 1.81 1.96 1.84 2.14
Ratio of net investment income to average net assets(%)..... .58 .68 1.06 1.83 .88
Portfolio turnover rate(%).................................. 36 138 81 36 85
Average commission rate(d).................................. $ .0800 $ .0580 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------- -----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------ ------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 11.36 $ 10.98 $ 9.08 $ 9.70 $10.43
------- ------- ------ ------ ------
Income (loss) from investment operations
Net investment income (loss).............................. (.02) (.01) .03 .09 --
Net realized and unrealized gain (loss) on investment
transactions............................................ 2.37 2.15 2.13 (.36) .05
------- ------- ------ ------ ------
Total from investment operations........................ 2.35 2.14 2.16 (.27) .05
------- ------- ------ ------ ------
Less distributions
From net investment income................................ .03 -- .01 .09 .01
In excess of net investment income........................ -- .08 -- .01 --
From net realized gain.................................... 1.14 1.68 .25 .25 .77
------- ------- ------ ------ ------
Total distributions..................................... 1.17 1.76 .26 .35 .78
------- ------- ------ ------ ------
Net asset value, end of period.............................. $ 12.54 $ 11.36 $10.98 $ 9.08 $ 9.70
======= ======= ====== ====== ======
Total return(%)............................................. 20.74(a) 19.59(a) 23.94(a) (2.88)(a) .61(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $20,071(a) $13,473 $8,868 $5,849 $ 888
Ratio of expenses to average net assets(%).................. 2.31 2.55 2.75 2.70 3.09(c)
Ratio of net investment income (loss) to average net
assets(%)................................................. (13) (.06) .27 .97 (.07)(c)
Portfolio turnover rate(%).................................. 36 138 81 36 85
Average commission rate(d).................................. $ .0800 $ .0580 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 125
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ -----------------
1997 1996
SELECTED PER SHARE DATA ------------ -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $11.37 $11.73
------ ------
Income from investment operations
Net investment loss....................................... (.01) (.08)
Net realized and unrealized gain on investment
transactions............................................ 2.35 1.53
------ ------
Total from investment operations........................ 2.34 1.45
------ ------
Less distributions
In excess of net investment income........................ -- .08
From net realized gain.................................... 1.27 1.73
------ ------
Total distributions..................................... 1.27 1.81
------ ------
Net asset value, end of period.............................. $12.44 $11.37
====== ======
Total return(%)............................................. 20.70(a) 12.37(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $4,356 $ 28
Ratio of expenses to average net assets(%).................. 2.23 3.02(c)
Ratio of net investment loss to average net assets(%)....... (.05) (.53)(c)
Portfolio turnover rate(%).................................. 36 138
Average commission rate(d).................................. $.0800 $.0580
</TABLE>
<TABLE>
<CAPTION>
FOR PERIOD FROM FOR THE PERIOD
FOR THE PERIOD FROM AUGUST 16, 1993
CLASS D(E) JANUARY 1, 1997 TO FOR THE YEAR ENDED (COMMENCEMENT)
AUGUST 16, DECEMBER 31, TO DECEMBER 31,
-------------------- ------------------------------ ----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA -------------------- ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $11.39 $10.98 $ 9.08 $ 9.70 $ 9.83
------ ------ ------ ------ ------
Income (loss) from investment operations
Net investment income (loss)...................... (.01) (.02) .03 .09 --
Net realized and unrealized gain (loss) on
investment transactions......................... 1.88 2.14 2.13 (.36) .73
------ ------ ------ ------ ------
Total from investment operations................ 1.87 2.12 2.16 (.27) .73
------ ------ ------ ------ ------
Less distributions
From net investment income........................ .02 -- .01 .09 .06
In excess of net investment income................ -- .08 -- .01 --
From net realized gain............................ .04 1.63 .25 .25 .80
------ ------ ------ ------ ------
Total distributions............................. .06 1.71 .26 .35 .86
------ ------ ------ ------ ------
Net asset value, end of period...................... $13.20 $11.39 $10.98 $ 9.08 $ 9.70
====== ====== ====== ====== ======
Total return(%)..................................... 16.37(b) 19.41(a) 23.94(a) (2.88)(a) 7.59(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............ $ -- $ 821 $1,242 $3,004 $5,185
Ratio of expenses to average net assets(%).......... 2.41(c) 2.63 2.75 2.70 3.09(c)
Ratio of net investment income (loss) to average net
assets(%)......................................... (.11)(c) (.14) .27 .97 (.07)(c)
Portfolio turnover rate(%).......................... 36 138 81 36 85
Average commission rate(d).......................... $.0800 $.0580 N/A N/A N/A
</TABLE>
(a) Total return does not reflect a sales charge.
(b) Total return represents aggregate total return and does not reflect a
sales charge.
(c) Annualized.
(d) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
(e) On August 16, 1997, all Class D shares outstanding were converted to
Class A shares so that the value of a Class D shareholder's account
immediately after conversion was the same value as the shareholder's
account before the conversion.
(See Notes to Financial Statements)
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS
Ivy Growth with Income Fund (the 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 and Class C are authorized;
638,129 Class D shares were authorized in connection with the acquisition of
Mackenzie Growth & Income Fund on August 16, 1993. All outstanding Class D
shares were converted to Class A shares on August 16, 1997. 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
OPTIONS -- The Fund may write (sell) put options on securities and stock
indicies, and may write (sell) covered call options on securities held in its
portfolio. When the Fund writes a call, it gives the purchaser of the call
option the right to buy the underlying security at the price specified in the
option (the "exercise price") at any time during the option period, generally
ranging up to nine months. When the Fund holds covered call options, the
underlying securities are held in a segregated account by the custodian.
If the option expires unexercised, the Fund will realize income, in the
form of a capital gain to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder. For
options on indices, cash settlement by the Fund will be required if the option
is exercised.
By writing a call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security or
currency above the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call option is valued at the last sale price or, in the absence of a
sale, the last offering price.
In addition, the Fund may purchase put options on securities and stock
indices. Exchange traded purchased options are valued at the last sale price or,
in the absence of a sale, the last bid price.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$4,842,762 (of which 39.75% is designated as 20% rate gain) as capital gain
dividends for its taxable year ended December 31, 1997.
The Fund has a net tax basis capital loss carryforward of approximately
$5,652,000 as of December 31, 1997, which may be applied against any realized
net taxable capital gains of each succeeding fiscal year until fully utilized or
until the expiration date, whichever occurs first. The Fund's capital loss
carryforward was realized by Mackenzie North American Fund prior to the Fund's
acquisition of all the net assets on April 1,
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1995. The carryforward expires $3,616,000 in 1999 and $2,036,000 in 2003.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared daily. Distributions are paid quarterly (or at redemption, if
earlier). An additional distribution in December will include any remaining
undistributed net investment income and net realized capital gain, if any.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts
may be entered into for purposes of hedging specific securities denominated in
foreign currencies. Forward contracts are marked to market daily, and the change
in market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, foreign forward currency contracts, distributions received from
pass-through entities (such as REITs), and certain securities sold at a loss. As
a result, Net investment income (loss) and Net realized gain (loss) on
investments and foreign currency transactions for a reporting period may differ
significantly in amount and character from distributions during such period.
Accordingly, the Fund may make reclassifications among certain of its capital
accounts without impacting the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of .75% of
the Fund's average net assets.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $11,042.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate not to exceed .25% of its average
net asset value of shares issued after December 31, 1991. Class B and Class C
shares are also subject to an ongoing distribution fee at an annual rate of .75%
of the average net asset value attributable to Class B and Class C shares. IMDI
may use such distribution fee for purposes of advertising and marketing shares
of the Fund. Such fees of $141,009, $160,873, and $6,307 for Class A, Class B
and Class C, respectively, are reflected as 12b-1 service and distribution fees
in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $184,146, $32,815, and $779 for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Class D were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 863,122 $ 11,052,530 771,160 $ 8,920,002
Issued on reinvestment of
distributions........... 433,425 5,287,143 673,234 7,657,806
Repurchased.............. (1,371,170) (17,581,243) (1,266,282) (14,866,807)
Issued in connection with
the conversion of Class
D shares*............... 57,311 758,796 -- --
---------- ------------ ---------- ------------
Net increase (decrease).. (17,312) $ (482,774) 178,112 $ 1,711,001
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 526,577 $ 6,713,382 554,493 $ 6,504,150
Issued on reinvestment of
distributions........... 130,880 1,588,622 160,600 1,737,755
Repurchased.............. (242,195) (3,021,876) (337,018) (3,890,037)
---------- ------------ ---------- ------------
Net increase............. 415,262 $ 5,280,128 378,075 $ 4,351,868
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 323,372 $ 4,278,774 3,952 $ 46,287
Issued on reinvestment of
distributions........... 29,916 359,941 335 3,810
Repurchased.............. (5,696) (72,308) (1,796) (20,535)
---------- ------------ ---------- ------------
Net increase............. 347,592 $ 4,566,407 2,491 $ 29,562
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM JANUARY 1, 1997 YEAR ENDED
TO AUGUST 16, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS D* SHARES AMOUNT SHARES AMOUNT
- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Issued on reinvestment of
distributions........... 175 $ 2,101 9,114 $ 103,727
Exchanged upon conversion
to Class A shares....... (57,485) (758,796) -- --
Repurchased.............. (14,737) (174,870) (50,213) (580,481)
---------- ------------ ---------- ------------
Net decrease............. (72,047) $ (931,565) (41,099) $ (476,754)
========== ============ ========== ============
</TABLE>
* On August 16, 1997 all outstanding Class D shares were converted to Class A
shares.
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 129
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Growth with Income Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IGIF123197
<PAGE> 130
DECEMBER 31, 1997 IVY FUNDS
IVY CANADA FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for
the general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
Concerns about world economic growth took a heavy toll on resource-related
stocks during the fourth quarter of 1997. The speed of decline in commodity
prices and related stocks, and the commonality among all sectors is
unprecedented in recent history--especially given the record highs in the
broader Canadian stock market index. We believe either the resource and
commodity markets are correctly forecasting a major world economic slowdown for
the coming year, in which case world stocks may enter a full-fledged bear market
in 1998, or this decline will be regarded as an overreaction to a slowing of
world economic activity.
In past business cycles, as economic growth continued into the fourth and
fifth years capacity constraints drew down inventories and prices began to rise.
Throughout the first half of 1997, this was the observable path. Inventories of
metals like zinc and aluminum were on a steep decline, and prices were rising.
Newsprint and paper were similar. Real estate and labor prices were pushing
higher. The US Federal Reserve Board and the Bank of Canada confirmed these
developments by raising interest rates. Then came Asia. If the turmoil in Asia
is addressed before it can hop over the oceans, a recession will have been
avoided and we believe many resource sectors should rebound strongly.
According to our research, at current levels, many companies are trading at
very attractive absolute and relative valuation levels, based on price-to-cash
flow, price-to-net asset value, and price-to-underlying earning power. This is
true even of the gold sector, where the Ivy Canada Fund's holdings in Normandy
Mining Ltd. and Acacia Resources have locked in gold prices of $525 and $425
respectively for the next four to five years, and trade at less than five times
annual cash flow and at significant discounts to net asset value. We believe
these companies can grow earnings for the next several years no matter how low
the price of gold drifts.
The Ivy Canada Fund has continued its focus on resources and
export-oriented companies. There has been an unprecedented divergence between
these sectors and the financial/domestic sectors. As a result, for the twelve
months ended December 31, 1997 the Ivy Canada Fund was down 23.7% compared to
the Toronto Stock Exchange 300, which was up 10.2% for the same period. (For the
Fund's total return with sales charge, and performance commentary, please refer
to the following page.)
The Fund has felt the full brunt of its resources orientation primarily due
to the large decline in gold shares. At this point we feel the resource sector
offers significant recovery potential and better relative long-term investment
opportunities than other sectors of the Canadian economy. Therefore, we will
continue with this focus, perhaps adding some non-Canadian resource companies
for additional diversification. The Fund has broad geographic diversification by
the underlying assets of individual companies, and has maintained a balance
between large- and intermediate-size companies.
Intuitively we believe that buying when things are on sale is the right
approach for long-term gains. Our research tells us that low share prices, low
commodity prices, low valuations and low sentiment should benefit the Ivy Canada
Fund in the longer term.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 131
IVY CANADA FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy Canada Fund was down
23.7%. For the same period the Toronto Stock Exchange 300 (TSE) was up 10.2%.
The difference in performance is attributed to the Fund's concentration in the
natural resources and basic industries sectors, which were negatively impacted
by the turmoil in Asia and concerns for slower world economic growth. The TSE
reflects the broader Canadian economy and particularly the financial/banking
industry.
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (11/87)
OF A $10,000 INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
IVY CANADA FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
-----------------------------------------------------------
w/o w/Reimb. w/o Reimb.
w/Reimb. Reimb.
-----------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- (27.83)% (24.03)%
C: C: C: C:
1 Yr. -- (28.14)% -- -- (24.95)% (23.95)%
- ---------------------------------------------------------------------------------
5 Yr. 5.48% 5.41% -- -- -- --
- ---------------------------------------------------------------------------------
10 Yr. .30% (.01)% -- -- -- --
- ---------------------------------------------------------------------------------
B: B: B: B:
(4.47)% (3.72)% (4.59)% (3.81)%
C: C: C: C:
Since Inception .38% .00% -- -- (11.84)% (11.84)%
- ---------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy Canada Fund will fluctuate and
at redemption may be worth more or less than the amount of the original
investment.
The Toronto Stock Exchange 300 is an unmanaged index of Canadian stocks which
assumes reinvestment of dividends and, unlike Fund returns, does not reflect any
fees or expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 132
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 100.56% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
CONSUMER PRODUCTS -- 2.77%
Semi-Tech Corporation*........ 300,000 $ 218,026
Speedy Muffler King, Inc.*.... 50,000 69,880
-----------
287,906
-----------
DIAMONDS -- 10.35%
Aber Resources, Ltd.*......... 40,000 422,077
Rex Diamond Mining Corp.*..... 120,000 77,986
SouthernEra Resources Ltd.*... 57,500 574,591
-----------
1,074,654
-----------
FOOD/AGRICULTURE -- 1.60%
Potash Corporation of
Saskatchewan Inc............ 2,000 166,385
-----------
GOLD & PRECIOUS
MINERALS -- 23.75%
Acacia Resources Ltd.*........ 500,000 456,096
Geomaque Explorations Ltd.*... 100,000 177,496
Goldcorp Inc. Class A*........ 15,000 59,224
Golden Knight Resources,
Inc.*....................... 100,000 236,195
Meridian Gold, Inc.*.......... 140,000 391,330
Normandy Mining Ltd........... 400,000 388,333
Orvana Minerals
Corporation*................ 325,000 442,866
Vengold Inc.*................. 286,600 260,360
William Resources, Inc........ 225,000 55,031
-----------
2,466,931
-----------
INDUSTRIAL PRODUCTS -- 7.65%
EVI, Inc...................... 5,000 258,750
Offshore Systems International
Ltd.*....................... 308,824 118,694
Simmonds Capital Ltd.*........ 100,000 15,374
Slater Steel, Inc............. 50,500 402,300
-----------
795,118
-----------
METALS & MINERALS -- 18.65%
Alcan Aluminium Ltd........... 11,700 322,134
Billiton Plc*................. 50,000 127,724
Breakwater Resources, Ltd.*... 102,500 293,672
Cameco Corporation............ 7,500 243,183
Falconbridge Ltd.............. 10,500 133,541
Industrias Penoles S.A........ 50,000 222,655
International Uranium Corp.... 300,000 209,641
LionOre Mining International
Ltd.*....................... 100,000 132,773
Tenke Mining Corp.*(with
15,000 warrants*)(a)........ 50,000 90,495
Western Garnet Company
Ltd.*....................... 70,000 161,423
-----------
1,937,241
-----------
OIL & GAS -- 24.54%
Baytex Energy Ltd. -- CL A*... 15,000 157,231
Canadian Conquest Exploration
Co Ltd.*.................... 150,000 110,061
Canadian Natural Resources
Ltd.*....................... 10,000 $ 213,834
Canrise Resources Ltd.*....... 1,300 5,269
Carmanah Resources Ltd.*...... 30,000 116,351
Elk Point Resources, Inc.*.... 15,000 78,091
Hurricane Hydrocarbons Ltd.
Series 2*(a)................ 50,000 309,220
Pacalta Resources Ltd.*....... 25,000 292,624
Paragon Petroleum Corp.*...... 125,000 331,931
Penn West Petroleum Ltd.*..... 20,000 215,930
Petromet Resources Ltd.*...... 24,500 58,210
Richland Petroleum
Corporation -- CL A*........ 100,000 296,991
Vermilion Resources Ltd.*..... 63,000 363,203
-----------
2,548,946
-----------
PAPER & FOREST
PRODUCTS -- 11.25%
Alliance Forest Products,
Inc.*....................... 32,500 533,711
Donohue, Inc.................. 15,000 272,009
Sino-Forest Corp. Class A*.... 207,600 362,679
-----------
1,168,399
-----------
TOTAL EQUITY SECURITIES
(Cost -- $14,949,489)....... 10,445,580
-----------
BONDS -- 0.04% PRINCIPAL
- ------------------------------ --------
William Resources, Inc
8.00%, 01/23/02
(Cost -- $5,890).......... $ 20,000 4,472
-----------
TOTAL INVESTMENTS -- 100.60%
(Cost -- $14,955,379)(Cost
on Federal income tax
basis -- $15,433,600)..... 10,450,052
OTHER ASSETS, LESS
LIABILITIES -- (0.60%)...... (61,879)
-----------
NET ASSETS -- 100%............ $10,388,173
===========
* Non-income producing
security.
(a) Securities valued in good faith by the Valuation
Committee of the Board of Trustees. The cost of
these securities at December 31, 1997 aggregated
$3,717. See Note 1 of the Notes to the Financial
Statements.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation
based on cost for Federal income tax purposes is as
follows:
Gross unrealized appreciation........... $ 823,911
Gross unrealized depreciation........... (5,807,459)
-----------
Net unrealized depreciation... $(4,983,548)
===========
Purchases and sales of investments (excluding
short-term obligations) aggregated $14,091,431 and
$17,228,676, respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 133
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $14,955,379)...... $10,450,052
Receivables
Investments sold.......................................... 366,520
Fund shares sold.......................................... 4,708
Dividends and interest.................................... 3,097
Other assets................................................ 26,409
-----------
Total assets.............................................. 10,850,786
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 98,812
Management and advisory fees.............................. 7,313
12b-1 service and distribution fees....................... 4,674
Other payables to related parties......................... 10,048
Due to custodian............................................ 326,642
Accrued expenses............................................ 15,124
-----------
Total liabilities......................................... 462,613
-----------
NET ASSETS.................................................. $10,388,173
===========
CLASS A
Net asset value and redemption price per share
($8,537,679/1,551,621 shares outstanding)................. $ 5.50
===========
Maximum offering price per share ($5.50 x 100 / 94.25)*..... $ 5.84
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($1,501,340/274,760 shares outstanding)............. $ 5.46
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($349,154/63,554 shares outstanding)................ $ 5.49
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $16,771,934
Accumulated net realized gain on investments.............. (1,875,261)
Accumulated net investment loss........................... (4,476)
Net unrealized depreciation on investments and foreign
currency transactions................................... (4,504,024)
-----------
NET ASSETS.................................................. $10,388,173
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 134
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $9,012 foreign taxes withheld........... $ 51,070
Interest.................................................. 67,268
-----------
118,338
-----------
EXPENSES
Management fee............................................ $76,152
Advisory fee.............................................. 53,306
Transfer agent............................................ 77,371
Administrative services fee............................... 15,230
Custodian fees............................................ 26,422
Blue Sky fees............................................. 20,186
Auditing and accounting fees.............................. 24,795
Shareholder reports....................................... 5,003
Fund accounting........................................... 35,010
Trustee's fees............................................ 7,212
12b-1 service and distribution fees....................... 76,054
Legal..................................................... 20,005
Other..................................................... 11,342
-----------
Total expenses............................................ 448,088
-----------
NET INVESTMENT LOSS......................................... (329,750)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 599,116
Net unrealized depreciation during the period on
investments and foreign currency transactions........... (4,015,909)
-----------
Net loss on investment transactions..................... (3,416,793)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(3,746,543)
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 135
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (329,750) $ (340,228)
Net realized gain on investments and foreign currency
transactions............................................ 599,116 2,677,225
Net unrealized (depreciation) appreciation during the
period on investments and foreign currency
transactions............................................ (4,015,909) 1,776,983
----------- -----------
Net (decrease) increase resulting from operations....... (3,746,543) 4,113,980
----------- -----------
Class A distributions
In excess of net investment income........................ (156,088) --
From net realized gain.................................... (529,266) (2,405,970)
In excess of net realized gain............................ (1,387,244) --
----------- -----------
Total distributions to Class A shareholders............. (2,072,598) (2,405,970)
----------- -----------
Class B distributions
In excess of net investment income........................ (27,307) --
From net realized gain.................................... (92,594) (251,588)
In excess of net realized gain............................ (242,694) --
----------- -----------
Total distributions to Class B shareholders............. (362,595) (251,588)
----------- -----------
Class C distributions
In excess of net investment income........................ (5,985) --
From net realized gain.................................... (20,295) (14,472)
In excess of net realized gain............................ (53,194) --
----------- -----------
Total distributions to Class C shareholders............. (79,474) (14,472)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (1,566,391) (5,559,037)
Class B................................................... 363,532 906,002
Class C................................................... 390,361 178,392
----------- -----------
Net decrease resulting from Fund share transactions..... (812,498) (4,474,643)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (7,073,708) (3,032,693)
NET ASSETS
Beginning period.......................................... 17,461,881 20,494,574
----------- -----------
END OF PERIOD............................................. $10,388,173 $17,461,881
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 136
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
CLASS A FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
-------------------------------- ------------ --------------------
1997 1996 1995 1994 1994 1993
SELECTED PER SHARE DATA ------ ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04 $ 7.43
------ ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment loss.............................. (.22) (.21) (.19)(a) (.11) (.11) (.01)
Net realized and unrealized gain (loss) on
investment transactions........................ (2.19) 2.29 .75 (.81) .24 3.35
------ ------- ------- ------- ------- -------
Total from investment operations............... (2.41) 2.08 .56 (.92) .13 3.34
------ ------- ------- ------- ------- -------
Less distributions
In excess of net investment income............... .15 -- -- -- -- --
From net realized gain........................... .44 1.65 .25 -- .31 .73
In excess of net realized gain................... 1.14 -- -- -- -- --
From capital paid-in............................. -- -- -- .03 .01 --
------ ------- ------- ------- ------- -------
Total distributions............................ 1.73 1.65 .25 .03 .32 .73
------ ------- ------- ------- ------- -------
Net asset value, end of period..................... $ 5.50 $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04
====== ======= ======= ======= ======= =======
Total return(%).................................... (23.75)(b) 23.86(b) 6.37(b) (9.38)(c) 1.05(b) 47.10(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........... $8,538 $15,249 $19,353 $23,296 $34,549 $30,971
Ratio of expenses to average net assets(%)......... 2.89 2.79 2.90(f) 2.44(d) 2.05 2.63
Ratio of net investment loss to average net
assets(%)........................................ (2.11) (1.78) (2.13)(a) (1.85)(d) (1.09) (1.41)
Portfolio turnover rate(%)......................... 93 56 21 36 62 32
Average commission rate(e)......................... $.0170 $ .0134 N/A N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 137
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT) TO
DECEMBER 31, DECEMBER 31, JUNE 30,
CLASS B --------------------------- ------------ -----------------
1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------ ------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 9.59 $ 9.21 $ 8.90 $ 9.85 $10.16
------- ------ ------ ------ ------
Income (loss) from investment operations
Net investment loss....................................... (.24) (.17) (.20)(a) (.09) (.02)
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.18) 2.19 .71 (.86) (.29)
------- ------ ------ ------ ------
Total from investment operations........................ (2.42) 2.02 .51 (.95) (.31)
------- ------ ------ ------ ------
Less distributions
In excess of net investment income........................ .13 -- -- -- --
From net realized gain.................................... .44 1.64 .20 -- --
In excess of net realized gain............................ 1.14 -- -- -- --
------- ------ ------ ------ ------
Total distributions..................................... 1.71 1.64 .20 -- --
------- ------ ------ ------ ------
Net asset value, end of period.............................. $ 5.46 $ 9.59 $ 9.21 $ 8.90 $ 9.85
======= ====== ====== ====== ======
Total return(%)............................................. (24.03)(b) 23.26(b) 5.74(b) (9.64)(c) (3.05)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,501 $2,040 $1,142 $ 741 $ 227
Ratio of expenses to average net assets(%).................. 3.23 3.30 3.50(f) 3.03(d) 2.68(d)
Ratio of net investment loss to average net assets(%)....... (2.45) (2.30) (2.73)(a) (2.44)(d) (1.72)(d)
Portfolio turnover rate(%).................................. 93 56 21 36 62
Average commission rate(e).................................. $ .0170 $.0134 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 138
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1996
CLASS C ENDED (COMMENCEMENT) TO
DECEMBER 31, DECEMBER 31,
------------ -----------------
1997 1996
SELECTED PER SHARE DATA ------------ -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.62 $ 10.67
------ -------
Income (loss) from investment operations
Net investment loss....................................... (.24) (.14)
Net realized and unrealized gain (loss) on investment
transactions............................................ (2.18) .72
------ -------
Total from investment operations........................ (2.42) .58
------ -------
Less distributions
In excess of net investment income........................ .13 --
From net realized gain.................................... .44 1.63
In excess of net realized gain............................ 1.14 --
------ -------
Total distributions..................................... 1.71 1.63
------ -------
Net asset value, end of period.............................. $ 5.49 $ 9.62
====== =======
Total return(%)............................................. (23.95)(b) 6.51(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 349 $ 173
Ratio of expenses to average net assets(%).................. 3.14 3.15(d)
Ratio of net investment loss to average net assets(%)....... (2.37) (2.15)(d)
Portfolio turnover rate(%).................................. 93 56
Average commission rate(e).................................. $.0170 $ .0134
</TABLE>
(a) Net investment loss is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not reflect a
sales charge.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from period
to period and fund to fund depending on the mix of trades executed in
various markets where trading practices and commission rate structures
may differ. (f) The ratio of expenses to average net assets is net of
expenses reimbursed by manager. Without the expense reimbursement, the
ratio of expenses to average net assets would have been 3.23% and 3.83%
for Class A and Class B, respectively, for the year ended December 31,
1995.
(See Notes to Financial Statements)
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS
Ivy Canada Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997, securities valued in good faith by the Valuation Committee of the
Board amounted to $399,715 (3.85% of net assets) and have been noted as such in
the investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $60,082. These dividends were
subject to foreign withholding tax in the amount of $9,012 . The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of foreign taxes paid as either a tax
credit or itemized deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,062,732 (of which 62.59% is designated as 20% rate gain) as capital gain
dividends for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, passive foreign investment companies, and certain securities sold at
a loss. As a result, Net investment income (loss) and Net realized gain (loss)
on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI), a wholly owned subsidiary of Mackenzie
Investment Management, Inc. (MIMI), is the Manager of the Fund. For its
services, IMI
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
receives a fee monthly at the annual rate of .50% of the Fund's average net
assets.
Mackenzie Financial Corporation (MFC) in Toronto, Ontario, Canada is the
Investment Adviser of the Fund. For its services, MFC receives a fee monthly at
the annual rate of .35% of the Fund's average net assets. The fee is collected
from the Fund and remitted to MFC by MIMI, a subsidiary of MFC.
MIMI also provides certain administrative, accounting and pricing services
for the Fund. For those services, the Fund pays MIMI fees plus certain
out-of-pocket expenses. Such fees and expenses are reflected as Administrative
services fee and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $5,470.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class A shares are also subject to an ongoing distribution fee at an
annual rate of .15% of the average net asset value of Class A shares. Class B
and Class C shares are also subject to an ongoing distribution fee at an annual
rate of .75% of the average net asset value attributable to Class B and Class C
shares. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $50,833, $20,491 and $4,730, for
Class A, Class B and Class C, respectively, are reflected as 12b-1 service and
distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $70,331, $6,038 and $1,002 , for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 298,986 $ 2,635,521 1,404,805 $13,996,192
Issued on reinvestment of
distributions............... 361,059 1,859,358 238,777 2,234,621
Repurchased.................. (690,062) (6,061,270) (2,163,206) (21,789,850)
-------- ----------- ---------- -----------
Net decrease................. (30,017) $(1,566,391) (519,624) $(5,559,037)
======== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 70,576 $ 643,792 180,509 $ 1,783,269
Issued on reinvestment of
distributions............... 60,223 307,742 21,699 203,806
Repurchased.................. (68,785) (588,002) (113,445) (1,081,073)
-------- ----------- ---------- -----------
Net increase................. 62,014 $ 363,532 88,763 $ 906,002
======== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 51,492 $ 488,373 49,422 $ 495,277
Issued on reinvestment of
distributions............... 11,742 60,359 795 7,533
Repurchased.................. (17,649) (158,371) (32,248) (324,418)
-------- ----------- ---------- -----------
Net increase................. 45,585 $ 390,361 17,969 $ 178,392
======== =========== ========== ===========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 141
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Canada Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02ICFX123197
<PAGE> 142
DECEMBER 31, 1997 IVY FUNDS
IVY US EMERGING GROWTH FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
1-800-456-5111
MARKET COMMENTARY:
Although the stock market environment for large-capitalization stocks
was again very good, 1997 proved to be quite challenging for US emerging growth
investors. For instance, the Russell 2000 Growth Index returned 12.9%, which was
well behind the S&P 500 return of 34%. Within this environment, the Ivy US
Emerging Growth Fund (formerly known as the Ivy Emerging Growth Fund) posted a
return of 4.3% for the twelve months ended December 31, 1997. (For the Fund's
total return with sales charges, and performance commentary, please refer to the
following page.)
There were three distinct phases to the Fund's performance during the
year. The first, which lasted nearly four months, was really a continuation of
the downward trend that began in June of 1996. During this period investors
shunned small-cap stocks in favor of larger, more liquid holdings, and index
funds enjoyed enormous popularity. By late April, which marked the end of this
phase, US emerging growth stocks had sold off significantly and as a result the
Fund had declined 22.62%.
This set the stage for the second phase, a rally that continued into
early October. The apparent catalyst for this move was the balanced budget
agreement, which included a reduction in the capital gains tax. Investors
apparently perceived this as particularly favorable to US emerging growth
stocks, since virtually all of their return comes from capital appreciation--as
opposed to dividends or interest--which would still be taxed at the old rate.
From the April low to the October peak, the Fund appreciated 50.71%.
Then the "Asian flu" reached our shores, and its impact on smaller
stocks was quite severe, particularly in the technology sector. As currencies
plummeted throughout the Pacific Rim, growth rate projections for these
economies were cut sharply, and investors worried about the eventual impact on
US technology companies. Although in some cases--semiconductor equipment
suppliers, for instance--these concerns were well founded, the selling pressure
was broad based and seemed indiscriminate. The upshot was that over the last
twelve weeks of the year the Fund retreated 10.57%.
With all of this volatility it would be easy to lose sight of one very
important fact: throughout the year the vast majority of companies in the Fund
continued to demonstrate strong earnings growth and solid fundamentals. Their
lackluster performance was primarily the result of a significant contraction in
the relative P/E ratio of the US emerging growth sector, which at year-end was
again close to the low end of its historic range. Although swings in valuation
can have a profound impact on short-term performance, we believe that over the
long term, earnings are the most important determinant of stock prices.
Therefore, we seek out companies that we believe are well positioned to grow
their earnings at high rates. Our focus is on smaller companies because,
according to our research, they are often more flexible and more opportunistic,
taking advantage of change rather than being victimized by it.
We believe that with stable or expanding valuations, the Fund's
investment approach should yield very competitive returns. While there are no
guarantees, our economic outlook, which calls for continued low inflation and
steady or possibly declining interest rates, combined with the relatively low
sector valuation, prompts us to believe 1998 may be a more rewarding year for US
emerging growth investors.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 143
IVY US EMERGING GROWTH FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy US Emerging Growth Fund
was up 4.3% as compared to the Russell 2000 Growth Index, which was up 12.9% for
the same period. The Fund's underperformance was mainly due to its higher
concentration in the technology and healthcare sectors relative to the Index.
Despite the high growth rates of these two sectors, they were two of the three
worst performing macro groups in the Russell 2000 Growth Index.
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (4/93) OF A $10,000
INVESTMENT
(GRAPH)
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of Ivy US Emerging Growth Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
The Russell 2000 Growth Index is an unmanaged index of stocks which assumes
reinvestment of dividends and, unlike Fund returns, does not reflect any fees or
expenses. It is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
ONE-, THREE-YEAR AND SINCE
INCEPTION CUMULATIVE PERFORMANCE
CHART
The chart above reflects performance without the maximum
sales charge of 5.75%.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
IVY US EMERGING GROWTH FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge Class B** & C***
Average Annual
Total Return Average Annual Total Return
--------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
--------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- (1.47)% 3.53%
C: C: C: C:
1 Yr. -- (1.74)% -- -- 2.58% 3.58%
- ------------------------------------------------------------------------------------
B: B: B: B:
14.13% 14.45% 14.09% 14.41%
C: C: C: C:
Since Inception 21.51% 21.48% -- -- (.64)% (.64)%
- ------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
- --------------------------------------------------------------------------------
<PAGE> 144
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS -- 99.11% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
BIOTECHNOLOGY -- 5.95%
Aastrom Biosciences,
Inc.*..................... 50,600 $ 221,375
Agouron Pharmaceuticals,
Inc.*..................... 12,000 352,500
Alkermes, Inc.*............. 20,800 413,400
ArQule, Inc.*............... 24,100 552,794
Biochem Pharma, Inc.*....... 31,200 651,300
Cell Therapeutics, Inc.*.... 33,000 561,000
Ergo Science Corporation*... 24,000 366,000
Geltex Pharmaceuticals,
Inc.*..................... 21,600 572,400
Guilford Pharmaceuticals,
Inc.*..................... 14,600 293,825
Liposome Company Inc.*...... 37,400 172,975
NeoRx Corporation*.......... 38,300 215,437
NeoRx Corporation Units*.... 23,000 11,500
Neurex Corporation*......... 37,000 513,375
PathoGenesis Corp.*......... 16,100 597,712
Pharmacyclics, Inc.*........ 26,600 681,625
US Bioscience, Inc.*........ 56,000 507,500
Vertex Pharmaceuticals
Inc.*..................... 6,700 221,100
ViroPharma Inc.*............ 20,500 361,313
-----------
7,267,131
-----------
BUSINESS & FINANCIAL
SERVICES -- 35.52%
ABR Information Services,
Inc.*..................... 48,200 1,150,775
Abacus Direct
Corporation*.............. 18,500 758,500
Advantage Learning Systems,
Inc.*..................... 26,000 555,750
Apollo Group, Inc.*......... 15,000 708,750
Applied Graphics
Technologies, Inc.*....... 24,000 1,278,000
Ballantyne of Omaha,
Inc.*..................... 48,500 873,000
CBT Group PLC ADR*.......... 23,700 1,946,363
CHS Electronics, Inc.*...... 83,900 1,436,788
Cambridge Technology
Partners, Inc.*........... 27,100 1,128,038
Checkfree Corporation*...... 32,600 880,200
Children's Comprehensive
Services, Inc.*........... 64,200 1,187,700
Computer Learning Centers
Inc.*..................... 9,200 563,500
Copart, Inc.*............... 20,300 362,863
Cornell Corrections,
Inc.*..................... 46,200 958,650
Corsair Communications,
Inc.*..................... 31,000 503,750
Cotelligent Group, Inc.*.... 25,000 478,125
Dendrite International,
Inc.*..................... 31,400 608,375
FactSet Research Systems
Inc.*..................... 36,300 1,116,225
Federal Agricultural
Mortgage Corp. Class C*... 14,350 875,350
Forrester Research, Inc.*... 22,000 500,500
Gartner Group, Inc. -- Class
A*........................ 32,400 1,206,900
HA-LO Industries, Inc.*..... 20,000 520,000
Ingram Micro, Inc.*......... 29,500 859,187
Intelligroup, Inc.*......... 35,100 671,288
International
Telecommunication Data
Systems, Inc.*............ 36,500 1,168,000
Investment Technology Group,
Inc.*..................... 25,000 700,000
LECG, Inc.*................. 67,300 588,875
Lason Holdings, Inc.*....... 40,700 1,083,638
Lightbridge, Inc.*.......... 57,300 1,088,700
Litchfield Financial Corp... 47,327 916,960
MSC Industrial Direct Co,
Inc.*..................... 29,200 1,237,350
Maximus, Inc.*.............. 24,300 587,756
Meta Group, Inc.*........... 29,800 655,600
Metro Networks, Inc.*....... 38,500 1,260,875
PMT Services, Inc.*......... 69,900 969,862
Paychex, Inc................ 19,400 982,124
Profit Recovery Group
International, Inc.
(The)*.................... 71,700 1,272,675
QuickResponse Services
Inc.*..................... 28,500 1,054,500
Registry, Inc, (The)*....... 14,960 686,290
Rental Service
Corporation*.............. 33,000 810,562
Sapient Corporation*........ 9,000 551,250
Saville Systems*............ 36,900 1,531,350
Sykes Enterprises,
Inc.*(a).................. 48,000 936,000
USA Waste Services, Inc.*... 16,760 657,830
Vincam Group, Inc.,
(The)*.................... 25,500 678,937
Wackenhut Corrections
Corporation*.............. 32,600 876,125
West TeleServices Corp.*.... 33,000 396,000
Whittman-Hart, Inc.*........ 26,500 907,625
Willis Lease Finance
Corporation*.............. 38,500 673,750
-----------
43,401,211
-----------
COMPUTER SOFTWARE -- 11.10%
Aspect Development, Inc.*... 28,800 1,497,600
Citrix Systems, Inc.*....... 8,200 $ 623,200
Deltek Systems, Inc.*....... 54,100 855,456
Great Plains Software,
Inc.*..................... 17,300 471,425
H.T.E., Inc.*............... 73,100 1,516,825
JDA Software Group, Inc.*... 17,000 595,000
Network Associates, Inc.*... 15,200 803,700
New Era of Networks,
Inc.*..................... 41,000 461,250
Pegasystems Inc*............ 15,600 314,925
Peoplesoft, Inc.*........... 19,200 748,800
Peregrine Systems, Inc.*.... 55,000 735,625
Rogue Wave Software*........ 35,000 387,188
Security Dynamics
Technologies, Inc.*....... 19,800 707,850
Sterling Commerce, Inc.*.... 17,000 653,438
Transactions Systems
Architects, Inc.*......... 22,500 855,000
Vantive Corporation,
(The)*.................... 23,000 580,750
Veritas Software Corp.*..... 11,500 586,500
Visio Corporation*.......... 30,300 1,162,762
-----------
13,557,294
-----------
CONSUMER PRODUCTS &
SERVICES -- 5.92%
Blyth Industries, Inc.*..... 31,000 928,063
Cutter & Buck, Inc.*........ 49,200 916,350
Dave & Buster's, Inc.*...... 24,750 556,875
Equity Corporation
International*............ 33,700 779,312
Extended Stay America,
Inc.*..................... 43,500 541,031
International Speedway
Corp. -- Class A.......... 38,600 909,513
Papa John's International,
Inc.*..................... 26,000 906,750
Premier Parks, Inc.......... 28,300 1,146,150
Rock of Ages Corporation*... 35,800 554,900
-----------
7,238,944
-----------
HEALTHCARE -- 14.53%
Coast Dental Services,
Inc.*..................... 28,400 681,600
Concentra Managed Care,
Inc.*..................... 22,400 756,000
Cyberonics, Inc.*........... 25,000 381,250
Cytyc Corp.*................ 19,600 487,550
Digene Corporation*......... 7,200 62,100
EPIX Medical, Inc.*......... 52,000 676,000
FPA Medical Management,
Inc.*..................... 32,100 597,863
Health Management
Associates, Inc.*......... 29,750 751,187
Horizon Health
Corporation*.............. 61,550 1,431,037
IMPATH, Inc.*............... 20,000 655,000
MedQuist, Inc.*............. 28,650 995,589
Molecular Devices
Corporation*.............. 47,700 1,013,625
Monarch Dental
Corporation*.............. 10,800 143,100
NCS HealthCare, Inc. Class
A*........................ 12,500 329,688
Omnicare, Inc............... 15,100 468,100
Orthodontic Centers of
America, Inc.*............ 90,100 1,497,912
Pediatrix Medical Group
Inc.*..................... 25,400 1,085,850
Renal Treatment Centers
Inc.*..................... 45,100 1,629,237
Serologicals Corporation*... 69,700 1,812,200
Total Renal Care Holdings,
Inc.*..................... 39,666 1,090,815
Ventana Medical Systems,
Inc.*..................... 39,900 608,475
Vision Twenty-One, Inc.*.... 64,600 597,550
-----------
17,751,728
-----------
MISCELLANEOUS
TECHNOLOGY -- 3.65%
Encad, Inc.*................ 21,000 577,500
Gemstar International Group
Ltd.*..................... 52,000 1,267,500
Optika Imaging Systems,
Inc.*..................... 117,800 404,938
RadiSys Corporation*........ 20,800 774,800
Pegasus Systems, Inc.*...... 44,000 654,500
Synopsys, Inc.*............. 22,000 786,500
-----------
4,465,738
-----------
NETWORK & TELECOMMUNICATION
EQUIPMENT -- 7.93%
Adaptec, Inc.*.............. 19,000 705,375
Advanced Fibre
Communications*........... 29,400 856,275
American Power Conversion
Corp.*.................... 44,000 1,039,500
CIENA Corporation*.......... 12,800 782,400
DSP Communications, Inc.*... 22,200 266,400
Gilat Satellite Networks
Ltd*...................... 14,000 400,750
Innova Corporation*......... 31,000 472,750
International Network
Services*................. 45,300 1,047,563
Network Appliance, Inc.*.... 47,700 1,693,350
NICE-Systems
Ltd. -- Sponsored ADR*.... 20,000 840,000
</TABLE>
<PAGE> 145
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
COMMON STOCKS SHARES VALUE
<S> <C> <C>
P-COM, Inc*................ 40,600 $ 700,350
Pairgain Technologies,
Inc.*.................... 19,600 379,750
Sawtek Inc.*............... 19,300 509,037
------------
9,693,500
------------
PHARMACEUTICALS -- 4.52%
Anesta Corp*............... 31,100 509,263
ChiRex Inc.*............... 56,100 988,762
Cima Labs Inc.*............ 18,000 76,500
Dura Pharmaceuticals,
Inc.*.................... 28,400 1,302,850
Nastech Pharmaceutical
Co.*..................... 26,000 338,000
Penederm Inc.*............. 28,800 288,000
Sepracor, Inc.*............ 21,100 845,319
Sonus Pharmaceuticals,
Inc.*.................... 20,500 679,062
Theragenics Corporation*... 13,600 489,600
------------
5,517,356
------------
RETAIL -- 3.91%
CompUSA, Inc.*............. 23,000 713,000
Corporate Express, Inc.*... 56,040 721,515
Cost Plus, Inc.*........... 17,000 493,000
Dollar Tree Stores,
Inc.*.................... 17,250 713,719
Guitar Center, Inc.*....... 34,100 784,300
Party City Corp.*.......... 24,800 799,800
Petco Animal Supplies,
Inc.*.................... 23,200 556,800
------------
4,782,134
------------
SEMICONDUCTORS &
EQUIPMENT -- 4.93%
ASM Lithography Holding
NV*(a)................... 10,100 681,750
ANADIGICS, Inc.*........... 15,250 459,406
Advanced Energy Industries,
Inc.*.................... 26,000 388,375
Analog Devices*............ 28,300 783,556
Benchmarq Microelectronics,
Inc.*.................... 26,500 361,063
CFM Technologies, Inc.*.... 27,000 415,125
Etec Systems, Inc.*........ 11,700 544,050
Integrated Process
Equipment Corp.*......... 15,000 236,250
Maxim Integrated Products,
Inc.*.................... 31,500 $ 1,086,750
PRI Automation, Inc.*...... 13,900 401,362
Photronics, Inc*........... 27,600 669,301
------------
6,026,988
------------
TELECOMMUNICATION
SERVICES -- 1.15%
Aerial Communications,
Inc.*.................... 32,000 228,000
Transaction Network
Services, Inc.*.......... 27,000 465,750
Western Wireless Corp.*.... 40,200 698,475
------------
1,392,225
------------
TOTAL COMMON STOCKS
(Cost -- $96,766,572)(b)... 121,094,249
OTHER ASSETS, LESS
LIABILITIES -- 0.89%..... 1,088,824
------------
NET ASSETS -- 100%......... $122,183,073
============
ADR -- American Depository
Receipt
NV -- Non-voting
* Non-income producing
security.
(a) Foreign security
(b) Cost is the same for Federal income
tax purposes.
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation...... $ 29,318,001
Gross unrealized depreciation...... (4,990,324)
------------
Net unrealized
appreciation....................... $ 24,327,677
============
Purchases and sales of securities other than
short-term obligations aggregated $91,456,363 and
$70,061,727, respectively, for the period ended
December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 146
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $96,766,572)...... $121,094,249
Cash........................................................ 1,883,539
Receivables - Fund shares sold.............................. 58,701
Other assets................................................ 25,916
------------
Total assets.............................................. 123,062,405
------------
LIABILITIES
Payables
Investments purchased..................................... 353,151
Fund shares repurchased................................... 317,877
Management fee............................................ 87,420
12b-1 service and distribution fees....................... 63,640
Other payables to related parties......................... 46,131
Accrued expenses............................................ 11,113
------------
Total liabilities......................................... 879,332
------------
NET ASSETS.................................................. $122,183,073
============
CLASS A
Net asset value and redemption price per share
($64,909,630/2,345,647 shares outstanding)................ $ 27.67
============
Maximum offering price per share ($27.67 X 100/94.25)*...... $ 29.36
============
CLASS B
Net asset value, offering price and redemption price** per
share ($47,789,105/1,753,180 shares outstanding).......... $ 27.26
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($9,484,338/348,324 shares outstanding)............. $ 27.23
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $100,579,711
Accumulated net realized loss on investments.............. (2,724,314)
Net unrealized appreciation on investments................ 24,327,676
------------
NET ASSETS.................................................. $122,183,073
============
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 147
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 15,463
Interest.................................................. 330,821
-----------
346,284
-----------
EXPENSES
Management fee............................................ $973,756
Transfer agent............................................ 292,622
Administrative services fee............................... 114,559
Custodian fees............................................ 17,372
Blue Sky fees............................................. 44,895
Auditing and accounting fees.............................. 17,068
Shareholder reports....................................... 11,021
Fund accounting........................................... 96,822
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 668,256
Legal..................................................... 20,506
Other..................................................... 38,809
-----------
Total expenses.......................................... 2,302,898
-----------
NET INVESTMENT LOSS......................................... (1,956,614)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments.......................... (2,724,314)
Net unrealized appreciation during the period on
investments............................................. 10,129,785
-----------
Net gain on investment transactions..................... 7,405,471
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $ 5,448,857
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (1,956,614) $(1,204,617)
Net realized (loss) gain on investments and options....... (2,724,314) 6,984,138
Net unrealized appreciation during the period on
investments............................................. 10,129,785 3,324,364
------------ -----------
Net increase resulting from operations.................. 5,448,857 9,103,885
------------ -----------
Total distributions from net realized gain
Class A................................................... -- (4,081,929)
Class B................................................... -- (2,600,466)
Class C................................................... -- (300,431)
------------ -----------
Total distributions to shareholders..................... -- (6,982,826)
------------ -----------
Fund share transactions (Note 4)
Class A................................................... 5,850,880 13,997,698
Class B................................................... 10,569,687 21,421,702
Class C................................................... 5,031,194 4,300,951
------------ -----------
Net increase resulting from Fund share transactions..... 21,451,761 39,720,351
------------ -----------
TOTAL INCREASE IN NET ASSETS................................ 26,900,618 41,841,410
NET ASSETS
Beginning of period....................................... 95,282,455 53,441,045
------------ -----------
END OF PERIOD............................................. $122,183,073 $95,282,455
============ ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 148
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 3, 1993
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
---------------------------------------------------- -----------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period.............. $ 26.54 $ 24.12 $ 18.38 $ 17.93 $ 10.00
------- ------- ------- ------- -------
Income from investment operations
Net investment loss............................. (.41)(g) (.35) (.24) (.24)(a) (.07)(a)
Net realized and unrealized gain on investment
transactions.................................. 1.54(g) 4.84 7.90 .82 8.29
------- ------- ------- ------- -------
Total from investment operations.............. 1.13 4.49 7.66 .58 8.22
------- ------- ------- ------- -------
Less distributions
From net realized gain.......................... -- 2.07 1.92 -- .29
From capital paid-in............................ -- -- -- .13 --
------- ------- ------- ------- -------
Total distributions........................... -- 2.07 1.92 .13 .29
------- ------- ------- ------- -------
Net asset value, end of period.................... $ 27.67 $ 26.54 $ 24.12 $ 18.38 $ 17.93
======= ======= ======= ======= =======
Total return (%).................................. 4.26(b) 18.52(b) 42.07(b) 3.29(b) 45.33(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).......... $64,910 $55,944 $39,456 $21,493 $14,212
Ratio of expenses to average net assets
With expense reimbursement(%)................... -- -- -- 2.20 1.93(d)
Without expense reimbursement(%)................ 1.67 1.76 1.95 2.22 2.33(d)
Ratio of net investment loss to average net
assets(%)....................................... (1.37) (1.31) (1.39) (1.72)(a) (1.30) (a)(d)
Portfolio turnover rate(%)........................ 65 68 86 67 41
Average commission rate(f)........................ $ .0710 $ .0601 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 149
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1993
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
---------------------------------------------------- -----------------
1997 1996 1995 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 26.33 $ 24.12 $ 18.38 $ 17.93 $ 18.21
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment loss............................. (.33)(g) (.40) (.35) (.29)(a) (.04)(a)
Net realized and unrealized gain on investment
transactions.................................. 1.26(g) 4.68 7.85 .74 .03
------- ------- ------- ------- -------
Total from investment operations.............. .93 4.28 7.50 .45 (.01)
------- ------- ------- ------- -------
Less distributions
From net realized gain.......................... -- 2.07 1.76 -- .27
------- ------- ------- ------- -------
Total distributions........................... -- 2.07 1.76 -- .27
------- ------- ------- ------- -------
Net asset value, end of period.................... $ 27.26 $ 26.33 $ 24.12 $ 18.38 $ 17.93
======= ======= ======= ======= =======
Total return (%).................................. 3.53(b) 17.65(b) 41.03(b) 2.51(b) (.05)(e)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).......... $47,789 $35,321 $13,985 $ 5,015 $ 1,216
Ratio of expenses to average net assets
With expense reimbursement(%)................... -- -- -- 2.95 2.68(d)
Without expense reimbursement(%)................ 2.43 2.52 2.70 2.97 3.08(d)
Ratio of net investment loss to average net
assets(%)....................................... (2.13) (2.07) (2.14) (2.47)(a) (2.05)(a)d)
Portfolio turnover rate(%)........................ 65 68 86 67 41
Average commission rate(f)........................ $ .0710 $ .0601 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 150
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1996
CLASS C ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ -----------------
1997 1996
------------ -----------------
<S> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 26.29 $ 29.69
------- -------
Loss from investment operations
Net investment loss....................................... (.34)(g) (.14)
Net realized and unrealized gain (loss) on investment
transactions............................................ 1.28(g) (1.19)
------- -------
Total from investment operations........................ (.94) (1.33)
------- -------
Less distributions
From net realized gain.................................... -- 2.07
------- -------
Total distributions..................................... -- 2.07
------- -------
Net asset value, end of period.............................. $ 27.23 $ 26.29
======= =======
Total return(%)............................................. 3.58(b) (4.48)(e)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 9,484 $ 4,018
Ratio of expenses to average net assets
Without expense reimbursement(%).......................... 2.39 2.52(d)
Ratio of net investment loss to average net assets(%)....... (2.09) (2.07)(d)
Portfolio turnover rate(%).................................. 65 68
Average commission rate(f).................................. $ .0710 $ .0601
</TABLE>
(a) Net investment loss is net of expenses reimbursed by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return since April 30, 1993
(when the Fund became available for sale to the public) and does not
reflect a sales charge.
(d) Annualized.
(e) Total return represents aggregate total return and does not
reflect a sales charge.
(f) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for security
trades on which commissions are charged. This amount may vary from
period to period and fund to fund depending on the mix of trades
executed in various markets where trading practices and commission rate
structures may differ.
(g) Based on average shares outstanding.
(See Notes to Financial Statements)
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS
Ivy Emerging Growth Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board; as of December
31, 1997, there were no such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
OPTIONS -- The Fund may write (sell) put options on securities and stock
indicies, and may write (sell) covered call options on securities held in its
portfolio. When the Fund writes a call, it gives the purchaser of the call
option the right to buy the underlying security at the price specified in the
option (the "exercise price") at any time during the option period, generally
ranging up to nine months. When the fund holds covered call options, the
underlying securities are held in a segregated account by the custodian.
If the option expires unexercised, the Fund will realize income, in the
form of a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder. For
options on indices, cash settlement by the Fund will be required if the option
is exercised.
By writing a call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security or
currency above the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call option is valued at the last sale price or, in the absence of a
sale, the last offering price.
In addition, the Fund may purchase put options on securities and stock
indices. Exchange traded purchased options are valued at the last sale price or,
in the absence of a sale, the last bid price.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,852,000 as of December 31, 1997, which may be applied against any realized
net taxable capital gain of each succeeding fiscal year until fully utilized or
until the expiration date, whichever occurs first. The carryforward expires in
2005.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net investment income (loss) and Net realized gain (loss)
<PAGE> 152
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
on investments and foreign currency transactions for a reporting period may
differ significantly in amount and character from distributions during such
period. Accordingly, the Fund may make reclassifications among certain of its
capital accounts without impacting the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of .85% of
the Fund's average net assets. Currently, IMI voluntarily limits the Fund's
total operating expenses (excluding taxes, 12b-1 fees, brokerage commissions,
interest, litigation and indemnification expenses, and other extraordinary
expenses) to an annual rate of 1.95% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $46,744.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $159,113, $430,766
and $78,377, for Class A, Class B and Class C, respectively, are reflected as
12b-1 service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $161,854, $113,120, and $17,648, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,170,667 $ 56,373,000 1,862,227 $ 52,011,901
Issued on reinvestment of
distributions........... -- -- 143,930 3,817,355
Repurchased.............. (1,933,287) (50,522,120) (1,533,721) (41,831,558)
---------- ------------ ---------- ------------
Net increase............. 237,380 $ 5,850,880 472,436 $ 13,997,698
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold...................... 864,508 $ 22,228,831 1,132,341 $ 31,331,078
Issued on reinvestment of
distributions............ -- -- 87,254 2,290,484
Repurchased............... (452,583) (11,659,144) (458,058) (12,199,860)
---------- ------------ --------- ------------
Net increase.............. 411,925 $ 10,569,687 761,537 $ 21,421,702
========== ============ ========= ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- ------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sold...................... 267,610 $ 6,926,383 156,680 $ 4,416,153
Issued on reinvestment of
distributions............ -- -- 6,883 180,948
Repurchased............... (72,128) (1,895,189) (10,721) (296,150)
---------- ------------ --------- ------------
Net increase.............. 195,482 $ 5,031,194 152,842 $ 4,300,951
========== ============ ========= ============
</TABLE>
5. SUBSEQUENT EVENTS
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
Effective January 20, 1998 Ivy Emerging Growth Fund changed its name to Ivy
US Emerging Growth Fund.
<PAGE> 153
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy US Emerging Growth Fund, formerly
Ivy Emerging Growth Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IEGF123197
<PAGE> 154
DECEMBER 31, 1997 IVY FUNDS(R)
IVY BOND FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
The Ivy Bond Fund performed well in 1997, providing a total return of
11.8% for the twelve months ended December 31, 1997. This compares quite
positively with the Corporate--General universe of bond funds as measured by
Morningstar, which was up 8.6% for the same period. (For the Fund's total return
with sales charge, and performance commentary, please refer to the following
page.)
The performance of the Fund was driven by several factors. Interest
rates on longer maturity bonds declined during 1997, and, due to our
constructive outlook for declining interest rates, the Fund held long maturity
bonds. Additionally, a majority of the Fund's holdings are rated BBB, and this
category of investment grade bonds outperformed higher-rated corporate bonds in
1997.
The Fund's strategy remained essentially unchanged during 1997: seek
out undervalued bonds in the fixed income universe that will provide high
current returns and may also provide capital appreciation if the bonds receive a
credit upgrade by one of the bond rating agencies. The Fund holds bonds issued
by a widely diversified group of US companies as well as bonds issued by
companies based outside the US (approximately 14% of the portfolio). Notably, we
do not attempt to time interest rates as part of our strategy.
Although we do not time interest rates, the Fund's duration (its
sensitivity to interest rate changes) has typically been higher than average.
This duration reading, 6.4 years, would classify the Fund as more sensitive to
changes in long-term interest rates, which is consistent with our long-held
belief that interest rates would continue to trend downward over time.
Interest rates, as measured by the bellwether 30-year US Treasury bond,
declined dramatically in 1997. This was due to several factors. First, there are
many signs that inflation will remain low for the next three-to-five years.
Another important factor was a flight to quality, which began in October as
markets in Asia imploded. Because of the concern that the US economy would slow
enough to impair the debt-servicing ability of companies, investors sold bonds
with credit risk and bought US Treasuries.
However, the US economy ended the year with a lot of forward momentum
- -- real GDP growth for the year was 3.8%. The consumer sector, which drives
about two-thirds of GDP, is quite healthy. Unemployment is very low, consumer
confidence is near a 30-year high and real incomes are rising. Additionally,
falling interest rates are expected to result in a wave of mortgage refinancing
which will directly benefit the consumer. Also, oil prices have declined by 25%
since October, which acts like a tax cut.
Meanwhile, domestic corporations are in good financial shape and the
underlying credit fundamentals for investing in corporate bonds remain positive,
all of which bode favorably for the Ivy Bond Fund.
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 155
IVY BOND FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997, the Ivy Bond Fund was up 11.8% as
compared to Morningstar's Corporate Bond -- General category, which was up 8.6%
for the same period. The Fund's outperformance is attributed to a combination of
interest rate and credit factors. The Fund benefitted from a generally longer
than average duration as longer term interest rates declined during the year.
Additionally the Fund earned above average returns because of its weighting in
bonds rated below BBB, which outperformed higher rated bonds during 1997. The
Morningstar category consists of bond funds rated BBB or higher. (By prospectus,
the Fund must hold at least 65% of its assets in bonds rated BBB or higher. At
year end, it held 68% in this credit quality.)
PERFORMANCE COMPARISONS OF THE FUND
SINCE INCEPTION (9/85) OF A $10,000
INVESTMENT
(GRAPH)
ONE-, THREE-, FIVE- AND TEN-YEAR
CUMULATIVE PERFORMANCE
(GRAPH)
The chart above reflects performance without the maximum
sales charge of 4.75%.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
IVY BOND FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge
Class B** & C***
Average Annual
Total Return Average Annual Total Return
--------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
--------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- 6.12% 11.12%
C: C: C: C:
1 Yr. -- 6.56% -- -- 10.11% 11.11%
- ------------------------------------------------------------------------------------
5 Yr. -- 8.40% -- -- -- --
- ------------------------------------------------------------------------------------
10 Yr. 9.51% 9.08% -- -- -- --
- ------------------------------------------------------------------------------------
B: B: B: B:
7.87% 8.51% 7.87% 8.51%
C: C: C: C:
Since Inception 8.98% 2.22% -- -- 12.03% 12.03%
- ------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 4.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The principal value of Ivy Bond Fund will fluctuate and at redemption shares may
be worth more or less than the amount of the original investment.
The Morningstar Corporate Bond -- General benchmark is a compilation of funds
that consist primarily of corporate bonds rated BBB or higher. It is not
possible to invest in a benchmark.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 156
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
CORPORATE BONDS -- 78.75% PRINCIPAL VALUE
- ------------------------------------------------------
<S> <C> <C>
Affinity Group Inc.,
11.50%, 10/15/03*........ $1,000,000 $ 1,066,250
Alliance Gaming Corp. 144A,
10.00%, 08/01/07*........ 1,000,000 1,005,000
American President Co.
Ltd., 8.00%, 01/15/24*... 1,000,000 835,000
Burlington Industries,
7.25%, 08/01/27.......... 1,000,000 1,021,250
Calpine Corp. 144A, 8.75%,
07/15/07*................ 2,000,000 2,030,000
Circus Circus Enterprises,
7.625%, 07/15/13......... 2,500,000 2,559,375
Comcast Cablevision 144A,
8.375%, 05/01/07......... 1,000,000 1,113,750
Conseco Inc., 10.50%,
12/15/04................. 1,500,000 1,794,375
Cyprus Amax Minerals,
8.375%, 02/01/23......... 1,575,000 1,651,781
Darden Restaurants Inc.,
7.125%, 02/01/16......... 1,250,000 1,234,375
Delphi Financial Group
Inc., 8.00%, 10/01/03.... 2,500,000 2,584,375
Delta Air Lines, 9.30%,
01/02/11................. 1,000,000 1,175,000
Delta Air Lines, 9.59%,
01/12/17................. 1,500,000 1,863,750
Developers Diversified
Realty Corp., 6.96%,
12/17/07................. 2,000,000 2,000,625
Equimar Shipholdings Ltd.
144A, 9.875%, 07/01/07... 1,500,000 1,417,500
Farmers Insurance Exchange,
8.625%, 05/01/24......... 2,000,000 2,317,500
Fort Howard, 9.92%,
02/15/12................. 1,453,060 1,608,247
Freeport-McMoRan Copper &
Gold, 7.50%, 11/15/06.... 2,000,000 2,002,500
Goldman Sachs Group LP
144A, 7.20%, 10/24/12.... 1,000,000 1,028,750
Gothic Energy Corp. 144A,
12.25%, 09/01/04*........ 1,000,000 1,050,000
Indianapolis Life Ins. Co.
144A, 8.66%, 04/01/11.... 2,000,000 2,205,000
Indiantown Cogeneration,
9.77%, 12/15/20.......... 1,500,000 1,852,500
International Knife & Saw
144A, 11.375%,
11/15/06*................ 1,000,000 1,082,500
Jackson National Life Ins.
Co. 144A, 8.15%,
03/15/27................. 1,000,000 1,102,500
Jefferies Group Inc. 144A,
7.50%, 08/15/07.......... 2,500,000 2,562,500
Kaiser Aluminum & Chemical,
12.75%, 02/01/03*........ 1,000,000 1,067,500
Leucadia National Corp.,
7.75%, 08/15/13.......... 2,500,000 2,546,875
Long Island Lighting Co.,
8.625%, 04/15/04......... 2,000,000 2,137,500
Lumbermens Mutual Casualty
144A, 9.15%, 07/01/26.... 2,000,000 2,342,500
McCaw International Ltd.,
0.00%, 04/15/07*......... 2,000,000 1,167,500
McDermott Inc., 8.75%,
05/19/23*................ 1,500,000 1,541,250
Medpartners Inc., 7.375%,
10/01/06................. 2,000,000 1,980,000
Mitchell Energy &
Development Corp., 6.75%,
02/15/04................. 1,000,000 1,001,250
Motors and Gears Inc.,
10.75%, 11/15/06*........ 1,000,000 1,062,500
Navigator Gas Transport
144A, 10.50%,
06/30/07*................ 1,000,000 1,060,000
News America Holdings,
7.75%, 01/20/24.......... 2,000,000 2,100,000
News America Holdings,
7.70%, 10/30/25.......... 1,000,000 1,045,000
Northrop Grumman Corp.,
9.375%, 10/15/24......... 2,000,000 2,387,500
Ocwen Federal Bank,
10.875%, 08/01/27*....... 600,000 648,750
Overseas Shipholding Group,
Inc., 8.75%, 12/01/13.... $3,000,000 $ 3,296,250
PDV America Inc., 7.875%,
08/01/03................. 3,000,000 3,112,500
Pegasus Media &
Communications, 12.50%,
07/01/05*................ 1,000,000 1,140,000
Pioneer-Standard, 8.50%,
08/01/06................. 3,000,000 3,262,500
Praxair Inc., 8.70%,
07/15/22................. 2,500,000 2,756,250
Pulte Corp., 7.625%,
10/15/17................. 1,500,000 1,533,750
RJR Nabisco Inc., 8.75%,
07/15/07................. 2,000,000 2,155,000
RSL Communications Ltd.,
12.25%, 11/15/06*........ 1,000,000 1,090,000
Scovill Fasteners Inc.
144A, 11.25%,
11/30/07*................ 1,000,000 1,022,500
Sithe/Independence Funding,
9.00%, 12/30/13.......... 2,000,000 2,302,500
Spieker Properties, 7.35%,
12/01/17................. 2,000,000 2,012,500
Storage USA Partnership
L.P., 7.00%, 12/01/07.... 1,200,000 1,206,000
TCI Communications, Inc.,
8.75%, 08/01/15.......... 1,000,000 1,160,000
TCI Communications, Inc.,
9.25%, 01/15/23.......... 2,000,000 2,272,500
Terex Corp. Series B,
13.25%, 05/15/02*........ 668,000 762,355
Time Warner Inc., 9.125%,
01/15/13................. 1,500,000 1,771,875
Time Warner Inc., 9.15%,
02/01/23................. 2,000,000 2,455,000
Trench Electric Inc. 144A,
10.25%, 12/15/07*........ 500,000 508,125
Turner Broadcasting System,
8.40%, 02/01/24.......... 1,000,000 1,058,750
USX Marathon Group, 9.375%,
05/15/22................. 1,000,000 1,253,750
United Air Lines, 9.75%,
08/15/21................. 2,500,000 3,178,125
United Refining 144A,
10.75%, 06/15/07*........ 1,000,000 1,050,000
Willcox & Gibbs Inc.,
12.25%, 12/15/03*........ 1,000,000 1,000,000
------------
TOTAL CORPORATE BONDS
(Cost -- $96,720,577).... 103,612,758
------------
U.S. GOVERNMENT
OBLIGATIONS -- 2.36%
- ---------------------------
U.S. Treasury Bond, 7.25%,
05/15/16................. 100,000 113,849
U.S. Treasury Bond, 5.625%,
12/31/99................. 3,000,000 2,997,420
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost -- $3,097,656)..... 3,111,269
------------
U.S. DOLLAR DENOMINATED
FOREIGN BONDS -- 14.91%
- ---------------------------
APP International Finance,
11.75%, 10/01/05*........ 500,000 473,750
Acindar Industries, 11.25%,
02/15/04*................ 500,000 491,250
Banco Ganadero S.A., 9.75%,
08/26/99................. 1,000,000 1,011,250
Buenos Aires Embotelladora
144A, 8.50%, 12/29/00*... 500,000 344,375
Cemex S.A. 144A, 12.75%,
07/15/06*................ 500,000 600,000
Ceval Alimentos S.A. REGD,
11.00%, 12/30/04*........ 1,000,000 1,005,000
Cia Latino Americana 144A.,
11.625%, 06/01/04*....... 1,000,000 997,500
Companhia Suzano Papel 144A
REGD, 10.25%,
10/06/01*................ 900,000 869,625
Espirito Santo-Escelsa
144A, 10.00%,
07/15/07*................ 1,000,000 907,500
GS Superhighway Holdings
144A, 10.25%,
08/15/07*................ 1,000,000 862,500
Greater Beijing 144A,
9.50%, 06/15/07*......... 1,000,000 800,000
Grupo Industrial Durango,
12.00%, 07/15/01*........ 500,000 544,375
Grupo Televisa S.A. 144A,
0.00%, 05/15/08*......... 1,000,000 748,750
Indah Kiat Finance 144A,
10.00%, 07/01/07*........ 500,000 415,000
</TABLE>
<PAGE> 157
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
U.S. DOLLAR DENOMINATED FOREIGN BONDS PRINCIPAL VALUE
<S> <C> <C>
Industrias Unidas, 8.50%,
01/27/99*... $1,000,000 $ 980,000
Iochpe-Maxion S.A. 144A, 12.375%,
11/08/02*... 900,000 771,750
Ionica PLC Units, 0.00%, 05/01/07*... 1,500,000 590,625
MRS Logistica S.A. 144A, 10.625%,
08/15/05*... 1,000,000 907,500
Mechala Group Jamaica, 12.75%,
12/30/99*... 1,000,000 1,028,750
Metalurgica Gerdau S.A., 10.25%,
11/23/01*... 500,000 491,875
Metalurgica Gerdau S.A., 11.125%,
05/24/04*... 500,000 498,750
Ongko International Finance Co. 144A,
10.50%, 03/29/04*... 1,000,000 577,500
Petroleo Ipiranga 144A, 10.625%,
02/25/02*... 1,000,000 970,000
Polysindo International Finance,
11.375%, 06/15/06*... 1,000,000 817,500
Sideco Americana S.A. 144A, 9.125%,
08/01/02*... 1,000,000 1,007,500
Trikem S.A., 10.625%, 07/24/07*... 1,000,000 910,000
------------
TOTAL U.S. DOLLAR DENOMINATED FOREIGN
BONDS (Cost -- $21,179,084)... 19,622,625
------------
RIGHTS & WARRANTS -- 0.15% SHARES
-- ----------
Gothic Energy 144A Warrants(a)... 14,000 24,500
McCaw International Ltd. 144A
Warrants(a)... 2,000 500
RSL Communications Ltd. 144A
Warrants(a)... 1,000 100,000
Terex Corp. -- Appreciation
Rights(a)... 4,000 72,000
------------
TOTAL RIGHTS & WARRANTS
(Cost -- $0)... 197,000
------------
TOTAL INVESTMENTS -- 96.17%
(Cost -- $120,997,317) (Cost on
Federal income tax basis --
$121,012,364)... 126,543,652
OTHER ASSETS, LESS
LIABILITIES -- 3.83%... 5,032,581
------------
NET ASSETS -- 100%... $131,576,233
============
* Below investment grade security.
(a) Non-income producing security.
REGD -- Registered
OTHER INFORMATION:
At December 31, 1997, net unrealized appreciation based on cost
for Federal income tax purposes is as follows:
Gross unrealized appreciation................ $ 7,685,167
Gross unrealized depreciation................ (2,153,879)
------------
Net unrealized appreciation $ 5,531,288
============
Purchases and sales of securities other than U.S. Government
securities and short-term obligations aggregated $69,148,017 and
$47,424,028, respectively, for the period ended December 31,
1997. Purchases and sales of U.S. Government and Government
Agency obligations aggregated $29,851,094 and $29,572,718,
respectively, for the period ended December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 158
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $120,997,317)..... $126,543,652
Cash........................................................ 1,621,048
Receivables
Fund shares sold.......................................... 643,461
Interest.................................................. 2,970,411
Other assets................................................ 43,761
------------
Total assets............................................ 131,822,333
------------
LIABILITIES
Payables
Fund shares repurchased................................... 69,329
Management fee............................................ 75,747
12b-1 service and distribution fees....................... 44,612
Other payables to related parties......................... 35,213
Accrued expenses............................................ 21,199
------------
Total liabilities....................................... 246,100
------------
NET ASSETS.................................................. $131,576,233
============
CLASS A
Net asset value and redemption price per share ($106,496,935
/ 10,416,859 shares outstanding).......................... $ 10.22
============
Maximum offering price per share ($10.22 x 100/95.25)*...... $ 10.73
============
CLASS B
Net asset value, offering price and redemption price** per
share ($18,498,817 / 1,810,902 shares outstanding)........ $ 10.22
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($6,580,481 / 642,780 shares outstanding)........... $ 10.24
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $130,409,682
Accumulated net realized loss on investments.............. (4,387,590)
Undistributed net investment income....................... 7,806
Net unrealized appreciation on investments................ 5,546,335
------------
NET ASSETS.................................................. $131,576,233
============
</TABLE>
* On sales of more than $100,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 159
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $ 9,422,904
-----------
EXPENSES
Management fee............................................ $800,555
Transfer agent............................................ 169,538
Administrative services fee............................... 110,112
Custody fees.............................................. 25,993
Blue Sky fees............................................. 24,397
Auditing and accounting fees.............................. 39,501
Shareholder reports....................................... 7,323
Fund accounting........................................... 100,392
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 358,904
Legal..................................................... 27,447
Other..................................................... 34,446
-----------
Total expenses.......................................... 1,705,820
-----------
NET INVESTMENT INCOME....................................... 7,717,084
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on
Investments............................................. 972,876
Options................................................. 16,281
Net unrealized appreciation during the period on
Investments............................................. 3,318,851
Options................................................. 23,031
-----------
Net gain on investments................................. 4,331,039
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $12,048,123
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 160
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income..................................... $ 7,717,084 $ 7,628,739
Net realized gain (loss) on
Investments............................................. 972,876 647,584
Options................................................. 16,281 (173,422)
Net unrealized appreciation(depreciation) during the
period on
Investments............................................. 3,318,851 (339,684)
Options................................................. 23,031 (23,031)
------------ ------------
Net increase resulting from operations................ 12,048,123 7,740,186
------------ ------------
Class A distributions
From net investment income................................ (6,965,108) (7,282,279)
In excess of net investment income........................ (2,835) (143,137)
------------ ------------
Total distributions to Class A shareholders........... (6,967,943) (7,425,416)
------------ ------------
Class B distributions
From net investment income................................ (599,739) (332,726)
In excess of net investment income........................ (243) (9,105)
------------ ------------
Total distributions to Class B shareholders........... (599,982) (341,831)
------------ ------------
Class C distributions
From net investment income................................ (152,237) (13,734)
In excess of net investment income........................ (61) (1,753)
------------ ------------
Total distributions to Class C shareholders........... (152,298) (15,487)
------------ ------------
Fund share transactions (Note 4)
Class A................................................... 4,600,092 (10,914,806)
Class B................................................... 12,937,647 126,355
Class C................................................... 5,911,303 606,878
------------ ------------
Net increase (decrease) resulting from Fund share
transactions......................................... 23,449,042 (10,181,573)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 27,776,942 (10,224,121)
NET ASSETS
Beginning of period....................................... 103,799,291 114,023,412
------------ ------------
END OF PERIOD............................................. $131,576,233 $103,799,291
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 7,806 $ 10,945
============ ============
</TABLE>
(See Notes to Financial Statements)
<PAGE> 161
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX
CLASS A FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------------- ------------ ---------------------
1997 1996 1995 1994 1994 1993
-------- ------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period............... $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 10.34 $ 9.95
-------- ------- -------- -------- -------- --------
Income (loss) from investment operations
Net investment income............................ .80 .72 .67(a) .33(a) .63 .55
Net realized and unrealized gain (loss) on
investments.................................... .42 .03 .84 (.29) (.60) 1.00
-------- ------- -------- -------- -------- --------
Total from investment operations............... 1.22 .75 1.51 .04 .03 1.55
-------- ------- -------- -------- -------- --------
Less distributions
From net investment income....................... .80 .72 .63 .32 .61 .64
In excess of net investment income............... -- .01 -- -- -- --
From net realized gain........................... -- -- -- -- .38 .52
In excess of net realized gain................... -- -- -- .09 -- --
From capital paid-in............................. -- -- .11 -- -- --
-------- ------- -------- -------- -------- --------
Total distributions............................ .80 .73 .74 .41 .99 1.16
-------- ------- -------- -------- -------- --------
Net asset value, end of period..................... $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 10.34
======== ======= ======== ======== ======== ========
Total return(%).................................... 11.87(b) 8.06(b) 17.41(b) .43(c) .00(b) 16.29(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........... $106,497 $97,881 $108,840 $110,232 $120,073 $132,721
Ratio of expenses to average net assets
With expense reimbursement(%).................... -- -- 1.54 1.50(d) -- --
Without expense reimbursement(%)................. 1.47 1.56 1.54 1.52(d) 1.45 1.49
Ratio of net investment income to average net
assets(%)........................................ 7.08 7.36 7.09(a) 6.92(a)(d) 6.19 6.42
Portfolio turnover rate(%)......................... 71 90 93 44 78 134
</TABLE>
(See Notes to Financial Statements)
<PAGE> 162
FINANCIAL HIGHLIGHTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT) TO
DECEMBER 31, DECEMBER 31, JUNE 30,
----------------------------------- ------------ -----------------
1997 1996 1995 1994 1994
------- ------ ------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period.............. $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 9.82
------- ------ ------ ------ ------
Income (loss) from investment operations
Net investment income........................... .68 .64 .60(a) .30(a) .10
Net realized and unrealized gain (loss) on
investments................................... .46 .04 .84 (.29) (.32)
------- ------ ------ ------ ------
Total from investment operations.............. 1.14 .68 1.44 .01 (.22)
------- ------ ------ ------ ------
Less distributions
From net investment income...................... .72 .64 .56 .29 .14
In excess of net investment income.............. -- .02 -- -- --
From net realized gain.......................... -- -- -- -- .08
In excess of net realized gain.................. -- -- -- .09 --
From capital paid-in............................ -- -- .11 -- --
------- ------ ------ ------ ------
Total distributions........................... .72 .66 .67 .38 .22
------- ------ ------ ------ ------
Net asset value, end of period.................... $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38
======= ====== ====== ====== ======
Total return (%).................................. 11.12(b) 7.25(b) 16.54(b) .06(c) (2.24) (c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).......... $18,499 $5,300 $5,184 $2,420 $ 761
Ratio of expenses to average net assets
With expense reimbursement(%)................... -- -- 2.29 2.25(d) --
Without expense reimbursement(%)................ 2.21 2.29 2.29 2.27(d) 2.20(d)
Ratio of net investment income to average net
assets(%)..................................... 6.35 6.62 6.34(a) 6.17 (a)(d 5.44(d)
Portfolio turnover rate(%)........................ 71 90 93 44 78
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1996
CLASS C ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1997 1996
------------ ---------------
<S> <C> <C>
SELECTED PER SHARE DATA
Net asset value, beginning of period........................ $ 9.82 $9.44
------ -----
Income from investment operations
Net investment income..................................... .64 .39
Net realized and unrealized gain on investments........... .48 .43
------ -----
Total from investment operations........................ 1.12 .82
------ -----
Less distributions
From net investment income................................ .70 .39
In excess of net investment income........................ -- .05
------ -----
Total distributions..................................... .70 .44
------ -----
Net asset value, end of period.............................. $10.24 $9.82
====== =====
Total return(%)............................................. 11.11(b) 8.81(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $6,580 $ 618
Ratio of expenses to average net assets(%).................. 2.20 2.35(d)
Ratio of net investment income to average net assets(%)..... 6.35 6.56(d)
Portfolio turnover rate(%).................................. 71 90
(a) Net investment income is net of expenses reimbursed by
manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not
reflect a sales charge.
(d) Annualized.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 163
NOTES TO FINANCIAL STATEMENTS
Ivy Bond Fund (the 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 and Class I 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Debt securities (other than short-term obligations
and commercial paper) are valued on the basis of valuations furnished by a
pricing service authorized by the Board of Trustees (the Board), which
determines valuations based upon market transactions for normal,
institutional-size trading units of such securities. Short-term obligations and
commercial paper are valued at amortized cost, which approximates market. All
other securities are valued at their fair value as determined in good faith by
the Valuation Committee of the Board; as of December 31, 1997, there were no
such securities.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Interest income is accrued on a daily basis.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
OPTIONS -- The Fund may write (sell) covered put options and covered call
options on securities and stock indicies on securities held in its portfolio.
When the Fund writes a call, it gives the purchaser of the call option the right
to buy the underlying security at the price specified in the option (the
"exercise price") at any time during the option period, generally ranging up to
nine months. When the Fund holds covered call options, the underlying securities
are held in a segregated account by the custodian.
If the option expires unexercised, the Fund will realize income, in the
form of a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder. For
options on indices, cash settlement by the Fund will be required if the option
is exercised.
By writing a call option, the Fund forgoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security or
currency above the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call option is valued at the last sale price or, in the absence of a
sale, the last offering price.
In addition, the Fund may purchase put and call options on securities and
stock indices, and engage in options on interest rate and currency futures
contracts. Exchange traded purchased options are valued at the last sales price
or, in the absence of a sale, the last bid price.
CASH AND CASH EQUIVALENTS -- The Fund classifies as cash amounts on deposit
with the Fund's custodian. These amounts earn interest at variable interest
rates. At December 31, 1997 the interest rate was 5%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund has a net tax-basis capital loss carryforward of approximately
$4,373,000 as of December 31, 1997 which may be applied against any realized net
taxable gain of each succeeding fiscal year until fully utilized or until the
expiration date, whichever occurs first. The carryforward expires $946,000 in
1998, $984,000 in 1999 and $2,443,000 in 2003.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared monthly. Distributions of net realized capital gains, if any, are
declared in December.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to certain securities sold at a
loss. As a result, Net investment income (loss) and Net realized gain (loss) on
investments may differ significantly in amount and character from distributions
during such period. Accordingly, the Fund may make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of .75% of
the first $100 million in average net assets, and .50% of average net assets in
excess of $100 million.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the Fund. As compensation for those services, the Fund pays MIMI fees plus
certain out-of-pocket expenses. Such fees and expenses are reflected as
Administrative services fee and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $31,911.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net
assets, excluding Class I. Class B and Class C shares are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net asset
value attributable to Class B and Class C shares. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$247,405, $89,680, and $21,819, for Class A, Class B and Class C, respectively,
are reflected as 12b-1 service and distribution fees in the Statement of
Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $154,075, $12,487 and $2,976, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B, Class C and Class I* were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,873,269 $ 29,019,071 1,351,568 $ 13,152,817
Issued on reinvestment of
distributions........... 443,606 4,445,919 478,725 4,613,419
Repurchased.............. (2,888,523) $(28,864,898) (2,965,988) (28,681,042)
---------- ------------ ---------- ------------
Net increase............. 428,352 $ 4,600,092 (1,135,695) $(10,914,806)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 1,494,334 $ 15,193,566 224,963 $ 2,188,764
Issued on reinvestment of
distributions........... 37,455 376,600 27,331 263,390
Repurchased.............. (261,864) (2,632,519) (241,113) (2,325,799)
---------- ------------ ---------- ------------
Net increase............. 1,269,925 $ 12,937,647 11,181 $ 126,355
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 702,503 $ 7,121,264 64,693 $ 624,316
Issued on reinvestment of
distributions........... 5,368 54,367 1,029 9,839
Repurchased.............. (128,052) (1,264,328) (2,761) (27,277)
---------- ------------ ---------- ------------
Net increase............. 579,819 $ 5,911,303 62,961 $ 606,878
========== ============ ========== ============
</TABLE>
* There were no Class I shares outstanding during the periods.
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 165
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Bond Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IBFX123197
<PAGE> 166
December 31, 1997 IVY FUNDS
IVY GLOBAL FUND
ANNUAL REPORT
This report and the financial statements contained herein are submitted for the
general information of the shareholders. This report is not authorized for
distribution to prospective investors unless preceded or accompanied by an
effective prospectus.
Ivy Management, Inc.
Via Mizner Financial Plaza
700 South Federal Hwy.
Boca Raton, FL 33432
MARKET COMMENTARY:
Most investors will remember 1997 as anything but boring. Turmoil in
the second half of the year started in the currency markets of Asia and quickly
spread to stock markets around the world, including the United States and
Europe. In many cases, investors sentiment--rather than economic
fundamentals--drove dramatic market moves, creating interesting opportunities
for steely nerved global investors.
We believe the Ivy Global Fund is well positioned to take advantage of
the opportunities created by events of 1997. Forty-six percent of the Fund's
assets are invested in Europe--the market we believe to be the most insulated
from fallout from the Asian crisis. Our research indicates that equity markets
in continental Europe are just beginning to benefit from a cyclical economic
recovery (which is just gaining momentum in most of the European economies) and
a wave of corporate restructuring. We expect that lower interest rates and
strong exports (boosted by weaker currencies) will continue to fuel accelerating
GDP growth. Weaker currencies have already started to contribute to earnings
growth for European multinationals and exporters. And, perhaps most important,
corporate Europe is experiencing the initial stages of a wave of restructuring
and industry consolidation.
Because we believe values in the US market are increasingly
unattractive, the Ivy Global Fund remains relatively underweight in the US (9%
of assets) compared to most global funds. It is interesting to note that the US
stock market has continued to display exuberance and actually reached a
record-high in the midst of recent global turmoil. Regardless of the impact that
the Asian crisis has on the US economy, we believe it is becoming more likely
that the current US bull market will lose steam and that more attractive
opportunities can be found elsewhere.
Approximately 31% of the Ivy Global Fund continues to be invested along
the Pacific Rim. While dramatic sell-offs in Asia negatively impacted the Fund's
performance over the course of the year (for the twelve months ended December
31, 1997 the Ivy Global Fund was down 8.7%), our research indicates that the
turmoil created some of the most compelling valuations in the world.
Accordingly, we continued to rebalance the regional weightings of the Fund. The
degree of pessimism currently surrounding Asia is unprecedented. Many of the
concerns being expressed are certainly valid. However, it is important to
remember that Asia (non-Japan) is likely to remain the fastest growing region of
the world over the next five years. In recent years, the region has contributed
around two-fifths of the world's overall GDP growth and its contribution to the
global economy should continue to be significant.
Volatility in global financial markets is likely to remain above
average as a result of continuing uncertainty about the possible ramifications
of events in Asia for the rest of the world. This level of uncertainty
highlights the importance of diversification. We encourage US investors to heed
the lesson Japanese investors--who refused to diversify abroad because their own
stock market was doing so well--learned in the late 1980s. While there are no
guarantees, we strongly believe that the Ivy Global Fund, with its high exposure
to Europe and the Pacific Rim, is well positioned to profit from the likely
swing away from US equity outperformance to outperformance by foreigh markets.
(For the Fund's total return with sales charge, and performance commentary,
please refer to the following page.)
IVY MANAGEMENT, INC.
<TABLE>
<S> <C> <C> <C>
BOARD OF TRUSTEES LEGAL COUNSEL TRANSFER AGENT MANAGER
John S. Anderegg, Jr. Dechert Price & Rhoads Ivy Mackenzie Ivy Management, Inc.
Paul H. Broyhill Boston, MA Services Corp. Boca Raton, FL
Keith J. Carlson P.O. Box 3022
Stanley Channick OFFICERS Boca Raton, FL 33431-0922 DISTRIBUTOR
Frank W. DeFriece, Jr. Michael G. Landry, Chairman 1-800-777-6472 Ivy Mackenzie
Roy J. Glauber Keith J. Carlson, President Distributors, Inc.
Michael G. Landry James W. Broadfoot, Vice President AUDITORS Via Mizner Financial Plaza
Joseph G. Rosenthal C. William Ferris, Coopers & Lybrand L.L.P. 700 South Federal Highway
Richard Silverman Secretary/Treasurer Fort Lauderdale, FL Boca Raton, FL 33432
J. Brendan Swan
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
</TABLE>
[LOGO] IVY MACKENZIE
<PAGE> 167
IVY GLOBAL FUND PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1997 the Ivy Global Fund was down 8.7%.
For the same period the Morgan Stanley Capital International (MSCI) Europe,
Australasia and Far East (EAFE) Index was up 1.8% and the MSCI World Index was
up 15.8%. The Fund's underperformance (relative to these two indices that track
performance of developed markets) is attributed to its approximately 25%
allocation to emerging markets and compares favorably to the MSCI Emerging
Markets Free Index, which was down 11.6% for the same twelve-month period.
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (4/91)
OF A $10,000 INVESTMENT
CHART
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
IVY GLOBAL FUND
FOR PERIOD ENDING 12/31/97
Class A*-with sales charge
Average Annual Class B** & C***
Total Return Average Annual Total Return
--------------------------------------------------------------
w/Reimb. w/o Reimb. w/Reimb. w/o Reimb.
--------------------------------------------------------------
w/ w/o w/ w/o
CDSC CDSC CDSC CDSC
---------------------------------------
B: B: B: B:
-- -- (13.86)% (9.33)%
C: C: C: C:
1 Yr. -- (13.96)% -- -- (10.72)% (9.72)%
- ------------------------------------------------------------------------------------
5 Yr. 6.74% 6.56% -- -- -- --
- ------------------------------------------------------------------------------------
B: B: B: B:
2.89% 3.62% 2.81% 3.55%
C: C: C: C:
Since Inception 6.52% 5.80% (4.21)% (4.21)% (4.21)% (4.21)%
- ------------------------------------------------------------------------------------
</TABLE>
*Class A performance figures include the maximum sales charge of 5.75%.
**Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5%.
***Class C performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 1%.
Total returns in some periods were higher due to reimbursement of the Fund's
expenses. See Financial Highlights.
All charts and tables reflect past results and assume reinvestment of dividends
and capital gain distributions. Future results will, of course, be different.
The investment return and principal value of the Ivy Global Fund will fluctuate
and at redemption shares may be worth more or less than the amount of the
original investment.
The MSCI World Index is an unmanaged index of stocks which assumes reinvestment
of dividends and, unlike Fund returns, does not reflect any fees or expenses. It
is not possible to invest in an index.
Performance is calculated for Class A shares of the Fund unless otherwise noted.
The performance of the Fund's Class B and Class C shares will vary relative to
that of Class A shares based on differences in their respective sales loads and
fees.
- --------------------------------------------------------------------------------
<PAGE> 168
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 98.63% SHARES VALUE
- ------------------------------------------------------
<S> <C> <C>
AFRICA -- 4.05%
- ----------------------------
SOUTH AFRICA -- 4.05%
Anglo American Corporation
of South Africa Ltd.
ADR....................... 11,400 $ 460,090
Rembrandt Group Ltd......... 65,300 476,363
South African Breweries
Ltd....................... 12,072 297,685
-----------
1,234,138
-----------
ASIA/PACIFIC -- 31.14%
- ----------------------------
AUSTRALIA -- 0.69%
Pacific Dunlop Limited...... 100,100 211,971
-----------
CHINA -- 0.97%
Shanghai Diesel Class B*.... 120,000 15,120
Shenzhen Konka Electronics
Group Ltd. Class B........ 260,000 280,527
-----------
295,647
-----------
HONG KONG -- 8.74%
Citic Pacific Ltd........... 90,000 357,757
Esprit Asia Holdings Ltd.... 534,000 174,020
HSBC Holdings............... 13,539 333,745
Hong Kong Telecommunications
Ltd.-Sponsored ADR........ 7,400 152,625
Jardine Matheson Holdings
Ltd....................... 15,600 79,560
Jardine Strategic Holdings
Ltd....................... 91,187 240,734
Jardine Strategic Holdings
Ltd. Warrants*............ 4,687 187
Li & Fung................... 386,000 540,521
National Mutual Asia Ltd.... 360,000 357,757
New World Development
Company Ltd............... 45,401 157,035
Peregrine Investment
Holdings Limited.......... 120,000 85,180
Peregrine Investment
Holdings Limited
Warrants*................. 14,000 18
Union Bank of Hong Kong
Ltd....................... 85,333 104,625
Wharf Holdings Ltd.......... 36,000 78,985
-----------
2,662,749
-----------
INDIA -- 0.97%
The India Fund
Incorporated.............. 40,000 295,000
-----------
INDONESIA -- 0.68%
PT Astra International...... 185,000 47,977
PT Hanjaya Mandala
Sampoerna................. 114,500 86,477
PT Mulia Industrindo........ 253,200 28,800
Semen Gresik................ 76,000 44,605
-----------
207,859
-----------
MALAYSIA -- 3.41%
Arab Malaysian
Corporation............... 134,000 39,590
Edaran Otomobil Nasional
Berhad.................... 38,000 77,613
KFC Holdings (Malaysia)
Berhad.................... 58,000 93,876
Land & General Berhad....... 281,500 52,071
London & Pacific Insurance
Company Berhad............ 90,600 95,898
Perusahaan Otomobil Nasional
Berhad.................... 75,000 73,220
Public Bank Berhad.......... 166,800 57,423
Public Bank Berhad
Rights*(b)................ 27,800 1,428
RHB Capital Berhad.......... 151,000 72,933
RHB Sakura Merchant
Bankers*.................. 3,000 1,010
Technology Resources
Industries Berhad......... 103,000 60,863
Telekom Malaysia Bhd........ 140,000 413,630
-----------
1,039,555
-----------
NEW ZEALAND -- 2.94%
Brierley Investments Ltd.... 241,800 172,695
Fletcher Challenge
Building.................. 21,500 43,944
Fletcher Challenge
Forestry.................. 2,580 2,142
Fletcher Challenge Paper.... 43,000 56,178
Lion Nathan Ltd............. 121,000 271,200
Telecom Corp. of New Zealand
Ltd....................... 42,000 203,635
Tourism Holdings Limited.... 212,300 145,462
-----------
895,256
-----------
PHILIPPINES -- 2.17%
Alaska Milk Corporation*.... 2,122,000 82,968
Asian Terminals, Inc........ 150,000 9,399
Bacnotan Cement
Corporation............... 150,000 7,068
Belle Corporation*.......... 631,000 24,671
Belle Corporation
Warrants*................. 46,200 72
Benpres Holdings Corporation
GDR*...................... 24,100 $ 66,878
C & P Homes, Inc............ 759,000 44,895
La Tondena Distillers Inc... 42,000 19,474
Metro Pacific Corporation... 1,009,970 28,351
Mondragon International
Philippines, Inc.*........ 1,394,400 24,813
Philippine Long Distance
Telephone Co.............. 7,600 167,624
Philippine National Bank*... 45,750 102,052
SM Prime Holdings, Inc...... 251,000 37,745
Universal Robina
Corporation............... 360,000 44,663
-----------
660,673
-----------
SINGAPORE -- 4.79%
Clipsal Industries Ltd...... 118,000 151,040
DBS Land Limited............ 71,000 108,716
Elec & Eltek International
Co. Ltd................... 34,100 156,178
Fraser & Neave Ltd.......... 114,200 494,772
Singapore Airlines Ltd...... 84,000 548,388
-----------
1,459,094
-----------
SOUTH KOREA -- 1.69%
Fidelity Advisor Korea
Fund*..................... 28,800 113,400
Hyundai Motor Company
Ltd....................... 1,500 16,549
Hyundai Motor GDR........... 5,000 8,125
Keum Kang Development Ind.
Company................... 11,600 34,219
Korea Electric Power
Corporation............... 8,400 77,808
Pohang Iron & Steel Company
Ltd....................... 2,400 67,593
Samsung Electronics......... 241 3,886
Samsung Electronics
Sponsored GDR............. 5,500 124,606
Samsung Electronics
Sponsored GDR NV.......... 4,338 28,197
Samsung Fire & Marine
Insurance*................ 360 41,417
Samsung Heavy Industries*... 337 748
-----------
516,548
-----------
TAIWAN -- 2.03%
Acer Incorporation*......... 61,500 94,132
Compeq Manufacturing Co*.... 8,400 48,342
Far Eastern Department
Stores Ltd................ 148,941 157,754
President Enterprises*...... 120,000 142,896
Systex Corporation*......... 25,708 43,677
Yung Shin Pharmaceuticals
Industries Co............. 64,900 133,110
-----------
619,911
-----------
THAILAND -- 2.06%
Asia Credit Public Company
Limited - Foreign
Registered................ 60,000 12,773
Bangkok Bank Public Company
Limited................... 7,900 14,110
Bangkok Bank Public Company
Limited Foreign
Registered................ 50,000 124,614
Bank Of Ayudhya Public
Company Limited Foreign
Registered................ 183,750 74,418
Robinson Department Store
Public Company
Limited -- Foreign
Registered................ 377,000 7,830
Siam Cement Public Co. Ltd.
(The) Foreign
Registered................ 7,600 59,981
Siam Makro Public Company
Limited - Foreign
Registered................ 157,800 188,448
Thai Airways Int'l. Public
Co. Ltd. - Foreign
Registered................ 115,000 127,782
Thai Telephone &
Communication Public Co.
Ltd. Foreign
Registered*............... 207,000 17,197
-----------
627,153
-----------
EUROPE -- 45.88%
- ----------------------------
AUSTRIA -- 1.05%
Creditanstalt-Bankverein.... 3,600 201,473
Julius Meinl International
AG........................ 4,000 120,150
-----------
321,623
-----------
FINLAND -- 1.49%
Enso OY -- R Shares......... 30,000 232,486
Rauma OY.................... 290 4,527
UPM -- Kymmene Corp......... 10,420 208,573
-----------
445,586
-----------
</TABLE>
<PAGE> 169
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
FRANCE -- 11.83%
Banque Nationale De Paris... 13,775 $ 732,501
Compagnie Financiere de
Paribas................... 3,689 320,710
Elf Gabon................... 650 106,103
Galeries Lafayette.......... 320 176,600
Groupe Danone............... 1,700 303,780
Schneider S.A............... 5,704 309,859
Scor........................ 7,800 373,154
Societe Generale............ 6,519 888,581
Suez Lyonnaise des Eaux..... 3,554 393,454
-----------
3,604,742
-----------
GERMANY -- 0.73%
Volkswagen AG............... 400 223,576
-----------
IRELAND -- 0.60%
Bank of Ireland............. 12,000 184,219
-----------
ITALY -- 4.41%
Banca Commerciale
Italiana.................. 87,800 305,414
Banca Popolare di Brescia... 48,250 450,298
Banca Popolare di Milano.... 32,000 200,905
Fiat S.p.A.................. 133,100 387,331
-----------
1,343,948
-----------
LUXEMBOURG -- 0.56%
Scandinavian Broadcast
System S.A*............... 7,000 171,500
-----------
NETHERLANDS -- 2.69%
Akzo Nobel NV............... 1,100 189,698
Fortis Amev NV.............. 5,300 231,114
Hunter Douglas NV........... 3,800 133,088
ING Groep NV................ 4,522 190,496
Nedlloyd Groep NV........... 3,300 74,881
-----------
819,277
-----------
NORWAY -- 0.73%
Storebrand ASA*............. 31,700 223,597
-----------
PORTUGAL -- 3.51%
Colep -- Cia. Portuguesa de
Embalagens*............... 8,700 123,039
Lusomundo-SGPS S.A.
Preferred Shares.......... 5,900 54,076
Portugal Telecom S.A. ADR... 12,877 605,219
Sonae Industria E
Investimentos............. 7,100 287,484
-----------
1,069,818
-----------
SWEDEN -- 5.06%
AssiDoman AB................ 6,600 167,197
Astra AB "B" Shares......... 17,066 287,145
Electrolux AB............... 2,800 194,445
S.K.F. AB Series "B"........ 12,400 264,117
Sandvik AB -- "B" Shares.... 9,500 271,792
Stora Kopparbergs Bergslags
Aktiebolag (STORA)........ 11,600 146,200
Trelleborg AB "B" Free
Shares.................... 16,700 210,477
-----------
1,541,373
-----------
SWITZERLAND -- 3.85%
Georg Fischer AG Bearer..... 50 68,561
Holderbank Financiere Glaris
AG........................ 290 237,002
Nestle AG Registered........ 276 414,222
SMH AG...................... 400 221,041
Swiss Bank Corportation
Bearer.................... 750 233,451
-----------
1,174,277
-----------
UNITED KINGDOM -- 9.37%
Bank of Scotland............ 40,000 362,646
Billiton Plc*............... 75,600 193,119
Boots Company plc........... 18,000 261,520
Cadbury Schweppes PLC ADR... 25,000 248,867
Corporate Services Group
Plc....................... 50,000 176,058
Gallaher Group Plc.......... 37,500 199,299
Imperial Chemical Industries
PLC - Sponsored ADR....... 25,000 386,669
National Westminster Bank
PLC ADR................... 2,400 240,000
Rio Tinto plc............... 1,500 17,412
Rio Tinto plc Sponsored
ADR....................... 3,089 159,856
Safeway plc................. 36,000 204,359
Tate & Lyle PLC............. 49,000 404,735
-----------
2,854,540
-----------
NORTH AMERICA -- 12.37%
- ----------------------------
CANADA -- 3.87%
Alcan Aluminium Ltd......... 5,472 $ 151,164
Dofasco Inc................. 12,000 192,870
Edperbrascan
Corporation -- CL A....... 14,400 261,632
Inco Limited................ 10,350 175,950
Methanex Corporation*....... 25,000 198,285
Power Financial Corp........ 5,000 174,701
Semi-Tech Corporation*...... 34,000 24,709
-----------
1,179,311
-----------
UNITED STATES -- 8.50%
Air Express International
Corp...................... 10,200 311,100
Aluminum Company of
America................... 2,600 182,975
American Standard Companies,
Inc.*..................... 6,500 249,031
Ameron International Corp... 3,200 202,400
Apria Healthcare Group,
Inc.*..................... 13,000 174,688
Carnival Corporation........ 3,000 166,125
Crown Cork & Seal Company,
Inc....................... 4,000 200,500
Ford Motor Company.......... 4,000 194,750
Phelps Dodge Corp........... 2,700 168,075
Royal Caribbean Cruises
Ltd....................... 4,000 213,250
Sunglass Hut International,
Inc.*..................... 22,000 138,875
Union Carbide Corporation... 4,000 171,750
Wendy's International,
Inc....................... 9,000 216,563
-----------
2,590,082
-----------
SOUTH AMERICA -- 5.19%
- ----------------------------
ARGENTINA -- 0.87%
Perez Companc S.A........... 20,881 149,117
Telefonica De Argentina
S.A....................... 3,100 115,475
-----------
264,592
-----------
BRAZIL -- 3.90%
Petroleo Brasileiro S.A.
(Petrobras)............... 1,700,000 397,573
Telecomunicacoes Brasileiras
S.A. ADR (Telebras)....... 6,800 791,775
-----------
1,189,348
-----------
CHILE -- 0.42%
Santa Isabel S.A. ADR....... 7,400 129,500
-----------
TOTAL EQUITY SECURITIES
(Cost -- $32,262,953)..... 30,056,463
BONDS -- 1.06% PRINCIPAL
- ---------------------------- ----------
International Knife & Saw
144A, 11.375%, 11/15/06(a)
(Cost -- $300,000)........ $ 300,000 324,750
-----------
TOTAL INVESTMENTS -- 99.69%
(Cost -- $32,562,953)(Cost
on Federal income tax
basis -- $32,612,307)..... 30,381,213
OTHER ASSETS, LESS
LIABILITIES -- 0.31%...... 93,936
-----------
NET ASSETS -- 100%.......... $30,475,149
===========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
NV -- Non-voting
* Non-Income producing security.
(a) Below investment grade.
(b) Security valued in good faith by the Valuation Committee of the
Board of Trustees.
OTHER INFORMATION:
At December 31, 1997, net unrealized depreciation based on cost for
Federal income tax purposes is as follows:
Gross unrealized appreciation..................... $ 6,369,737
Gross unrealized depreciation..................... (8,600,831)
-----------
Net unrealized depreciation................. $(2,231,094)
===========
Purchases and sales of securities other than short-term obligations
aggregated $19,853,004 and $16,412,966, respectively, for the period
ended December 31, 1997.
</TABLE>
(See Notes to Financial Statements)
<PAGE> 170
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value (identified cost -- $32,562,953)...... $30,381,213
Cash........................................................ 308,470
Receivables
Fund shares sold.......................................... 2,333
Dividends and interest.................................... 85,130
Other assets................................................ 31,265
-----------
Total assets............................................ 30,808,411
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 133,849
Investments purchased..................................... 30,760
Fund shares repurchased................................... 93,091
Management fee............................................ 26,479
12b-1 service and distribution fees....................... 14,621
Other payables to related parties......................... 13,055
Accrued expenses............................................ 21,407
-----------
Total liabilities....................................... 333,262
-----------
NET ASSETS.................................................. $30,475,149
===========
CLASS A
Net asset value and redemption price per share
($19,691,854/1,801,364 shares outstanding)................ $ 10.93
===========
Maximum offering price per share ($10.93 X 100/94.25)*...... $ 11.60
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($10,055,819/922,694 shares outstanding)............ $ 10.90
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($727,476/68,152 shares outstanding)................ $ 10.67
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $31,627,623
Undistributed net realized gain on investments............ 1,061,647
Accumulated net investment loss........................... (30,630)
Net unrealized depreciation on investments and foreign
currency transactions................................... (2,183,491)
-----------
NET ASSETS.................................................. $30,475,149
===========
</TABLE>
* On sales of more than $50,000 the offering price is reduced.
** Subject to a maximum deferred sales charge of 5%.
*** Subject to a maximum deferred sales charge of 1%.
(See Notes to Financial Statements)
<PAGE> 171
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $73,820 foreign taxes withheld.......... $ 920,863
Interest.................................................. 96,508
-----------
1,017,371
-----------
EXPENSES
Management fee............................................ $383,981
Transfer agent............................................ 75,714
Administrative services fee............................... 38,398
Custodian fees............................................ 60,596
Blue Sky fees............................................. 22,984
Auditing and accounting fees.............................. 17,640
Shareholder reports....................................... 5,229
Fund accounting........................................... 48,941
Trustees' fees............................................ 7,212
12b-1 service and distribution fees....................... 190,282
Legal..................................................... 20,352
Other..................................................... 17,811
-----------
Total expenses.......................................... 889,140
-----------
NET INVESTMENT INCOME....................................... 128,231
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on
Investments and foreign currency transactions........... 3,110,434
Forward foreign currency contracts...................... 584,979
Net unrealized appreciation (depreciation) during the
period on
Investments and foreign currency transactions........... (6,927,266)
Forward foreign currency contracts...................... 24,267
-----------
Net loss on investment transactions................... (3,207,586)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $(3,079,355)
===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 172
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 128,231 $ 127,168
Net realized gain on investments and foreign currency
transactions............................................ 3,695,413 1,561,256
Net unrealized (depreciation) appreciation during the
period on
Investments and foreign currency transactions........... (6,927,266) 2,597,411
Forward foreign currency contracts...................... 24,267 34,667
----------- -----------
Net (decrease) increase resulting from operations....... (3,079,355) 4,320,502
----------- -----------
Class A distributions
From net investment income................................ (82,131) (138,320)
In excess of net investment income........................ (449,677) (317,957)
From net realized gain.................................... (1,315,142) (832,444)
----------- -----------
Total distributions to Class A shareholders............. (1,846,950) (1,288,721)
----------- -----------
Class B distributions
From net investment income................................ (42,863) --
In excess of net investment income........................ (234,682) (131,831)
From net realized gain.................................... (598,343) (310,417)
----------- -----------
Total distributions to Class B shareholders............. (875,888) (442,248)
----------- -----------
Class C distributions
From net investment income................................ (3,237) --
In excess of net investment income........................ (17,720) (1,191)
From net realized gain.................................... (46,276) (1,888)
----------- -----------
Total distributions to Class C shareholders............. (67,233) (3,079)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (858,287) 730,562
Class B................................................... 3,188,082 3,726,274
Class C................................................... 823,223 73,059
----------- -----------
Net increase resulting from Fund share transactions..... 3,153,018 4,529,895
----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (2,716,408) 7,116,349
NET ASSETS
Beginning period.......................................... 33,191,557 26,075,208
----------- -----------
END OF PERIOD............................................. $30,475,149 $33,191,557
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 23,685
=========== ===========
</TABLE>
(See Notes to Financial Statements)
<PAGE> 173
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX
CLASS A MONTHS ENDED FOR THE YEAR ENDED
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------------------- ------------ --------------------
1997 1996 1995 1994 1994 1993
SELECTED PER SHARE DATA ------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62 $ 10.55
------- ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss).................... .08 .08 .09(a) -- -- .03(a)
Net realized and unrealized gain (loss) on
investment transactions....................... (1.23) 1.86 1.25 (.10) 1.79 .44
------- ------- ------- ------- ------- -------
Total from investment operations.............. (1.15) 1.94 1.34 (.10) 1.79 .47
------- ------- ------- ------- ------- -------
Less distributions
From net investment income...................... .05 .08 .04 -- .01 .03
In excess of net investment income.............. .26 .18 -- -- -- --
From net realized gain.......................... .78 .48 .49 .09 .88 .37
In excess of net realized gain.................. -- -- .07 -- -- --
From capital paid-in............................ -- -- -- .10 -- --
------- ------- ------- ------- ------- -------
Total distributions........................... 1.09 .74 .60 .19 .89 .40
------- ------- ------- ------- ------- -------
Net asset value, end of period.................... $ 10.93 $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62
======= ======= ======= ======= ======= =======
Total return(%)................................... (8.72)(b) 16.21(b) 12.08(b) (1.00)(c) 16.71(b) 4.54(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, end of period (in thousands).......... $19,692 $24,152 $21,264 $19,327 $17,393 $12,391
Ratio of expenses to average net assets
With expense reimbursement(%)................... -- -- 2.20 2.20(d) 2.20 1.95
Without expense reimbursement(%)................ 2.07 2.18 2.46 2.34(d) 2.42 2.76
Ratio of net investment income (loss) to average
net assets(%)................................... .58 .58 .71(a) (.06)(a)(d) .01(a) .38(a)
Portfolio turnover rate(%)........................ 45 43 53 23 85 67
Average commission rate(e)........................ $ .0100 $ .0181 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B FOR THE YEAR ENDED MONTHS ENDED (COMMENCEMENT)
DECEMBER 31, DECEMBER 31, TO JUNE 30,
------------------------------- ------------ -----------------
1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------ ------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 13.12 $11.97 $11.23 $11.52 $12.12
------- ------ ------ ------ ------
Income (loss) from investment operations
Net investment loss.................................. (.02) (.02) -- (.03)(a) (.01)(a)
Net realized and unrealized gain (loss) on investment
transactions....................................... (1.20) 1.85 1.25 (.12) (.04)
------- ------ ------ ------ ------
Total from investment operations................... (1.22) 1.83 1.25 (.15) (.05)
------- ------ ------ ------ ------
Less distributions
From net investment income........................... .05 -- -- -- --
In excess of net investment income................... .26 .20 -- -- --
From net realized gain............................... .69 .48 .45 .08 .55
In excess of net realized gain....................... -- -- .06 -- --
From capital paid-in................................. -- -- -- .06 --
------- ------ ------ ------ ------
Total distributions................................ 1.00 .68 .51 .14 .55
------- ------ ------ ------ ------
Net asset value, end of period......................... $ 10.90 $13.12 $11.97 $11.23 $11.52
======= ====== ====== ====== ======
Total return(%)........................................ (9.33)(b) 15.30(b) 11.25(b) (1.37)(c) .38(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............... $10,056 $8,968 $4,811 $2,956 $ 376
Ratio of expenses to average net assets
With expense reimbursement(%)........................ -- -- 2.95 2.95(d) 2.95(d)
Without expense reimbursement(%)..................... 2.82 2.94 3.21 3.09(d) 3.17(d)
Ratio of net investment loss to average net
assets(%)............................................ (.18) (.17) (.04)(a) (0.81)(a)(d) (.74)(a)(d)
Portfolio turnover rate(%)............................. 45 43 53 23 85
Average commission rate(e)............................. $ .0100 $.0181 N/A N/A N/A
</TABLE>
(See Notes to Financial Statements)
<PAGE> 174
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31 TO DECEMBER 31,
------------ -----------------
1997 1996
SELECTED PER SHARE DATA ------------ -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 12.94 $ 13.31
------- -------
Income (loss) from investment operations
Net investment loss....................................... (.02) (.01)
Net realized and unrealized gain (loss)
on investment transactions.............................. (1.24) .42
------- -------
Total from investment operations........................ (1.26) .41
------- -------
Less distributions
From net investment income................................ .05 --
In excess of net investment income........................ .26 .30
From net realized gain.................................... .70 .48
------- -------
Total distributions..................................... 1.01 .78
------- -------
Net asset value, end of period.............................. $ 10.67 $ 12.94
======= =======
Total return(%)............................................. (9.72)(b) 3.07(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 727 $ 71
Ratio of expenses to average net assets
Without expense reimbursement(%).......................... 2.82 3.77(d)
Ratio of net investment loss to average net assets(%)(a).... (.18) (1.01)(d)
Portfolio turnover rate(%).................................. 45 43
Average commission rate(e).................................. $ .0100 $ .0181
</TABLE>
(a) Net investment income (loss) is net of expenses reimbursed
by manager.
(b) Total return does not reflect a sales charge.
(c) Total return represents aggregate total return and does not
reflect a sales charge.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a
fund is required to disclose its average commission rate per
share for security trades on which commissions are charged.
This amount may vary from period to period and fund to fund
depending on the mix of trades executed in various markets
where trading practices and commission rate structures may
differ.
(See Notes to Financial Statements)
<PAGE> 175
NOTES TO FINANCIAL STATEMENTS
Ivy Global Fund (the 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 and Class C 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.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
Preparation of the financial statements includes the use of management
estimates. Actual results could differ from those estimates.
SECURITY VALUATION -- Securities traded on a U.S. or foreign stock
exchange, or the National Association of Securities Dealers Automated Quotation
("NASDAQ") System, are valued at the last quoted sale price reported as of the
close of regular trading on the exchange the security is traded most
extensively. If there is no such sale, the security is valued at the calculated
mean between the last bid and asked price on the exchange. Securities not traded
on an exchange or NASDAQ, but traded in another over-the-counter market are
valued at the average between the current bid and asked prices in such markets.
Short-term obligations and commercial paper are valued at amortized cost, which
approximates market. Debt securities (other than short-term obligations and
commercial paper) are valued on the basis of valuations furnished by a pricing
service authorized by the Board of Trustees (the Board), which determines
valuations based upon market transactions for normal, institutional-size trading
units of such securities. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board. As of December
31, 1997 the security valued in good faith by the Valuation committee of the
Board amounted to $1,428 and has been noted as such in the investment portfolio.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date, and interest income is accrued on a daily basis. Realized gains and losses
from security transactions are calculated on an identified cost basis.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code, as
amended, and distribute all of its taxable income to its shareholders.
Therefore, no provision has been recorded for Federal income or excise taxes.
The Fund earned foreign source dividends of $899,903. These dividends were
subject to foreign withholding tax in the amount of $73,820. The Fund intends to
elect to pass through to its shareholders their proportionate share of such
taxes. Shareholders may report their share of such foreign taxes paid as either
a tax credit or itemized deduction.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$1,401,507 as capital gain dividends (of which, 100% is designated as 20% rate
gain) for its taxable year ended December 31, 1997.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
and net realized capital gains, if any, are declared in December.
FOREIGN CURRENCY TRANSLATIONS -- Foreign currency transactions from foreign
investment activity are translated into U.S. dollars on the following basis: (i)
market value of securities, and dividends and interest receivable are translated
at the closing daily rate of exchange; and, (ii) purchases and sales of
investment securities are translated at the rate at which related foreign
contracts are obtained or at the exchange rate prevailing on the date of the
transaction. Exchange gains or losses from currency translation of other assets
and liabilities, if significant, are reported as a separate component of Net
realized and unrealized gain (loss) on investment transactions.
Section 988 of the Internal Revenue Code provides that gains and losses on
certain transactions attributable to fluctuations in foreign currency exchange
rates must be treated as ordinary income or loss.
FORWARD FOREIGN CURRENCY CONTRACTS -- Forward foreign currency contracts
may be entered into for purposes of hedging specific securities denominated in
foreign currencies. Forward contracts are marked to market daily, and the change
in market value is recorded by the Fund as an unrealized gain or loss. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. The Fund could be exposed to risk if the
counterparties are unable to meet the terms of the contracts.
RECLASSIFICATIONS -- The timing and characterization of certain income and
net capital gain distributions are determined annually in accordance with
Federal tax regulations which may differ from generally accepted accounting
principles. These differences primarily relate to foreign denominated
securities, forward foreign currency contracts, passive foreign investment
companies, and certain securities sold at a loss. As a result, Net
<PAGE> 176
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
investment income (loss) and Net realized gain (loss) on investments and foreign
currency transactions for a reporting period may differ significantly in amount
and character from distributions during such period. Accordingly, the Fund may
make reclassifications among certain of its capital accounts without impacting
the net asset value of the Fund.
2. RELATED PARTIES
Ivy Management, Inc. (IMI) is the Manager and Investment Adviser of the
Fund. For its services, IMI receives a fee monthly at the annual rate of 1.00%
on the Fund's first $500 million of average net assets, and .75% of the Fund's
average net assets in excess of $500 million. Currently, IMI voluntarily limits
the Fund's total operating expenses (excluding taxes, 12b-1 fees, brokerage
commissions, interest, litigation and indemnification expenses, and other
extraordinary expenses) to an annual rate of 1.95% of its average net assets.
The voluntary expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc. (MIMI), of which IMI is a wholly owned
subsidiary, provides certain administrative, accounting and pricing services for
the Fund. For those services, the Fund pays MIMI fees plus certain out-of-pocket
expenses. Such fees and expenses are reflected as Administrative services fee
and Fund accounting in the Statement of Operations.
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. For the year ended December 31, 1997, the net amount of underwriting
discount retained by IMDI was $10,387.
Under Service and Distribution Plans, the Fund reimburses IMDI for service
fee payments made to brokers at an annual rate of .25% of its average net asset
value. Class B and Class C shares are also subject to an ongoing distribution
fee at an annual rate of .75% of the average net asset value attributable to
Class B and Class C shares. IMDI may use such distribution fee for purposes of
advertising and marketing shares of the Fund. Such fees of $64,567, $117,793 and
$7,922, for Class A, Class B and Class C, respectively, are reflected as 12b-1
service and distribution fees in the Statement of Operations.
Ivy Mackenzie Services Corp. (IMSC), a wholly owned subsidiary of MIMI, is
the transfer and shareholder servicing agent for the Fund. For those services,
the Fund pays a monthly fee plus certain out-of-pocket expenses. Such fees and
expenses of $50,153, $23,921 and $1,640, for Class A, Class B and Class C,
respectively, are reflected as Transfer agent in the Statement of Operations.
3. BOARD'S COMPENSATION
Trustees who are not affiliated with IMI or MIMI receive compensation from
the Fund, which is reflected as Trustees' fees in the Statement of Operations.
4. FUND SHARE TRANSACTIONS
Fund share transactions for Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 716,642 $ 9,986,512 486,908 $ 6,383,105
Issued on reinvestment of
distributions............... 157,077 1,735,809 96,662 1,267,635
Repurchased.................. (906,904) (12,580,608) (525,829) (6,920,178)
-------- ----------- ---------- -----------
Net decrease................. (33,185) $ (858,287) 57,741 $ 730,562
======== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 366,100 $ 5,039,662 350,672 $ 4,642,668
Issued on reinvestment of
distributions............... 65,780 724,938 29,736 390,147
Repurchased.................. (192,584) (576,518) (99,033) (1,306,541)
-------- ----------- ---------- -----------
Net increase................. 239,296 $ 3,188,082 281,375 $ 3,726,274
======== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FROM APRIL 30, 1996
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, 1997 TO DECEMBER 31, 1996
---------------------- ------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold......................... 71,556 $ 948,831 5,866 $ 78,416
Issued on reinvestment of
distributions............... 5,049 54,480 219 2,832
Repurchased.................. (13,938) (180,088) (600) (8,189)
-------- ----------- ---------- -----------
Net increase................. 62,667 $ 823,223 5,485 $ 73,059
======== =========== ========== ===========
</TABLE>
5. SUBSEQUENT EVENT
Effective January 1, 1998, the Fund authorized an unlimited number of
Advisor Class shares, at no par value. These 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.
<PAGE> 177
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Fund (the Fund)
We have audited the accompanying statement of assets and liabilities of the
Fund, including the schedule of portfolio investments, as of December 31, 1997,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Fund as of December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
February 13, 1998
02IGLF123197
