<PAGE> 1
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
IVY FUNDS(R)
MARKET COMMENTARY
Non-Japan Asia seems to have turned the corner. Though recession continues in
many countries, we believe that most economies in the region have bottomed out
and many have rebounded from their low points of 1998; as a result, we expect a
return to positive growth for these economies in 1999.
According to our research, the rebound is being driven by the reversal of many
of the same factors that fueled the sell-off. The crisis was prompted by the
devaluation of the Thai baht in July 1997, which led to corresponding
devaluations in many neighboring countries and soaring interest rates across the
region. In 1998, currency stabilization and revaluation, driven in part by the
steep appreciation of the Japanese yen during the summer, set the stage for
substantial interest rate declines across the region. In our opinion,
anticipation of economic turnaround led to a strong recovery in equity markets
in the latter part of the year. Within this environment, the Ivy Asia Pacific
Fund ended 1998 down 6.86%. This compares favorably to the Morgan Stanley
Capital International Far East Free (Excluding-Japan) Index, which was down
7.39% for the same period. (For the Fund's total return with sales charge and
performance commentary, please refer to the following page.) In addition to a
cyclical recovery, we believe that many of the Asian economies are undergoing
longer-term structural changes, which should improve disclosure and corporate
governance going forward. Financial sector deregulation in Singapore, increased
disclosure by Hong Kong banks, and liberalization of foreign ownership
restrictions on land ownership in Thailand are all examples of positive steps
being taken toward more market-oriented economies.
Throughout the crisis, as earnings estimates became moving targets, volatility
and economic uncertainty challenged traditional valuation tools, such as price
to earnings ratios. Our research during this period was focused mainly on asset
values and balance sheet analysis. Due to our focus on distressed value, the Ivy
Asia Pacific Fund participated in the market rebound, which contributed to the
Fund's performance in 1998. In our view, we have positioned the Ivy Asia Pacific
Fund to benefit from the next phase of the recovery. The Fund's largest
positions continue to be focused in the most liquid, interest-rate sensitive
markets, such as Hong Kong and Singapore. These portfolio allocations should
have a positive impact on the Fund, assuming that interest rates continue to
come down and international investors increase their exposure to the region. If
both equity prices and currencies strengthen further, we believe that the Fund's
investments in Southeast Asian countries should continue to benefit.
While Asian markets have rebounded significantly from their 12-month lows, it is
important to remember that these markets are recovering from very depressed
levels. Although some markets in the region may currently look expensive on a
price to earnings basis due to depressed earnings, many companies continue to
trade at substantial discounts to their net asset values. In particular, we are
uncovering value in some of the second-tier names, which have been overlooked in
the recent liquidity-led recovery. While we cannot say for certain, we believe
these companies offer significant upside from their current levels. While we
expect that volatility in Asian markets will continue into the future, we
believe that investing in this region of the world should provide
diversification benefits to investors who have a longer-term time horizon.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
<PAGE> 2
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (1/97)
OF A $10,000 INVESTMENT
(CHART)
IVY ASIA PACIFIC FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Asia Pacific Fund was
down 6.86%. The Morgan Stanley Capital International (MSCI) Far East Free
(Excluding-Japan) Index was down 7.39% for the same period. The Fund's
outperformance can be attributed primarily to differences in the composition of
the Fund's portfolio and the index. The Fund's focus on investing in companies
that our research indicates represent good long-term value provided significant
exposure to the turnaround in regional stock markets that occurred in the second
half of the year.
The Morgan Stanley Capital International (MSCI) Far East Free (Excluding-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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY ASIA PACIFIC FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(12.10%) (7.48%) (14.64%) (10.13%)
C: C: C: C:
1 year (12.21%) (16.09%) (8.29%) (7.37%) (11.32%) (10.40%) n/a n/a
B: B: B: B:
(27.09%) (25.53%) (29.04%) (27.58%)
C: C: C: C:
Since Inception(5) (27.29%) (29.90%) (28.60%) (28.60%) (30.75%) (30.75%) n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
There were no Advisor Class shares outstanding.
(5)Class A, Class B and Class C commenced operations January 1, 1997.
Total returns were higher due to reimbursement of certain Fund 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.
- --------------------------------------------------------------------------------
<PAGE> 3
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 92.38% SHARES VALUE
- ---------------------------------------------
<S> <C> <C>
AUSTRALIA -- .57%
Broken Hill Proprietary Company Limited...... 4,200 $ 30,962
----------
CHINA -- 2.26%
Anhui Expressway Co. Ltd. ................... 110,000 12,921
China Southern Airlines Company
Limited(a)................................. 116,000 12,128
Guangdong Kelon Elec Holding................. 39,000 34,736
Qingling Motors Company -- H Shares.......... 288,000 50,559
Zhenhai Refining and Chemical Company
Limited.................................... 84,000 12,903
----------
123,247
----------
HONG KONG -- 33.26%
Asia Satellite Telecommunications Holdings
Ltd. ...................................... 30,000 53,440
CDL Hotels International Ltd. ............... 360,000 92,474
CLP Holdings Limited......................... 23,000 114,599
Cheung Kong Holdings Ltd. ................... 18,000 129,534
China Resources Enterprise Limited........... 26,000 40,609
Citic Pacific Ltd. .......................... 37,000 79,760
Dao Heng Bank Group Ltd. .................... 42,000 129,843
Giordano Holdings Ltd. ...................... 260,000 48,664
Gold Peak Industries (Holdings) Limited...... 200,000 56,151
HSBC Holdings................................ 9,600 239,163
Hong Kong Electric Holdings Ltd. ............ 43,000 130,437
Hong Kong Telecommunications Limited......... 32,000 55,970
Jardine International Motor Holdings Co. .... 108,000 42,868
Moulin International Holding Ltd. ........... 230,000 27,907
National Mutual Asia Ltd. ................... 60,000 44,920
New World Development Company Ltd. .......... 40,000 100,684
Sun Hung Kai Properties Ltd. ................ 8,000 58,345
Swire Pacific Ltd. Class A................... 17,000 76,145
Techtronic Industries Company................ 143,800 25,615
Union Bank of Hong Kong Ltd. ................ 48,266 38,628
VTech Holdings Limited....................... 29,000 126,526
Wharf Holdings Ltd. (with 3,800
warrants(a))............................... 30,000 44,073
Yue Yuen Industrial Holdings................. 29,000 55,028
----------
1,811,383
----------
INDONESIA -- 1.83%
Asia Pulp & Paper Company Ltd -- Sponsored
ADR(a)..................................... 4,400 36,025
PT Bank Dagang Nasional Warrants -- Foreign
Registered(a).............................. 500 --
PT Hanjaya Mandala Sampoerna(a).............. 96,000 63,700
----------
99,725
----------
MALAYSIA(B) -- 14.97%
AMMB Holdings Berhad......................... 9,800 10,093
Berjaya Sports Toto Berhad................... 56,000 61,021
Genting Berhad............................... 17,000 32,241
Johor Port Berhad............................ 204,000 63,779
KFC Holdings (Malaysia) Berhad............... 62,700 44,394
Malakoff Berhad.............................. 16,000 32,736
Malayan Banking Berhad....................... 34,400 60,892
Malayan Cement Berhad........................ 55,750 17,558
Perusahaan Otomobil Nasional Berhad.......... 78,000 103,103
Petronas Gas Berhad.......................... 17,000 33,609
Public Bank Berhad........................... 40,000 18,391
Public Bank Berhad -- Foreign Registered..... 50,000 21,264
Sime Darby Berhad............................ 102,000 102,234
Sime UEP Properties Berhad................... 68,000 56,276
Telekom Malaysia Berhad...................... 35,000 80,460
Tenaga Nasional Berhad....................... 43,000 77,103
----------
815,154
----------
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
NEW ZEALAND -- 1.99%
Fletcher Challenge Paper..................... 34,000 $ 22,810
Tourism Holdings Limited(a).................. 104,428 85,506
----------
108,316
----------
PHILIPPINES -- 5.57%
Alaska Milk Corporation(a)................... 820,000 48,063
Benpres Holdings Corporation Sponsored
GDR(a)..................................... 16,600 49,800
Benpres Holdings Corporation 144A(a)......... 1,000 3,000
Manila Electric Company -- B Shares.......... 16,000 51,415
Metropolitan Bank & Trust Company............ 7,200 51,827
Music Corporation(a)......................... 242,000 19,908
Philippine Long Distance Telephone Co. ...... 1,472 37,842
Universal Robina Corporation................. 369,500 41,321
----------
303,176
----------
SINGAPORE -- 18.83%
Clipsal Industries Limited................... 79,000 79,000
DBS Land Limited............................. 73,000 107,512
Development Bank of Singapore Limited........ 17,550 158,486
Elec & Eltek International Co. Ltd. ......... 18,050 97,470
Fraser & Neave Ltd. Ordinary................. 17,000 49,662
Hong Kong Land Holdings Ltd. ................ 32,000 37,760
Jardine Matheson Holdings Ltd. .............. 16,200 41,796
Jardine Strategic Holdings Ltd. ............. 30,500 44,225
Overseas Union Bank Ltd. .................... 24,240 105,777
Singapore Airlines Ltd. ..................... 23,000 168,671
Singapore Press Holdings Ltd. ............... 10,000 109,094
United Overseas Bank Ltd. ................... 4,000 25,698
----------
1,025,151
----------
SOUTH KOREA -- 7.93%
Hyundai Motor Company Ltd. .................. 3,648 64,923
Korea Electric Power Corporation............. 3,000 74,347
Pohang Iron & Steel Company Ltd. ............ 1,000 64,368
Samsung Electronics Co. GDR 144A
Registered................................. 3,954 156,183
Samsung Fire & Marine Insurance (with 50
rights(a))................................. 167 72,110
----------
431,931
----------
THAILAND -- 5.17%
Advanced Info Service Public Company
Limited -- Foreign Registered.............. 4,600 27,346
Bangkok Bank Public Company Ltd. -- Foreign
Registered(a).............................. 23,800 49,128
Delta Electronics (Thailand) Public Company
Inc. -- Foreign Registered................. 6,450 34,084
K. R. Precision Public Company Limited --
Foreign Registered(a)...................... 72,800 35,565
Thai Airways Int'l. Public Company, Ltd. --
Foreign Registered(a)...................... 27,800 35,961
Thai Farmers Bank Public Company, Ltd. --
Foreign Registered(a)...................... 16,500 29,064
The Siam Cement Public Company Limited --
Foreign Registered(a)...................... 3,100 70,303
----------
281,451
----------
</TABLE>
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------
<S> <C> <C>
TOTAL INVESTMENTS -- 92.38%
(Cost -- $4,721,889)(Cost on Federal income tax
basis -- $4,754,341)............................... $5,030,496
OTHER ASSETS, LESS LIABILITIES -- 7.62%................ 414,834
----------
NET ASSETS -- 100%..................................... $5,445,330
==========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(a) Non-income producing security
(b) As of September 1, 1998, the repatriation of proceeds received
from the sale of these securities has been blocked until at
least September 1, 1999. These securities are considered
illiquid and are being fair valued using methods determined in
good faith by the Valuation Committee of the Board of Trustees.
See Note 6 to the Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation...................... $ 888,976
Gross unrealized depreciation...................... (580,369)
----------
Net unrealized appreciation for
financial statement purposes................. 308,607
Less: tax basis adjustments........................ (32,452)
----------
Net unrealized appreciation for
Federal income tax purposes.................. $ 276,155
==========
Purchases and sales of securities other than short-term obligations
aggregated $7,634,757 and $3,622,676, respectively, for the period
ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $4,721,889)....... $5,030,496
Cash........................................................ 390,204
Receivables
Fund shares sold.......................................... 185,075
Dividends and interest.................................... 7,251
Manager for expense reimbursement......................... 12,430
Deferred organization expenses.............................. 28,831
Other assets................................................ 4,206
----------
Total assets.............................................. 5,658,493
----------
LIABILITIES
Payables
Fund shares repurchased................................... 174,866
Management fee............................................ 4,657
12b-1 service and distribution fees....................... 3,718
Other payables to related parties......................... 4,193
Accrued expenses............................................ 25,729
----------
Total liabilities......................................... 213,163
----------
NET ASSETS.................................................. $5,445,330
==========
CLASS A
Net asset value and redemption price per share
($1,393,254/250,439 shares outstanding)................... $ 5.56
==========
Maximum offering price per share ($5.56 X 100/94.25)*....... $ 5.90
==========
CLASS B
Net asset value, offering price and redemption price** per
share ($2,196,700/397,557 shares outstanding)............. $ 5.53
==========
CLASS C
Net asset value, offering price and redemption price*** per
share ($1,855,376/334,849 shares outstanding)............. $ 5.54
==========
NET ASSETS CONSIST OF
Capital paid-in........................................... $7,224,901
Accumulated net realized loss on investments and foreign
currency transactions................................... (2,098,551)
Undistributed net investment income....................... 9,686
Net unrealized appreciation on investments and foreign
currency transactions................................... 309,294
----------
NET ASSETS.................................................. $5,445,330
==========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $9,962 foreign taxes withheld........... $ 132,789
-----------
EXPENSES
Management fee............................................ $ 49,509
Transfer agent............................................ 16,060
Administrative services fee............................... 4,951
Custodian fees............................................ 111,071
Blue Sky fees............................................. 30,360
Auditing and accounting fees.............................. 17,348
Shareholder reports....................................... 3,425
Amortization of organization expenses..................... 9,826
Fund accounting........................................... 19,790
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 36,361
Legal..................................................... 21,994
Other..................................................... 1,777
-----------
330,943
Expenses reimbursed by Manager............................ (167,194)
Fees paid indirectly...................................... (30,845)
-----------
Net expenses............................................ 132,904
-----------
NET INVESTMENT LOSS......................................... (115)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (2,099,161)
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 1,157,220
-----------
Net loss on investment transactions..................... (941,941)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (942,056)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment (loss) income.............................. $ (115) $ 2,221
Net realized (loss) gain on investments and foreign
currency transactions................................... (2,099,161) 2,302
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,157,220.. (847,926)
----------- ----------
Net decrease resulting from operations.............. (942,056) (843,403)
----------- ----------
Class A distributions
From net investment income................................ -- (1,243)
In excess of net investment income........................ (8,845) (3,430)
From net realized gain.................................... (1,561) --
----------- ----------
Total distributions to Class A shareholders......... (10,406) (4,673)
----------- ----------
Class B distributions
From net investment income................................ -- (521)
In excess of net investment income........................ (3,991) (1,436)
From net realized gain.................................... (704) --
----------- ----------
Total distributions to Class B shareholders......... (4,695) (1,957)
----------- ----------
Class C distributions
From net investment income................................ -- (457)
In excess of net investment income........................ (2,487) (1,260)
From net realized gain.................................... (439) --
----------- ----------
Total distributions to Class C shareholders......... (2,926) (1,717)
----------- ----------
Fund share transactions (Note 5)
Class A................................................... 1,414,019 1,052,849
Class B................................................... 1,367,392 1,226,021
Class C................................................... 1,239,743 957,139
----------- ----------
Net increase resulting from Fund share transactions..... 4,021,154 3,236,009
----------- ----------
TOTAL INCREASE IN NET ASSETS................................ 3,061,071.. 2,384,529
NET ASSETS
Beginning of period....................................... 2,384,259 --
----------- ----------
END OF PERIOD............................................. $5,445,330.. $2,384,259
=========== ==========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $9,686...... $ 2,842
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 8
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
SELECTED PER SHARE DATA ------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 6.01 $ 10.00
------- -------
Loss from investment operations
Net investment income(a).................................. .03 .02
Net realized and unrealized loss on investment
transactions............................................ (.44) (3.98)
------- -------
Total from investment operations........................ (.41) (3.96)
------- -------
Less distributions
From net investment income................................ -- .01
In excess of net investment income........................ .03 .02
From net realized gain.................................... .01 --
------- -------
Total distributions..................................... .04 .03
------- -------
Net asset value, end of period.............................. $ 5.56 $ 6.01
======= =======
Total return(%)(b).......................................... (6.86) (39.58)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,393 $ 692
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 2.77 2.11
Without expense reimbursement(%).......................... 6.15 10.17
Ratio of net investment income to average net assets
(%)(a).................................................... .53 .63
Portfolio turnover rate(%).................................. 86 1
</TABLE>
<TABLE>
<CAPTION>
CLASS B FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
SELECTED PER SHARE DATA ------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 5.99 $ 10.00
------- -------
Loss from investment operations
Net investment loss(a).................................... (.01) --
Net realized and unrealized loss on investment
transactions............................................ (.44) (4.00)
------- -------
Total from investment operations........................ (.45) (4.00)
------- -------
Less distributions
In excess of net investment income........................ .01 .01
------- -------
Total distributions..................................... .01 .01
------- -------
Net asset value, end of period.............................. $ 5.53 $ 5.99
======= =======
Total return(%)(b).......................................... (7.48) (39.96)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2,197 $ 929
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 3.65 2.86
Without expense reimbursement(%).......................... 7.03 10.92
Ratio of net investment loss to average net assets (%)(a)... (.35) (.12)
Portfolio turnover rate(%).................................. 86 1
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 9
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1998 1997
SELECTED PER SHARE DATA ------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 5.99 $ 10.00
------- -------
Loss from investment operations
Net investment loss(a).................................... (.01) --
Net realized and unrealized loss on investment
transactions............................................ (.43) (3.99)
------- -------
Total from investment operations........................ (.44) (3.99)
------- -------
Less distributions
In excess of net investment income........................ .01 .02
------- -------
Total distributions..................................... .01 .02
------- -------
Net asset value, end of period.............................. $ 5.54 $ 5.99
======= =======
Total return(%)(b).......................................... (7.37) (39.94)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,855 $ 764
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 3.54 2.74
Without expense reimbursement(%).......................... 6.92 10.80
Ratio of net investment loss to average net assets(%)(a).... (.24) --
Portfolio turnover rate(%).................................. 86 1
</TABLE>
<TABLE>
<S> <C>
(a) Net investment income (loss) is net of expenses reimbursed
by Manager.
(b) Total return does not reflect a sales charge.
(c) Total expenses include fees paid indirectly through an
expense offset arrangement.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 10
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $815,154 (14.97% of net assets) and have
been noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 $141,631. These dividends were
subject to foreign withholding tax in the amount of $9,962. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,951,000 as of December 31, 1998 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 in 2006.
Pursuant to Section 852 of the Code, the Fund designates $1,006 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 loss and Net realized 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 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 ended December
31, 1998, custody fees were reduced by $30,845 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, 1998, the net amount of underwriting
discount retained by IMDI was $4,655.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $4,382,
$16,038, and $15,941 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 $4,742, $6,561 and $4,757, 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 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 Class A, Class B and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ---------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Sold........................... 587,033 $ 3,227,193 186,266 $1,497,206
Issued on reinvestment of
distributions................. 1,325 7,271 747 4,378
Repurchased.................... (453,035) (1,820,445) (71,897) (448,735)
-------- ----------- -------- ----------
Net increase................... 135,323 $ 1,414,019 115,116 $1,052,849
======== =========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Sold......................... 367,268 $ 1,924,978 177,326 $ 1,403,362
Issued on reinvestment of
distributions............... 537 2,927 171 1,002
Repurchased.................. (125,329) (560,513) (22,416) (178,343)
-------- ----------- -------- ------------
Net increase................. 242,476 $ 1,367,392 155,081 $ 1,226,021
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Sold......................... 355,153 $ 1,944,016 133,442 $ 992,947
Issued on reinvestment of
distributions............... 432 2,364 283 1,654
Repurchased.................. (148,169) (706,637) (6,292) (37,462)
-------- ----------- -------- ------------
Net increase................. 207,416 $ 1,239,743 127,433 $ 957,139
======== =========== ======== ============
</TABLE>
6. SUBSEQUENT EVENT
The Malaysian Government announced on February 4, 1999 a new policy
regarding repatriation of proceeds received from the sale of Malaysian
securities. Under the new policy, which goes into effect February 15, 1999,
repatriation will no longer be blocked; instead the new policy provides for a
graduated levy. The levy will range from zero to thirty percent of proceeds,
depending on the holding period and the time of repatriation.
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Asia Pacific Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IAPF123198
<PAGE> 13
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
For resource investors, the events of 1998 were disheartening, but we believe
those very same events should provide an opportunity for the coming years.
Simply put, just a few years ago, many world economists and company executives
were budgeting for the "Asian economic miracle" and the demand strain that it
would put on resources. Only two years ago, energy prices were reaching new
near-term highs. But instead of economic wonder, Asia was shaken by a financial
crisis that quickly spread to other developing areas of the world. Within this
difficult environment, the Ivy Global Natural Resources Fund was down 29.35%.
(For the Fund's total return with sales charge and performance commentary,
please refer to the following page.)
Commodity prices have now fallen for more than two years, and closed out 1998
with multidecade lows. The magnitude of the decline significantly exceeded many
analysts' expectations, and has caused many investors to conclude that the risks
are too high to be investing in resource sectors.
In light of the negative investor sentiment, we believe there are several
reasons why investors should consider increasing, not reducing, exposure to
resource sectors. First, resources (fertilizers for food, paper for
communication, steel for building materials, copper for pipes, aluminum for cans
and airplanes, and, of course, gas for cars and heating homes) are vital to the
infrastructure of both developed and developing economies. If, as we expect,
world demand grows, so will the need for these materials. Moreover, we expect
interest rates to fall, which should increase demand. Second, the plethora of
bad news has caused share prices to decline to valuations that, in our view,
have seldom been better-this is in stark contrast to the broad stock market,
which has seldom been this expensive. We believe the large number of takeovers
confirms that stocks are now trading below replacement value and that these
mergers also strengthen industries by reducing excessive competition. Third,
many companies are keeping inventory levels in check by cutting production. In
past cycles, however, just when less production was needed, companies often
produced more to make up for the revenue shortfall. Some inventory levels, such
as platinum, silver, and zinc, continue to decline despite the weak demand
environment. US crude oil inventory levels are high relative to past years, but
usage is also higher-measured in days of supply, inventories are not too far out
of line with demand.
Despite the difficult environment, many companies within the Ivy Global
Natural Resources Fund continue to expand production. According to our research,
balance sheets are also in reasonable shape for this point in the cycle. Past
cycles suggest that significant gains are likely once commodity prices improve.
(Of course, there is no guarantee that this trend will continue in the future.)
In the fourth quarter of 1998, there were positive divergences between share
prices and the underlying resources for the first time in two years: oil prices
went to new lows, but oil shares did not; base metal prices went to new lows,
but the base metal shares did not. We have already begun to see some stocks move
higher and while we cannot say for certain, this trend could continue in 1999.
Nonetheless, we believe that the uptrend in stocks will not begin in earnest
until commodity prices firm.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
Auditors
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 14
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (1/97)
OF A $10,000 INVESTMENT
CHART
IVY GLOBAL NATURAL RESOURCES FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Global Natural Resources
Fund was down 29.35%. The Morgan Stanley Capital International (MSCI)
Commodity-Related Index was down 14.61% for the same period. The higher return
of the index can be directly attributed to differences in the composition of the
Fund's portfolio and the index. The Fund is required to invest in at least three
countries world wide, while the index is made up of US-based companies. Also,
the Fund tends to invest in smaller-capitalization global companies, while the
index focuses on larger, US companies.
The Morgan Stanley Capital International (MSCI) 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY GLOBAL NATURAL RESOURCES FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(33.33%) (29.82%) (36.35%) (32.98%)
C: C: C: C:
1 year (33.41%) (36.53%) (31.19%) (30.49%) (35.88%) (35.23%) n/a n/a
B: B: B: B:
(15.45%) (13.67%) (17.42%) (15.70%)
C: C: C: C:
Since Inception(5) (15.68%) (17.71%) (14.17%) (14.17%) (17.17%) (17.17%) n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
There were no Advisor Class shares outstanding.
(5)Class A, Class B and Class C commenced operations January 1, 1997.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 15
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOREIGN EQUITY SECURITIES -- 101.01% SHARES VALUE
- -----------------------------------------
<S> <C> <C>
DIAMONDS -- 5.60%
Aber Resources, Ltd.(a).................. 10,000 $ 55,992
De Beers Consolidated Mines Ltd.......... 7,500 95,625
-----------
151,617
-----------
ENERGY SERVICES -- 18.67%
Diamond Offshore Drilling, Inc. ......... 5,300 125,544
Ensign Resource Service Group, Inc. ..... 10,000 87,894
NQL Drilling Tools Inc. -- Class A(a).... 7,500 19,532
Nabors Industries, Inc.(a)............... 2,000 27,125
Noble Drilling Corporation(a)............ 9,200 119,025
Santa Fe International Corporation....... 2,000 29,250
Weatherford International, Inc.(a)....... 5,000 96,875
-----------
505,245
-----------
FOOD/AGRICULTURE -- 1.80%
Saskatchewan Wheat Pool.................. 7,500 48,830
-----------
GAS PRODUCERS -- 15.56%
Elk Point Resources, Inc.(a)............. 36,000 93,754
Fletcher Challenge Energy................ 41,273 81,009
Niko Resources Ltd.(a)................... 25,000 91,149
Noble Affiliates, Inc. .................. 1,500 36,938
Penn West Petroleum Ltd.(a).............. 5,000 53,713
Remington Energy Ltd.(a)................. 20,000 64,456
-----------
421,019
-----------
INDUSTRIAL -- 5.29%
BASF AG.................................. 500 19,078
Cameco Corporation....................... 4,000 71,487
International Uranium Corp.(a)........... 150,000 52,736
-----------
143,301
-----------
JUNIOR PRECIOUS METALS -- 8.78%
Golden Knight Resources, Inc.(a)......... 200,000 58,596
Meridian Gold Inc.(a).................... 15,000 87,894
Orvana Minerals Corporation(a)........... 200,000 91,149
-----------
237,639
-----------
METALS & MINERALS -- 7.96%
Billiton plc............................. 25,000 49,706
Breakwater Resources, Ltd.(a)............ 75,000 46,388
Pasminco Limited......................... 150,000 114,085
Tenke Mining Corp.(a).................... 25,000 5,209
-----------
215,388
-----------
OIL PRODUCERS -- 9.17%
Hurricane Hydrocarbons Ltd. -- Class
A(a)................................... 15,000 17,188
Pacalta Resources Ltd.(a)................ 30,000 84,964
Talisman Energy Inc.(a).................. 2,500 43,866
Vermilion Resources Ltd.(a).............. 25,000 46,388
YPF S.A. ADR Class D..................... 2,000 55,875
-----------
248,281
-----------
PAPER & FOREST PRODUCTS -- 8.84%
Alliance Forest Products, Inc.(a)........ 6,500 61,786
Sino-Forest Corp. Class A(a)............. 140,000 149,485
UPM-Kymmene Oyj.......................... 1,000 28,045
-----------
239,316
-----------
</TABLE>
<TABLE>
<CAPTION>
FOREIGN EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
PLATINUM GROUP METALS -- 9.23%
Anglo American Platinum Corporation
Limited................................ 6,000 $ 82,310
Industrias Penoles S.A. ................. 35,000 104,755
Lonrho PLC............................... 11,500 62,655
-----------
249,720
-----------
SENIOR PRECIOUS METALS -- 10.11%
Acacia Resources Ltd. ................... 18,000 26,663
Delta Gold NL............................ 17,000 25,859
Freeport-McMoRan Copper & Gold,
Inc. .................................. 8,500 88,719
Gold Fields Limited(a)................... 15,000 3,740
Gold Fields of South Africa Limited...... 2,000 82,873
Vengold Inc.(a).......................... 75,000 45,900
-----------
273,754
-----------
TOTAL FOREIGN EQUITY SECURITIES
(Cost -- $3,957,200)................... 1,449,273 2,734,110
-----------
FOREIGN BONDS -- .58% PRINCIPAL
- ----------------------------------------- --------
William Resources, Inc. 8.00%,
01/23/02(b) (Cost -- $115,201)......... $400,000 15,625
-----------
TOTAL FOREIGN INVESTMENTS -- 101.59%
(Cost -- $4,072,401)(Cost on Federal income tax
basis -- $4,195,763) 2,749,735
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.59)%... (43,095)
-----------
NET ASSETS -- 100%................................. $ 2,706,640
===========
ADR -- American Depository Receipt
(a) Non-income producing security
(b) Issuer is in default on interest payments.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost
for financial statement and Federal income tax purposes is as
follows:
Gross unrealized appreciation.................. $ 135,445
Gross unrealized depreciation.................. (1,458,111)
-----------
Net unrealized depreciation for financial
statement purposes....................... (1,322,666)
Less: tax basis adjustments.................... (123,362)
-----------
Net unrealized depreciation for Federal
income tax purposes...................... $(1,446,028)
===========
Purchases and sales of investments (excluding short-term
obligations) aggregated $4,173,828 and $7,178,361, respectively,
for the period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $4,072,401)....... $ 2,749,735
Receivables
Investments sold.......................................... 40,294
Fund shares sold.......................................... 1,164
Dividends and interest.................................... 3,621
Manager for expense reimbursement......................... 14,832
Deferred organization expenses.............................. 28,832
Other assets................................................ 4,249
-----------
Total assets.............................................. 2,842,727
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 2,474
Management and advisory fees.............................. 2,373
12b-1 service and distribution fees....................... 1,478
Other payables to related parties......................... 3,888
Due to custodian............................................ 108,512
Accrued expenses............................................ 17,362
-----------
Total liabilities......................................... 136,087
-----------
NET ASSETS.................................................. $ 2,706,640
===========
CLASS A
Net asset value and redemption price per share
($1,344,863/212,740 shares outstanding)................... $ 6.32
===========
Maximum offering price per share ($6.32 x 100/94.25)*....... $ 6.71
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($1,320,448/210,649 shares outstanding)............. $ 6.27
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($41,329/6,658 shares outstanding).................. $ 6.21
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 5,721,970
Accumulated net realized loss on investments and foreign
currency transactions................................... (1,666,779)
Accumulated net investment loss........................... (26,012)
Net unrealized depreciation on investments and foreign
currency transactions................................... (1,322,539)
-----------
NET ASSETS.................................................. $ 2,706,640
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 17
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $2,943 foreign taxes withheld........... $ 57,101
Interest.................................................. 48,185
-----------
105,286
-----------
EXPENSES
Management fee............................................ $20,977
Advisory fee.............................................. 20,977
Transfer agent............................................ 17,966
Administrative services fee............................... 4,196
Custodian fees............................................ 51,604
Blue Sky fees............................................. 30,092
Auditing and accounting fees.............................. 17,371
Shareholder reports....................................... 2,919
Amortization of organization expenses..................... 9,826
Fund accounting........................................... 19,850
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 25,840
Legal..................................................... 22,020
Other..................................................... 3,487
-----------
255,596
Expenses reimbursed by Manager............................ (147,952)
-----------
Net expenses............................................ 107,644
-----------
NET INVESTMENT LOSS......................................... (2,358)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (1,287,009)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (122,583)
-----------
Net loss on investment transactions..................... (1,409,592)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(1,411,950)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (2,358) $ (87,912)
Net realized (loss) gain on investments and foreign
currency transactions................................... (1,287,009) 740,820
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (122,583) (1,199,956)
----------- -----------
Net decrease resulting from operations.................. (1,411,950) (547,048)
----------- -----------
Class A distributions
In excess of net investment income........................ (9,832) (91,654)
From net realized gain.................................... -- (441,915)
In excess of net realized gain............................ -- (125,911)
----------- -----------
Total distributions to Class A shareholders............. (9,832) (659,480)
----------- -----------
Class B distributions
In excess of net investment income........................ (9,330) (44,832)
From net realized gain.................................... -- (287,696)
In excess of net realized gain............................ -- (78,348)
----------- -----------
Total distributions to Class B shareholders............. (9,330) (410,876)
----------- -----------
Class C distributions
In excess of net investment income........................ (292) (1,675)
From net realized gain.................................... -- (11,209)
In excess of net realized gain............................ -- (4,050)
----------- -----------
Total distributions to Class C shareholders............. (292) (16,934)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (1,812,081) 4,800,177
Class B................................................... (740,027) 3,416,671
Class C................................................... (47,826) 155,468
----------- -----------
Net (decrease) increase resulting from Fund share
transactions........................................... (2,599,934) 8,372,316
----------- -----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (4,031,338) 6,737,978
NET ASSETS
Beginning of period....................................... 6,737,978 --
----------- -----------
END OF PERIOD............................................. $ 2,706,640 $ 6,737,978
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 17,963
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 19
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
SELECTED PER SHARE DATA ------- ------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.01 $10.00
------- ------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .03 (.11)
Net realized and unrealized (loss) gain on investment
transactions............................................ (2.68) .70
------- ------
Total from investment operations........................ (2.65) .59
------- ------
Less distributions
In excess of net investment income........................ .04 .22
From net realized gain.................................... -- 1.08
In excess of net realized gain............................ -- .28
------- ------
Total distributions..................................... .04 1.58
------- ------
Net asset value, end of period.............................. $ 6.32 $ 9.01
======= ======
Total return(%)(b).......................................... (29.35) 6.95
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,345 $3,907
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 2.22 2.10
Without expense reimbursement(%).......................... 5.75 2.88
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .29 (1.10)
Portfolio turnover rate(%).................................. 98 199
</TABLE>
<TABLE>
<CAPTION>
CLASS B FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
SELECTED PER SHARE DATA ------- ------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.00 $10.00
------- ------
Income (loss) from investment operations
Net investment loss(a).................................... (.04) (.15)
Net realized and unrealized (loss) gain on investment
transactions............................................ (2.65) .68
------- ------
Total from investment operations........................ (2.69) .53
------- ------
Less distributions
In excess of net investment income........................ .04 .17
From net realized gain.................................... -- 1.08
In excess of net realized gain............................ -- .28
------- ------
Total distributions..................................... .04 1.53
------- ------
Net asset value, end of period.............................. $ 6.27 $ 9.00
======= ======
Total return(%)(b).......................................... (29.82) 6.28
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,320 $2,706
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 2.90 2.86
Without expense reimbursement(%).......................... 6.43 3.64
Ratio of net investment loss to average net assets(%)(a).... (.39) (1.86)
Portfolio turnover rate(%).................................. 98 199
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C FOR THE YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
SELECTED PER SHARE DATA ------- ------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.00 $10.00
------- ------
Income (loss) from investment operations
Net investment loss(a).................................... (.14) (.17)
Net realized and unrealized (loss) gain on investment
transactions............................................ (2.61) .68
------- ------
Total from investment operations.......................... (2.75) .51
------- ------
Less distributions
In excess of net investment income........................ .04 .15
From net realized gain.................................... -- 1.08
In excess of net realized gain............................ -- .28
------- ------
Total distributions..................................... .04 1.51
------- ------
Net asset value, end of period.............................. $ 6.21 $ 9.00
======= ======
Total return(%)(b).......................................... (30.49) 6.08
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 41 $ 124
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 3.57 3.08
Without expense reimbursement(%).......................... 7.10 3.86
Ratio of net investment loss to average net assets(%)(a).... (1.06) (2.08)
Portfolio turnover rate(%).................................. 98 199
</TABLE>
<TABLE>
<S> <C>
Net investment loss is net of expenses reimbursed by the
(a) Manager.
(b) Total return does not reflect a sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 21
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, Class C and Advisor Class
are authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $56,526. These dividends were
subject to foreign withholding tax in the amount of $2,943. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$1,136,000 as of December 31, 1998 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 in 2006.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes Section 988 of the 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 loss
and Net realized loss on investments
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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, 1998, the net amount of underwriting
discount retained by IMDI was $580.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $5,371,
$19,537 and $932, 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 $9,643, $7,347 and $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 and Class C were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 145,809 $ 1,262,673 514,551 $ 5,779,987
Issued on reinvestment of
distributions................ 1,494 9,069 35,261 297,604
Repurchased................... (368,169) (3,083,823) (116,206) (1,277,414)
-------- ----------- -------- -----------
Net (decrease)/increase....... (220,866) $(1,812,081) 433,606 $ 4,800,177
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 17,035 $ 138,303 322,291 $ 3,679,427
Issued on reinvestment of
distributions................ 327 1,810 15,150 127,716
Repurchased................... (107,494) (880,140) (36,660) (390,472)
-------- ----------- -------- -----------
Net (decrease)/increase....... (90,132) $ (740,027) 300,781 $ 3,416,671
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 3,817 $ 31,278 16,819 $ 190,701
Issued on reinvestment
distributions................ 38 232 1,026 8,660
Repurchased................... (11,016) (79,336) (4,026) (43,893)
-------- ----------- -------- -----------
Net (decrease)/increase....... (7,161) $ (47,826) 13,819 $ 155,468
======== =========== ======== ===========
</TABLE>
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SUBSEQUENT EVENT
The Fund intends to enter into an Agreement and Plan of Reorganization on
March 11, 1999, (the "Reorganization") providing for the transfer into the Fund
of all or substantially all of the assets of Ivy Canada Fund. Pursuant to the
Reorganization each shareholder of Ivy Canada Fund will become a shareholder of
the Fund and will hold the number of full and fractional Class A, Class B, Class
C and Advisor Class Shares of the Fund having an aggregate net asset value equal
to the aggregate net asset value of each shareholders Class A, Class B, Class C
and Advisor Class shares of Ivy Canada Fund held as of the close of business on
the business day preceding the closing day. The closing day is expected to occur
on March 12, 1999. The Reorganization is subject to the approval of Ivy Canada
Fund shareholders.
Ivy Canada Fund is a separate portfolio of Ivy Fund and has investment
objectives and policies that are similar to the Fund's investment objectives and
policies. The interests of the Fund's shareholders will not be diluted as a
result of the Reorganization.
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Natural Resources Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IGNRF123198
<PAGE> 25
December 31, 1998
IVY
SOUTH
AMERICA
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS (R)
MARKET COMMENTARY
Nineteen ninety-eight was a tough year for emerging markets in general, and
South America in particular. As investors around the world fled riskier asset
classes in response to global developments, South American equities were
apparently sold without much regard for fundamentals within the economies
themselves. While the crisis that started in Asia and later spread to Russia
has had an impact on South America, in most cases our research indicates that
panicky investors priced in the worst-case scenario and by mid-year, most
securities in the region had been dramatically oversold. Within this difficult
environment, the Ivy South America Fund was down 36.07% for the twelve months
ended December 31, 1998. This performance is consistent with the Morgan Stanley
Capital International Emerging Markets Free Latin America Index, which was down
35.11% for the same period. (For the Fund's total return with sales charge and
performance commentary, please refer to the following page.)
The global financial crisis has led to lower growth expectations throughout
South America for both 1998 and 1999 due to a 21-year low in commodity prices
and the higher cost of capital. However, despite turmoil in the financial
markets and lower growth expectations, the underlying economies in South America
remain relatively strong in our view. Policy makers across the region have
actively responded to the situation posed by the global markets and have managed
to contain the impact of a crisis that, in the past, would have been devastating
to their then-fragile economies. Despite international pressure, we believe that
South America's commitment to free markets is unwavering and free market reform
policies continue to generate substantial productivity gains.
The impact of global market conditions has probably been most intense in Brazil,
placing substantial pressure on the Brazilian currency, the real. It appears
that the Brazilian government's decision to float the real at the beginning of
1999 has relieved much of that pressure, although it did not eliminate the need
for an aggressive fiscal adjustment. In our view, fiscal reforms continue to be
critical for a reduction in interest rates, which, in turn, could contribute to
a sustainable recovery in equity markets and improve long-term growth prospects
as well.
We expect that the bulk of a proposed fiscal package will be approved, although
political foot dragging is likely. While budget cuts and high interest rates are
likely to dampen growth in 1999, tight monetary policy and fiscal austerity are
critical for Brazil's long-term growth. Declining rates later in 1999 should set
the stage for an upturn in the year 2000. According to our research, the market
is currently trading at a substantial discount to the rest of the region, and we
believe this represents the most compelling value in South America.
In the short term, we expect these markets to remain highly volatile, with the
outlook largely dependent on the global environment and events in Brazil.
However, we believe that at current levels these markets present an
unprecedented opportunity for long-term returns.
IVY MANAGEMENT, INC.
Board of Trustees
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Legal Counsel
Dechert Price & Rhoads
Boston, MA
Officers
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
Custodian
Brown Brothers Harriman & Co.
Boston, MA
Transfer Agent
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
Auditors
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
Investment Manager
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
Distributor
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 26
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (11/94)
OF A $10,000 INVESTMENT
(CHART)
IVY SOUTH AMERICA FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy South America Fund was
down 36.07%. The Morgan Stanley Capital International (MSCI) Emerging Markets
Free (EMF) Latin America Index was down 35.11% for the same period. The
performance of the Fund is consistent with the performance of the index despite
market weightings that are considerably different.
The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF)
Latin America 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY SOUTH AMERICA FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(39.76%) (36.59%) (42.28%) (39.23%)
C: C: C: C:
1 year (39.74%) (42.33%) (37.69%) (36.69%) (40.44%) (39.44%) n/a n/a
B: B: B: B:
(13.00%) (12.59%) (16.53%) (16.12%)
C: C: C: C:
Since Inception(5) (13.13%) (16.79%) (11.75%) (11.75%) (13.71%) (13.71%) n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
There were no Advisor Class shares outstanding.
(5)Class A and Class B commenced operations November 1, 1994, Class C commenced
operations April 30, 1996.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 27
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.54% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ARGENTINA -- 20.17%
Banco de Galicia y Buenos
Aires S.A. de C.V......... 7,957 $ 35,042
Banco Frances S.A........... 7,500 53,298
Bansud S.A.(a).............. 8,809 37,825
Cia Naviera Perez Companc
'B'....................... 7,755 32,833
Inversiones y
Representaciones S.A.
(IRSA).................... 24,536 67,290
Quilmes Industrial S.A...... 2,830 26,354
Telecom Argentina S.A.
ADR....................... 2,700 74,250
Telefonica de Argentina S.A.
ADR....................... 2,700 75,431
Transportadora de Gas Sur... 15,700 31,114
YPF S.A. Sponsored ADR...... 4,400 122,925
-----------
556,362
-----------
BRAZIL -- 51.92%
Aracruz Celulose S.A. ADR... 1,750 14,000
Banco Bradesco S.A.
Preferred (with 420,129
rights(a))................ 10,136,032 56,452
Banco Itau.................. 113,000 55,180
Brasmotor S.A. Preferred.... 210,000 20,858
Centrais Electricas
Brasileiras S.A. Preferred
(Electrobras)............. 4,808,000 92,324
Centrais Electricas de Santa
Catarina S.A. Preferred B
(CELESC).................. 64,201 28,694
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar Preferred.......... 4,600,000 74,243
Companhia Cervejaria Brahma
Preferred................. 92,551 40,446
Companhia Cimento Portland
Itau
Preferred................. 120,000 13,657
Companhia Energetica de
Minas Gerais Preferred
(CEMIG)................... 3,368,933 64,133
Companhia Paranaense de
Energia --
Copel..................... 6,800,000 38,835
Companhia Paulista de Forca
e Luz
(CPFL).................... 350,000 25,203
Companhia Paulista de Forca
e Luz
(CPFL) Preferred.......... 2,905 192
Companhia Paulista de Forca
e Luz
(CPFL) Preferred
Receipts.................. 2,141 142
Companhia Saneamento Basico
(SABESP).................. 320,030 24,237
Companhia Siderurgica de
Tubarao................... 3,400,000 14,239
Companhia Vale do Rio Doce
Preferred A (with 8,300
Debentures(a))............ 4,900 62,862
Elevadores Atlas S.A.
144A...................... 4,000 43,039
Embratel Participacoes
S.A.(a)................... 2,600 36,238
Gerdau S.A.................. 2,200,000 16,388
Light Servicos de
Eletricidade S.A.......... 170,000 20,684
Petroleo Brasileiro S.A.
Preferred (Petrobras)..... 1,139,000 129,154
Rossi Residencial S.A.
GDR....................... 10,000 16,250
Tam Transport Aereos
Regionais S.A.
Preferred................. 2,450,000 131,788
Tele Celular Sul
Participacoes S.A.(a)..... 260 4,534
Tele Centro Oeste Celular
Participacoes S.A.(a)..... 866 2,544
Tele Centro Sul
Participacoes S.A.(a)..... 520 21,742
Tele Leste Celular
Participacoes S.A.(a)..... 52 1,475
Tele Nordeste Celular
Participacoes
S.A.(a)................... 130 2,405
Tele Norte Celular
Participacoes S.A.(a)..... 52 1,173
Tele Norte Leste
Participacoes S.A.(a)..... 2,600 32,337
Tele Sudeste Celular
Participacoes
S.A.(a)................... 520 10,757
Telecomunicacoes Brasileiras
S.A. ADR (Telebras)....... 2,600 284
Telecomunicacoes de Minas
Gerais (Telemig).......... 4,861 97
Telecomunicacoes de Minas
Gerais (Telemig) Preferred
B......................... 570,726 16,675
Telecomunicacoes de Sao
Paulo S.A. (Telesp)(a).... 6,856 155
Telecomunicacoes de Sao
Paulo S.A. (Telesp)
Preferred................. 591,796 80,673
Telecomunicacoes do Parana
Preferred (Telepar)....... 176,690 $ 31,441
Telemig Celular
Participacoes S.A.(a)..... 130 2,762
Telemig Celular S.A.(a)..... 4,861 50
Telemig Celular S.A.
Preferred C(a)............ 570,726 11,195
Telepar Celular S.A.
Preferred B (a)........... 176,690 11,113
Telerj Celular S.A.
Preferred B(a)............ 316,013 7,454
Telesp Celular Participacoes
S.A(a).................... 1,040 18,200
Telesp Celular S.A.(a)...... 6,856 590
Telesp Celular S.A.
Preferred B(a)............ 673,807 29,614
Telesp Participacoes
S.A.(a)................... 2,600 57,525
Unibanco -- Units........... 1,379,847 47,967
Usinas Siderurgicas de Minas
Gerais S.A. Preferred
(USIMINAS)................ 9,010 19,911
-----------
1,431,911
-----------
CHILE -- 17.46%
A.F.P. Provida S.A. ADR..... 2,700 36,281
Antofagasta Holdings PLC.... 11,700 34,553
Banco Santander Chile
Sponsored ADR............. 2,100 30,713
Banco Santiago.............. 1,700 25,288
Cristalerias de Chile
Sponsored ADR............. 5,000 65,625
Empresa Nacional
Electricidad S.A.......... 4,200 47,775
Gener S.A. Sponsored ADR.... 1,728 27,648
Laboratorio Chile S.A.
ADR....................... 5,100 73,313
Madeco S.A. ADR............. 3,700 30,988
Quimica Minera Chile S.A.
Sponsored
ADR....................... 1,400 47,163
Vina Concha y Toro S.A.
ADR....................... 2,400 62,100
-----------
481,447
-----------
COLOMBIA -- 1.49%
Bancolombia S.A. Sponsored
ADR....................... 6,100 28,594
Cememtos Diamante ADR
144A...................... 8,300 12,450
-----------
41,044
-----------
MEXICO -- 2.14%
Panamerican Beverages Inc... 2,700 58,894
-----------
PERU -- 4.87%
Banco Wiese ADR............. 12,200 22,875
Credicorp Limited(a)........ 5,273 47,457
Southern Peru Copper Corp... 1,900 17,931
Telefonica del Peru
S.A. -- B................. 36,600 46,041
-----------
134,304
-----------
VENEZUELA -- 1.49%
CANTV CIA Anonima Telef..... 2,300..... 40,969
-----------
TOTAL INVESTMENTS -- 99.54%
(Cost -- $3,997,594)(Cost on Federal
income tax basis -- $4,015,681)..... 2,744,931
OTHER ASSETS, LESS
LIABILITIES -- .46%................... 12,823
-----------
NET ASSETS -- 100%...................... $ 2,757,754
===========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
(a) Non-income producing security
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation....... $ 211,541
Gross unrealized depreciation....... (1,464,204)
-----------
Net unrealized depreciation for
financial statement
purposes.............................. (1,252,663)
Less: tax basis adjustments......... (18,087)
-----------
Net unrealized depreciation for
Federal income tax purposes... $(1,270,750)
===========
Purchases and sales of securities other than
short-term obligations aggregated $1,397,903 and
$5,019,772, respectively, for the period ended
December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 28
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $3,997,594)....... $ 2,744,931
Receivables
Investments sold.......................................... 63,075
Fund shares sold.......................................... 2,563
Dividends and interest.................................... 19,384
Manager for expense reimbursement......................... 16,784
Deferred organization expenses.............................. 10,280
Other assets................................................ 4,840
-----------
Total assets.............................................. 2,861,857
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 15,341
Management fee............................................ 2,608
12b-1 service and distribution fees....................... 1,453
Other payables to related parties......................... 4,220
Due to custodian.......................................... 63,748
Accrued expenses............................................ 16,733
-----------
Total liabilities......................................... 104,103
-----------
NET ASSETS.................................................. $ 2,757,754
===========
CLASS A
Net asset value and redemption price per share
($1,638,179/293,716 shares outstanding)................... $ 5.58
===========
Maximum offering price per share ($5.58 X 100/94.25)*....... $ 5.92
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($971,693/176,121 shares outstanding)............... $ 5.52
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($147,882/26,966 shares outstanding)................ $ 5.48
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 4,603,410
Accumulated net realized loss on investments and foreign
currency transactions................................... (669,233)
Undistributed net investment income....................... 76,439
Net unrealized depreciation on investments and foreign
currency transactions................................... (1,252,862)
-----------
NET ASSETS.................................................. $ 2,757,754
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 29
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $25,605 foreign taxes withheld.......... $ 222,059
Interest.................................................. 810
-----------
222,869
-----------
EXPENSES
Management fee............................................ $53,857
Transfer agent............................................ 22,160
Administrative services fee............................... 5,386
Custodian fees............................................ 54,938
Blue Sky fees............................................. 35,969
Auditing and accounting fees.............................. 18,931
Shareholder reports....................................... 5,650
Amortization of organization expenses..................... 12,454
Fund accounting........................................... 19,918
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 30,176
Legal..................................................... 21,619
Other..................................................... 2,290
-----------
291,819
Expenses reimbursed by Manager............................ (145,867)
Fees paid indirectly...................................... (10,742)
-----------
Net expenses............................................ 135,210
-----------
NET INVESTMENT INCOME....................................... 87,659
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (677,203)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (1,807,210)
-----------
Net loss on investment transactions..................... (2,484,413)
-----------
Net decrease in net assets resulting from operations........ $(2,396,754)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 30
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 87,659 $ 31,048
Net realized (loss) gain on investments and foreign
currency transactions................................... (677,203) 154,205
Net change in unrealized (depreciation) appreciation on
investments and foreign currency transactions........... (1,807,210) 64,801
----------- ----------
Net (decrease) increase resulting from operations... (2,396,754) 250,054
----------- ----------
Class A distributions
From net investment income................................ -- (26,281)
From net realized gain.................................... (44,650) (60,670)
----------- ----------
Total distributions to Class A shareholders......... (44,650) (86,951)
----------- ----------
Class B distributions
From net realized gain.................................... (28,480) (19,985)
----------- ----------
Total distributions to Class B shareholders......... (28,480) (19,985)
----------- ----------
Class C distributions
From net realized gain.................................... (4,060) (4,054)
----------- ----------
Total distributions to Class C shareholders......... (4,060) (4,054)
----------- ----------
Fund share transactions (Note 5)
Class A................................................... (2,470,662) 1,541,795
Class B................................................... (1,266,307) 950,516
Class C................................................... (184,076) 369,599
----------- ----------
Net (decrease) increase resulting from Fund share
transactions........................................ (3,921,045) 2,861,910
----------- ----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (6,394,989) 3,000,974
NET ASSETS
Beginning of period....................................... 9,152,743 6,151,769
----------- ----------
END OF PERIOD............................................. $ 2,757,754 $9,152,743
=========== ==========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 76,439 $ --
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 31
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------- ----------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.96 $ 8.51 $ 6.88 $ 8.37 $ 10.00
------- ------ ------ ------- -------
Income (loss) from investment operations
Net investment income(a).................................. .21 .06 .01 .01 --
Net realized and unrealized (loss) gain on
investment transactions................................. (3.44) .53 1.66 (1.45) (1.63)
------- ------ ------ ------- -------
Total from investment operations........................ (3.23) .59 1.67 (1.44) (1.63)
------- ------ ------ ------- -------
Less distributions
From net investment income................................ -- .04 -- -- --
From net realized gain.................................... .15 .10 .04 -- --
From capital paid-in...................................... -- -- -- .05 --
------- ------ ------ ------- -------
Total distributions..................................... .15 .14 .04 .05 --
------- ------ ------ ------- -------
Net asset value, end of period.............................. $ 5.58 $ 8.96 $ 8.51 $ 6.88 $ 8.37
======= ====== ====== ======= =======
Total return(%)............................................. (36.07)(c) 7.03(c) 24.22(c) (17.28)(c) (16.10)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 1,638 $5,671 $4,016 $ 2,015 $ 571
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 2.38 2.45 2.55 2.61 2.20(d)
Without expense reimbursement(%).......................... 5.09 3.18 4.89 9.26 16.22(d)
Ratio of net investment income to average net
assets(%)(a).............................................. 1.96 .65 .24 .22 .21(d)
Portfolio turnover rate(%).................................. 26 10 20 45 82
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 32
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------- ----------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------ ------ ------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.94 $ 8.48 $ 6.88 $ 8.37 $ 10.00
------- ------ ------ ------- -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .12 (.01) (.03) (.02) (.01)
Net realized and unrealized (loss) gain on
investment transactions................................. (3.39) .53 1.63 (1.47) (1.62)
------- ------ ------ ------- -------
Total from investment operations........................ (3.27) .52 1.60 (1.49) (1.63)
------- ------ ------ ------- -------
Less distributions
From net realized gain.................................... .15 .06 -- -- --
------- ------ ------ ------- -------
Total distributions..................................... .15 .06 -- -- --
------- ------ ------ ------- -------
Net asset value, end of period.............................. $ 5.52 $ 8.94 $ 8.48 $ 6.88 $ 8.37
======= ====== ====== ======= =======
Total return(%)............................................. (36.59)(c) 6.18(c) 23.26(c) (17.90)(c) (16.20)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 972 $3,028 $2,025 $ 684 $ 122
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.18 3.23 3.33 3.36 2.95(d)
Without expense reimbursement(%).......................... 5.89 3.96 5.67 10.01 16.97(d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. 1.16 (.13) (.54) (.53) (.54)(d)
Portfolio turnover rate(%).................................. 26 10 20 45 82
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 33
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------ ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.89 $ 8.46 $ 7.96
------- ------ -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .12 (.02) (.02)
Net realized and unrealized gain (loss) on investment
transactions............................................ (3.38) .53 .55
------- ------ -------
Total from investment operations........................ (3.26) .51 .53
------- ------ -------
Less distributions
From net realized gain.................................... .15 .08 .03
------- ------ -------
Total distributions..................................... .15 .08 .03
------- ------ -------
Net asset value, end of period.............................. $ 5.48 $ 8.89 $ 8.46
======= ====== =======
Total return(%)............................................. (36.69)(c) 6.06(c) 6.66(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 148 $ 453 $ 111
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.21 3.30 3.46(d)
Without expense reimbursement(%).......................... 5.92 4.03 5.80(d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. 1.13 (.20) (.68)(d)
Portfolio turnover rate(%).................................. 26 10 20
</TABLE>
<TABLE>
<S> <C>
Net investment income (loss) is net of expenses reimbursed
(a) by Manager.
Total return represents aggregate total return and does not
(b) reflect a sales charge.
(c) Total return does not reflect a sales charge.
(d) Annualized
Beginning in 1995, total expenses include fees paid
(e) indirectly through an expense offset arrangement.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
Ivy South America 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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $247,664. These dividends were
subject to foreign withholding tax in the amount of $25,605. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$529,000 as of December 31, 1998 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 in 2006.
Pursuant to Section 852 of the Code, the Fund designates $77,190 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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 and Net realized 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
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 ended December
31, 1998, custody fees were reduced by $10,742 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, 1998, the net amount of underwriting
discount retained by IMDI was $275.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $7,893,
$19,401 and $2,882, 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 $12,268, $8,539 and $1,353, 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 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, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 131,225 $ 1,039,478 378,980 $ 3,715,905
Issued on reinvestment of
distributions................ 6,020 34,396 8,757 73,733
Repurchased................... (476,199) (3,544,536) (226,858) (2,247,843)
-------- ----------- -------- -----------
Net (decrease)/increase....... (338,954) $(2,470,662) 160,879 $ 1,541,795
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 27,768 $ 209,828 224,612 $ 2,200,555
Issued on reinvestment of
distributions................ 3,019 16,992 1,372 11,530
Repurchased................... (193,307) (1,493,127) (126,124) (1,261,569)
-------- ----------- -------- -----------
Net (decrease)/increase....... (162,520) $(1,266,307) 99,860 $ 950,516
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 3,891 $ 32,908 41,166 $ 400,890
Issued on reinvestment of
distributions................ 161 902 167 1,391
Repurchased................... (28,074) (217,886) (3,514) (32,682)
-------- ----------- -------- -----------
Net (decrease)/increase....... (24,022) $ (184,076) 37,819 $ 369,599
======== =========== ======== ===========
</TABLE>
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy South America Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02ISAF123198
<PAGE> 37
]December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
The global flight to quality had a considerable impact on international
small-cap stocks in 1998 as many investors took refuge in the more liquid
large-cap names. This was perhaps most apparent in Asia and Latin America,
although European small caps generally underperformed broader indices as well.
Within this environment, the Ivy International Small Companies Fund was up
5.24%. This compares favorably with the HSBC James Capel World (Excluding-US)
Small Company Index, which was up 3.31% for the same period. (For the Fund's
total return with sales charge and performance commentary, please refer to the
following page.)
We continue to favor European small caps, which represented approximately 69% of
the Fund's assets at year-end. We took advantage of the midyear sell-off in
European stocks to add some new names to the Fund's holdings. One of these new
additions is Tag Heuer International, which manufactures and distributes one of
the world's most widely recognized brands of watches. We believe Tag Heuer
continues to offer exceptional value selling at 8.8 times 1999 estimated
earnings and offers a dividend yield of more than 4%. We also added Johnson
Services, a UK company that provides uniform rental and laundry services in the
UK, Ireland, and the US. According to our research, despite strong top-line
growth and superior margins, the company trades at a substantial discount to the
broader UK market.
As of year-end, the Fund's Asian investments represented about 20% of its total
assets. Our research indicates that as panic seized financial markets in the
region, many small-cap stocks were sold with little regard for their long-term
prospects. We believe this component of the Fund represents exceptional value
and will boost long-term performance.
Asian holdings in the Fund include Hong Kong-listed Jardine International
Motors, a company that distributes Mercedes-Benz in Hong Kong, China, the UK,
and France. With over 40% of operating profits derived from the UK and France,
the company's earnings are well diversified. The Asian holdings of the Ivy
International Small Companies Fund also include Universal Robina, the largest
snack food producer and distributor in the Philippines. As the dominant national
player, we believe the company has not only been resilient in an economic
downturn, but has actually benefited during this period of economic
turmoil--increasing market share as its imported competitors have been priced
out of the market.
Seven percent of the Fund was invested in Latin America at year-end. As in Asia,
many Latin American small caps were subject to indiscriminant selling in 1998.
In many cases, according to our research, small-cap stocks in the region are
currently selling at less than half the multiples of the broader stock indices.
If, as we expect, volatility subsides and investors begin to focus on
fundamentals, we believe that the exceptional value currently offered by many of
the Fund's Latin American holdings is likely to be realized.
The holdings of the Ivy International Small Companies Fund reflect its value
discipline. According to our research, valuations of many portfolio holdings
are, on average, about half that of the broader indices and in many cases growth
rates are estimated to be twice those of the market averages. Longer term, we
continue to believe that international small caps offer exceptional value. If,
as we expect, risk premiums decrease and markets rally, value stocks, including
many of the Fund's small-cap holdings, should perform well.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 38
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (1/97)
OF A $10,000 INVESTMENT
(CHART)
IVY INTERNATIONAL SMALL COMPANIES FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy International Small
Companies Fund returned 5.24%. The HSBC James Capel World (Excluding-US) Small
Company Index returned 3.31% for the same period. The outperformance of the Fund
is primarily due to the difference in holdings between the Fund and the index.
While approximately 20% of the Fund was invested in Asia, it had no exposure to
Japan. The index had an approximately 19% weighting in Asia, of which more than
14% was in Japan.
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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
IVY INTERNATIONAL SMALL Advisor Class(4) CLASS I(5)
COMPANIES FUND w/ w/o w/ w/o w/ w/o
AVERAGE ANNUAL TOTAL Reimb. Reimb. w/ w/o Reimb. Reimb. Reimb. REIMB.
RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(.54%) 4.46% (4.44%) .38%
C: C: C: C:
1 year (.81%) (4.85%) 3.55% 4.55% (1.42%) (.42%) n/a n/a n/a n/a
B: B: B: B:
(6.73%) (4.79%) (9.23%) (7.34)
C: C: C: C:
Since Inception(6) (6.88%) (9.63%) (4.72%) (4.72%) (7.85%) (7.85%) n/a n/a n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
There were no Advisor Class shares outstanding.
(5)Class I shares are not subject to an initial sales charge or a CDSC. There
were no Class I shares outstanding.
(6)Class A, Class B and Class C commenced operations January 1, 1997.
Total returns were higher due to reimbursement of certain Fund 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.
- --------------------------------------------------------------------------------
<PAGE> 39
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 96.72% SHARES VALUE
- --------------------------------------------
<S> <C> <C>
ASIA/PACIFIC -- 19.68%
- --------------------------------------------
AUSTRALIA -- 2.37%
BRL Hardy Limited........................... 10,100 $ 34,196
Tyndall Australia Limited................... 26,183 40,149
----------
74,345
----------
HONG KONG -- 6.46%
CDL Hotels International Ltd. .............. 80,000 20,550
Gold Peak Industries (Holdings) Ltd. ....... 41,000 11,511
Jardine International Motor Holdings Co. ... 48,000 19,052
Lamex Holdings Ltd. ........................ 130,000 3,188
Li & Fung................................... 23,000 47,651
National Mutual Asia Ltd. .................. 54,000 40,428
Techtronic Industries Company............... 166,000 29,570
Union Bank of Hong Kong Ltd. ............... 38,000 30,412
----------
202,362
----------
MALAYSIA(B) -- 1.68%
KFC Holdings (Malaysia) Berhad.............. 26,000 18,409
Malayan Cement Berhad....................... 28,750 9,055
Sime UEP Properties Berhad.................. 24,000 19,862
Sungei Way Holdings Berhad(a)............... 18,000 5,131
----------
52,457
----------
NEW ZEALAND -- 3.20%
Fletcher Challenge Building................. 23,000 35,599
Fletcher Challenge Forestry................. 920 306
Tourism Holdings Limited(a)................. 78,684 64,426
----------
100,331
----------
PHILIPPINES -- 1.89%
Alaska Milk Corporation(a).................. 440,000 25,790
Universal Robina Corporation................ 300,000 33,549
----------
59,339
----------
SINGAPORE -- 3.23%
Clipsal Industries Ltd. .................... 22,000 22,000
Comfort Group Ltd. ......................... 55,000 19,834
Elec & Eltek International Co. Ltd. ........ 11,000 59,400
----------
101,234
----------
THAILAND -- .85%
Circuit Electronic Industries Public Company
Limited -- Foreign Registered(a).......... 13,500 2,712
Delta Electronics (Thailand) Public Company
Limited -- Foreign Registered............. 3,750 19,816
K.R. Precision Public Company Limited --
Foreign Registered(a)..................... 8,200 4,006
----------
26,534
----------
EUROPE -- 69.28%
- --------------------------------------------
AUSTRIA -- 1.80%
BWT AG...................................... 160 35,487
Mayr-Melnhof Karton AG...................... 450 21,044
----------
56,531
----------
DENMARK -- 2.95%
Jyske Bank A/S.............................. 600 58,189
Sydbank A/S................................. 800 34,316
----------
92,505
----------
FINLAND -- 2.68%
Metsa-Serla OY -- Class B................... 8,500 69,668
Raisio Group plc............................ 1,300 14,378
----------
84,046
----------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
FRANCE -- 16.04%
Assurances Banque Populaire................. 891 $ 100,489
Bongrain S.A................................ 175 78,321
Galeries Lafayette.......................... 65 69,817
MGI Coutier................................. 700 36,967
Scor........................................ 1,510 99,883
Unibail..................................... 800 116,720
----------
502,197
----------
GERMANY -- 7.96%
Dyckerhoff AG............................... 215 58,735
Gerresheimer Glas AG........................ 3,800 55,898
Leica Camera AG(a).......................... 2,595 23,761
Merck KGaA.................................. 1,440 64,844
Wanderer-Werke AG(a)........................ 390 46,130
----------
249,368
----------
HUNGARY -- 1.38%
Danubius Hotel & Spa Rights(a).............. 1,200 25,138
Pick Szeged Rights.......................... 425 18,063
----------
43,201
----------
ITALY -- 8.16%
Banca Popolare Di Milano.................... 10,650 96,883
Industrie Natuzzi Spa -- Sponsored ADR...... 3,100 77,113
Safilo S.p.A................................ 15,300 81,469
----------
255,465
----------
NORWAY -- 1.37%
Nycomed Amersham plc........................ 6,150 42,783
----------
PORTUGAL -- 4.60%
Colep -- Cia Portuguesa de Embalagens(a).... 4,100 30,619
Companhia de Seguros Mundial Confianca
S.A.(a)................................... 1,350 42,937
Lusomundo-SGPS S.A. ........................ 5,610 70,352
----------
143,908
----------
SWEDEN -- .56%
S.K.F. AB Series "B"........................ 1,510 17,605
----------
SWITZERLAND -- 8.98%
Edipresse S.A. ............................. 330 94,905
Fotolabo S.A. .............................. 315 96,325
TAG Heuer International SA.................. 890 61,300
Zehnder Holding AG -- Class B............... 70 28,541
----------
281,071
----------
UNITED KINGDOM -- 12.80%
Alldays PLC................................. 8,800 25,110
Care U.K. PLC............................... 28,955 103,336
Corporate Services Group PLC................ 28,275 71,272
Jarvis Hotels PLC........................... 34,370 65,762
Johnson Service Group PLC................... 19,000 81,401
Kiln Capital PLC............................ 23,713 53,855
----------
400,736
----------
LATIN AMERICA -- 6.78%
- --------------------------------------------
ARGENTINA -- 1.14%
Bansud S.A.(a).............................. 4,340 18,635
Quilmes Industrial S.A. .................... 1,830 17,042
----------
35,677
----------
BRAZIL -- 3.41%
Brasmotor S.A. Preferred.................... 200,000 19,864
Centrais Eletricas de Santa Catarina S.A.
(CELESC).................................. 24,000 10,727
Elevadores Atlas S.A. 144A.................. 1,600 17,216
Plascar Participacoes Industriais S.A. ..... 2,800,000 8,343
Rossi Residencial........................... 7,600 12,350
Tam Transport Aeros Regionais S.A.
Preferred................................. 710,000 38,192
----------
106,692
----------
</TABLE>
<PAGE> 40
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- --------------------------------------------
<S> <C> <C>
CHILE -- 2.23%
A.F.P. Provida S.A.-Sponsored ADR........... 1,600 $ 21,500
Cristalerias de Chile Sponsored ADR......... 2,100 27,563
Vina Concha Y Toro S.A. ADR................. 800 20,700
----------
69,763
----------
NORTH AMERICA -- .98%
- --------------------------------------------
CANADA -- .98%
Methanex Corporation(a)..................... 5,870 30,574
----------
TOTAL INVESTMENTS -- 96.72%
(Cost -- $3,295,908) (Cost on Federal income tax
basis -- $3,337,719)............................... 3,028,724
OTHER ASSETS, LESS LIABILITIES -- 3.28%................ 102,686
----------
NET ASSETS -- 100%..................................... $3,131,410
==========
ADR -- American Depository Receipt
(a) Non-Income producing security
(b) As of September 1, 1998, the repatriation of proceeds received
from the sale of these securities has been blocked until at
least September 1, 1999. These securities are considered
illiquid and are being fair valued using methods determined in
good faith by the Valuation Committee of the Board of Trustees.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------
<S> <C> <C>
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation...................... $ 504,013
Gross unrealized depreciation...................... (771,197)
----------
Net unrealized depreciation for
financial statement purposes................. (267,184)
Less: tax basis adjustments........................ (41,811)
----------
Net unrealized depreciation for
Federal income tax purposes.................. $ (308,995)
==========
Purchases and sales of securities other than short-term obligations
aggregated $610,376 and $1,031,764, respectively, for the period
ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 41
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $3,295,908)....... $3,028,724
Receivables
Investments sold.......................................... 3,347
Fund shares sold.......................................... 54,793
Dividends and interest.................................... 9,984
Manager for expense reimbursement......................... 28,262
Deferred organization expenses.............................. 29,212
Other assets................................................ 4,251
----------
Total assets............................................ 3,158,573
----------
LIABILITIES
Payables
Management fee............................................ 2,585
12b-1 service and distribution fees....................... 2,004
Other payables to related parties......................... 3,439
Due to custodian............................................ 2,369
Accrued expenses............................................ 16,766
----------
Total liabilities....................................... 27,163
----------
NET ASSETS.................................................. $3,131,410
==========
CLASS A
Net asset value and redemption price per share
($980,248/109,472 shares outstanding)..................... $ 8.95
==========
Maximum offering price per share ($8.95 X 100/94.25)*....... $ 9.50
==========
CLASS B
Net asset value, offering price, and redemption price** per
share ($1,026,586/115,104 shares outstanding)............. $ 8.92
==========
CLASS C
Net asset value, offering price, and redemption price*** per
share ($1,124,576/125,314 shares outstanding)............. $ 8.97
==========
NET ASSETS CONSIST OF
Capital paid-in........................................... $3,537,773
Accumulated net loss on investments and foreign currency
transactions............................................ (148,858)
Undistributed net investment income....................... 9,017
Net unrealized depreciation on investments and foreign
currency transactions................................... (266,522)
----------
NET ASSETS.................................................. $3,131,410
==========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 42
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $5,751 foreign taxes withheld........... $ 90,017
---------
EXPENSES
Management fee............................................ $34,504
Transfer agent............................................ 11,287
Administrative services fee............................... 3,450
Custodian fees............................................ 46,353
Blue Sky fees............................................. 30,750
Auditing and accounting fees.............................. 17,354
Shareholder reports....................................... 3,547
Amortization of organization expenses..................... 9,954
Fund accounting........................................... 20,384
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 27,105
Legal..................................................... 22,883
Other..................................................... 1,903
---------
237,945
Expenses reimbursed by Manager............................ (134,787)
Fees paid indirectly...................................... (8,775)
---------
Net expenses............................................ 94,383
---------
NET INVESTMENT LOSS......................................... (4,366)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (147,128)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 331,298
---------
Net gain on investment transactions..................... 184,170
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 179,804
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 43
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
---------- ----------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (4,366) $ (18,011)
Net realized (loss) gain on investments and foreign
currency transactions................................... (147,128) 29,248
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 331,298 (597,820)
---------- ----------
Net increase (decrease) resulting from operations... 179,804 (586,583)
---------- ----------
Class A distributions
In excess of net investment income........................ (15,583) --
From net realized gain.................................... (858) --
In excess of net realized gain............................ -- (10,611)
---------- ----------
Total distributions to Class A shareholders......... (16,441) (10,611)
---------- ----------
Class B distributions
In excess of net investment income........................ (9,725) --
From net realized gain.................................... (962)
In excess of net realized gain............................ -- (5,916)
---------- ----------
Total distributions to Class B shareholders......... (10,687) (5,916)
---------- ----------
Class C distributions
In excess of net investment income........................ (7,930) --
From net realized gain.................................... (1,046)
In excess of net realized gain............................ -- (6,491)
---------- ----------
Total distributions to Class C shareholders......... (8,976) (6,491)
---------- ----------
Fund share transactions (Note 4)
Class A................................................... (51,932) 1,166,547
Class B................................................... (16,818) 1,178,634
Class C................................................... (517,473) 1,838,353
---------- ----------
Net (decrease) increase resulting from Fund share
transactions........................................ (586,223) 4,183,534
---------- ----------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (442,523) 3,573,933
NET ASSETS
Beginning of period....................................... 3,573,933 --
---------- ----------
END OF PERIOD............................................. $3,131,410 $3,573,933
========== ==========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 9,017 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 44
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
SELECTED PER SHARE DATA ------ -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.66 $ 10.00
------ -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .04 (.01)
Net realized and unrealized gain (loss) on investment
transactions............................................ .41 (1.24)
------ -------
Total from investment operations........................ .45 (1.25)
------ -------
Less distributions
In excess of net investment income........................ .15 --
From net realized gain.................................... .01 .09
------ -------
Total distributions..................................... .16 .09
------ -------
Net asset value, end of period.............................. $ 8.95 $ 8.66
====== =======
Total return(%)(b).......................................... 5.24 (12.52)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 980 $ 992
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 2.47 2.50
Without expense reimbursement(%).......................... 6.38 4.87
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .39 (.11)
Portfolio turnover rate(%).................................. 18 10
</TABLE>
<TABLE>
<CAPTION>
CLASS B FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
SELECTED PER SHARE DATA ------ -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.63 $ 10.00
------ -------
Income (loss) from investment operations
Net investment loss(a).................................... (.03) (.05)
Net realized and unrealized gain (loss) on investment
transactions............................................ .41 (1.27)
------ -------
Total from investment operations........................ .38 (1.32)
------ -------
Less distributions
In excess of net investment income........................ .08 --
From net realized gain.................................... .01 .05
------ -------
Total distributions..................................... .09 .05
------ -------
Net asset value, end of period.............................. $ 8.92 $ 8.63
====== =======
Total return(%)(b).......................................... 4.46 (13.19)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,027 $ 1,007
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 3.24 3.31
Without expense reimbursement(%).......................... 7.15 5.68
Ratio of net investment loss to average net assets(%)(a).... (.38) (.91)
Portfolio turnover rate(%).................................. 18 10
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 45
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
SELECTED PER SHARE DATA ------ -------
<S> <C> <C>
Net asset value, beginning of period........................ $8.65.. $ 10.00
------ -------
Income (loss) from investment operations
Net investment loss(a).................................... (.03) (.06)
Net realized and unrealized gain (loss) on investment
transactions............................................ .42 (1.25)
------ -------
Total from investment operations........................ .39 (1.31)
------ -------
Less distributions
In excess of net investment income........................ .06 --
From net realized gain.................................... .01 .04
------ -------
Total distributions..................................... .07 .04
------ -------
Net asset value, end of period.............................. $ 8.97 $ 8.65
====== =======
Total return(%)(b).......................................... 4.55 (13.14)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,125 $ 1,574
Ratio of expenses to average net assets(c)
With expense reimbursement(%)............................. 3.16 3.23
Without expense reimbursement(%).......................... 7.07 5.60
Ratio of net investment loss to average net assets(%)(a).... (.30) (.83)
Portfolio turnover rate(%).................................. 18 10
</TABLE>
<TABLE>
<S> <C>
Net investment income (loss) is net of expenses reimbursed
(a) by Manager.
(b) Total return does not reflect a sales charge.
Total expenses include fees paid indirectly through an
(c) expense offset arrangement.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 46
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,
Advisor Class 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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $52,457 (1.68% of net assets) and have been
noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $95,768. These dividends were
subject to foreign withholding tax in the amount of $5,751. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$149,000 as of December 31, 1998 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 in 2006.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes Section 988 of the 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 and non-deductible
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
organization expenses. As a result, Net investment loss and Net realized 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 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 ended December
31, 1998, custody fees were reduced by $8,775 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, 1998, the net amount of underwriting
discount retained by IMDI was $578.
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 Advisor Class and 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 assets attributable to Class B and Class C. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$2,466, $10,562 and $14,077, 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 $3,416, $3,818 and $4,053, 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, 1998 DECEMBER 31, 1997
-------------------- --------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sold.............................. 26,321 $ 245,402 137,090 $1,381,448
Issued on reinvestment of
distributions.................... 1,617 14,226 1,120 9,573
Repurchased....................... (33,027) (311,560) (23,649) (224,474)
-------- --------- ------- ----------
Net (decrease)/increase........... (5,089) $ (51,932) 114,561 $1,166,547
======== ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sold.............................. 19,191 $ 172,197 138,360 $1,386,132
Issued on reinvestment of
distributions.................... 729 6,395 479 4,077
Repurchased....................... (21,580) (195,410) (22,075) (211,575)
-------- --------- ------- ----------
Net (decrease)/increase........... (1,660) $ (16,818) 116,764 $1,178,634
======== ========= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
------- -------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sold.............................. 44,807 $ 433,078 227,583 $2,285,190
Issued on reinvestment of
distributions.................... 83 735 196 1,670
Repurchased....................... (101,503) (951,286) (45,852) (448,507)
-------- --------- ------- ----------
Net (decrease)/increase........... (56,613) $(517,473) 181,927 $1,838,353
======== ========= ======= ==========
</TABLE>
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Small Companies Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IISC123198
<PAGE> 49
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
The year 1998 was a turbulent one in many capital markets around the world. In
our view, the most visible and unsettling force was that of the hedge funds,
whose huge leverage produced extreme fluctuations in the currency, bond, and
stock markets. Notable events, which exerted negative pressure on the markets
included the default of Russia on its debt, the freezing of Malaysian cash, and
the collapse of oil prices.
On the positive side, continental European countries continued to put their
fiscal and monetary houses in order as they worked toward inclusion in the
Economic and Monetary Union (EMU) and the introduction of the single European
currency, the euro. Their efforts resulted in continued low inflation and
interest rates in Europe, strong cash flows from the US, and heightened merger
and acquisition activity. Within this context, for the twelve months ended
December 31, 1998, the Ivy International Fund was up 7.34%. (For the Fund's
total return with sales charge and performance commentary, please refer to the
following page.)
Significant changes in the portfolio of Ivy International Fund in 1998
included eliminating the Fund's exposure to Russia. Because we no longer
considered Russia to be a suitable investment, by July the Fund had sold all its
Russian holdings. By late August, against a backdrop of currency devaluations,
Russia defaulted on its debt. Overall, however, investing in Russia had a
positive impact on the Fund's performance in 1998. The Fund's exposure to
exploration and production in the oil sector was reduced during the year, in
particular in Norway, which was impacted by its North Sea activities and its
sensitivity to changing oil prices. South Africa felt the impact of its close
ties to commodities such as copper, nickel, and gold. In general, demand for
commodities collapsed with currency devaluations in the Far East in 1997.
Markets in Asia remained volatile throughout 1998 as investors fled the region
in search of safer havens. Actions taken by some governments, notably Malaysia,
which froze cash accounts, and Hong Kong, where authorities intervened in the
market, helped to stabilize markets and set the stage for a rally in many Asian
economies during the fourth quarter of 1998.
According to our research, EMU was the catalyst for many positive trends
across continental Europe. In Italy, for example, a combination of low interest
rates, merger and acquisition activity, and "euro euphoria" propelled the
market. Spain followed suit for many of the same reasons, as the southern euro
countries vying for inclusion in EMU enjoyed the benefits of fiscal discipline.
With 78% of Ivy International Fund invested in Europe as of year-end, we believe
that the Fund is well positioned for the positive effects that could result from
the advent of the euro.
In our view, many positive euro-related themes will continue to unfold: a
favorable fiscal environment with low interest rates and moderate wage demands,
as well as new situations in which companies can see the advantages in mergers
and cost-saving steps. In our view, the UK's desire for membership in EMU in two
to three years should have a positive effect on the UK market.
We continue to believe that international investing is a valuable component
of a well-diversified portfolio and would encourage investors to focus on the
longer-term trends that may exist overseas.
Ivy Management, Inc.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 50
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (4/86)
OF A $10,000 INVESTMENT
CHART
IVY INTERNATIONAL FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy International Fund
returned 7.34%. The Morgan Stanley Capital International (MSCI) Europe,
Australasia, Far East (EAFE) Index was up 20.00% for the same period. The Fund's
underperformance can be attributed to its overweighting in value stocks, which,
as a group, performed poorly in 1998, as well as its exposure to emerging
markets. Brazil and Argentina were down approximately 40.00% and 20.00%,
respectively. In addition, South Africa was down approximately 40.00%. The
negative performance of these three countries offset the strong performance of
many European holdings, in particular the European financial stocks. It should
be noted that neither Brazil, Argentina nor South Africa is part of the EAFE
index.
The Lipper Average International Fund represents the performance of the average
international fund as measured by Lipper Inc. It is not possible to invest in a
benchmark. The Morgan Stanley Capital International (MSCI) 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
CLASS I(4)
w/ w/o w/ w/o
IVY INTERNATIONAL FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a 1.43% 6.43%
C: C: C: C:
1 year n/a 1.17% n/a n/a 5.46% 6.46% n/a 7.75%
B: B: B: B:
n/a n/a 9.51% 9.73%
C: C: C: C:
5 year n/a 9.37% n/a n/a n/a n/a n/a 10.81%
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
10 year 11.73% 11.72% n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a 10.82% 10.91%
C: C: C: C:
Since Inception(5) 13.93% 13.92% n/a n/a n/a 10.30% n/a 11.77%
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Class I shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations November 15, 1985 (performance here is
calculated based on the date the Fund first became available for sale to the
public, April 30, 1986); Class B commenced operations October 22, 1993; Class
C commenced operations April 30, 1996; Class I commenced operations October
6, 1994.
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.
- --------------------------------------------------------------------------------
<PAGE> 51
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 97.64% SHARES VALUE
- ----------------------------------
<S> <C> <C>
AFRICA -- 1.89%
- ----------------------------------
SOUTH AFRICA -- 1.89%
Anglo American Corporation
of South Africa Ltd............. 26,900 $ 758,169
Anglo American Corporation
of South Africa Ltd. ADR........ 450,000 12,600,000
Billiton Plc...................... 476,400 947,517
Billiton Plc ADR.................. 6,000,000 11,934,000
Gencor Limited.................... 95,280 160,349
Gencor Limited ADR................ 1,200,000 2,019,600
South African Breweries Limited... 271,659 4,576,433
South African Breweries Limited
ADR............................. 805,839 13,588,863
--------------
46,584,931
--------------
ASIA -- 10.99%
- ----------------------------------
JAPAN -- 6.82%
Bridgestone Corp.................. 1,200,000 27,288,054
Canon Inc......................... 1,200,000 25,692,262
Fuji Photo Film ORD............... 850,000 31,649,887
Matsushita Electric Industrial
Co.............................. 1,700,000 30,127,678
Sharp Corp........................ 3,500,000 31,618,858
Sony Corp......................... 302,000 22,034,882
--------------
168,411,621
--------------
MALAYSIA (B) -- 1.75%
Malayan Banking Berhad............ 4,600,000 8,142,529
Sime Darby Berhad................. 21,500,000 21,549,425
Telekom Malaysia Berhad........... 5,875,000 13,505,747
--------------
43,197,701
--------------
SINGAPORE -- 2.42%
Fraser & Neave Ltd. ORD........... 5,000,000 14,606,432
Oversea-Chinese Banking
Corporation Ltd................. 3,500,000 23,758,181
United Overseas Bank Foreign
Registered...................... 3,312,407 21,280,247
--------------
59,644,860
--------------
AUSTRALIA -- 1.11%
- ----------------------------------
AUSTRALIA -- 1.11%
News Corp. Ltd. ADR............... 1,000,000 26,437,500
Western Mining Corporation
Holdings ADR.................... 82,812 993,744
--------------
27,431,244
--------------
EUROPE -- 78.48%
- ----------------------------------
DENMARK -- 1.17%
Novo Nordisk AS -- Class B........ 220,000 29,036,757
--------------
FRANCE -- 17.64%
AXA-UAP........................... 300,000 43,501,549
BIC............................... 87,860 4,875,861
Banque Nationale de Paris......... 520,032 42,842,532
Compagnie de Saint Gobain......... 130,000 18,361,950
Compagnie Financiere de Paribas... 367,257 31,932,773
Elf Aquitaine S.A................. 300,000 34,693,828
Eurotunnel S.A.(a)................ 14,846,000 18,869,755
Eurotunnel S.A. Warrants(a)....... 10,000,000 1,056,210
Michelin Class B REGD............. 356,752 14,273,891
Pechiney S.A. Class A............. 715,700 23,382,574
Rhone Poulenc S.A................. 567,790 29,233,113
Schneider S.A..................... 300,000 18,206,204
Seita/Societe National
D'Exploitation Industrielle Des
Tabacs Et Allumettes............ 691,570 43,331,392
Societe Generale.................. 147,000 23,815,755
Suez Lyonnaise des Eaux........... 222,611 45,749,564
Total S.A....................... 407,995 41,339,928
--------------
435,466,879
--------------
ITALY -- 5.62%
Assicurazioni Generali............ 1,392,000 58,250,008
Banca Commericale Italiana........ 7,540,000 52,129,536
Instituto Bancario San Paolo di
Torino.......................... 1,595,700 28,258,022
--------------
138,637,566
--------------
NETHERLANDS -- 4.30%
ABN Amro Holdings NV.............. 1,481,196 31,176,128
Hunter Douglas NV................. 149,261 4,947,084
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
ING Groep NV...................... 644,863 $ 39,344,633
Royal Dutch Petroleum ADR......... 640,000 30,640,000
--------------
106,107,845
--------------
NORWAY -- 1.10%
Bergesen D.Y. A/S.A............... 2,280,000 27,232,764
Frontline Ltd Warrants(a)......... 804,393 --
--------------
27,232,764
--------------
PORTUGAL -- 1.85%
Banco Commercial Portugues
Preferred....................... 400,000 45,600,000
--------------
SPAIN -- 3.57%
Banco Bilboa Vizcaya REGD......... 900,000 14,132,836
Banco Intercontinental............ 700,000 25,837,859
Repsol S.A........................ 900,000 48,083,401
--------------
88,054,096
--------------
SWEDEN -- 9.16%
AGA AB Series B Free.............. 2,500,000 32,847,896
Autoliv, Inc. SDR................. 1,600,000 57,442,180
Ericsson L.M. Telephone Series B
Free............................ 2,000,000 47,621,738
Scania AB-B Warrants
06/04/99(a)..................... 2,008,500 421,249
Svenska Cellulosa AB (SCA) --
Series B........................ 1,200,000 26,204,293
Swedish Match AB.................. 9,000,000 32,755,367
Volvo AB B Free................... 1,260,000 28,913,551
--------------
226,206,274
--------------
SWITZERLAND -- 15.09%
Ciba Specialty Chemicals AG....... 300,000 25,118,640
Compagnie Financiere Michelin..... 45,000 19,821,883
Compagnie Financiere Richemont
AG.............................. 37,000 52,315,211
Credit Suisse Group REGD.......... 77,035 12,058,786
Nestle AG REGD.................... 20,000 43,538,976
Novartis AG REGD.................. 18,096 35,573,236
Sairgroup......................... 150,000 37,241,114
Swiss Re REGD..................... 20,655 53,852,584
UBS AG............................ 109,976 33,789,938
Zurich Versicherungsgesellschaft
REGD............................ 80,000 59,236,306
--------------
372,546,674
--------------
UNITED KINGDOM -- 18.98%
Allied Zurich AG(a)............... 2,057,244 30,788,450
BG PLC............................ 6,176,470 39,024,647
BP Amoco PLC...................... 2,411,174 35,985,029
Barclay's Bank ORD................ 483,912 10,410,361
British American Tobacco PLC...... 2,057,244 18,260,854
Cadbury Schweppes PLC ADR......... 430,081 29,783,109
Diageo PLC........................ 3,460,000 38,886,809
Imperial Tobacco Group PLC........ 5,500,000 59,023,270
National Westminster Bank......... 2,025,841 39,031,458
Reed International PLC............ 3,600,000 28,660,602
Rio Tinto PLC..................... 1,670,228 19,285,730
Royal Bank Scotland Group ORD..... 810,415 13,038,715
Smithkline Beecham PLC ADR........ 800,000 55,600,000
Standard Chartered PLC............ 2,735,000 31,580,402
Whitbread PLC..................... 1,500,000 19,117,051
--------------
468,476,487
--------------
SOUTH AMERICA -- 5.17%
- ----------------------------------
ARGENTINA -- 2.70%
Telecom de Argentina S.A. Class
B............................... 3,300,000 18,661,833
Telefonica de Argentina S.A. Class
B............................... 7,000,000 19,968,011
YPF ADR Class D................... 1,000,000 27,937,500
--------------
66,567,344
--------------
BRAZIL -- 2.47%
Centrais Electricas Brasileiras
S.A.(Electrobras)............... 1,030,000,000 19,778,216
Centrais Geradoras do Sul do
Brazil S.A.(Gersul)(a).......... 600,000,000 744,911
Petrobras Registered NV........... 187,300,000 21,238,324
Telecomunicacoes de Sao Paulo
S.A. (Telesp) Preferred(a)...... 124,360,350 16,952,643
</TABLE>
<PAGE> 52
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- ----------------------------------
<S> <C> <C>
Telesp Partcipacoes S.A
Preferred(a).................... 92,900,000 $ 2,114,513
--------------
60,828,607
--------------
TOTAL EQUITY SECURITIES (Cost --
$1,884,063,847)................. 2,410,031,650
--------------
CONVERTIBLE BONDS -- .61% PRINCIPAL
- ---------------------------------- -------------
Liberty Life International 144A
Registered, 6.50%, 09/30/04
(Cost -- $17,552,973)........... $ 16,500,000 14,932,500
--------------
COMMERCIAL PAPER -- 1.86%
- ----------------------------------
American Express, 6.10%,
01/05/99........................ 12,786,504 12,786,504
American Express, 4.50%,
01/06/99........................ 15,171,898 15,171,898
General Electric Corp, 5.95%,
01/04/99........................ 18,011,914 18,011,914
--------------
TOTAL COMMERCIAL PAPER
(Cost -- $45,970,316).......................... 45,970,316
--------------
TOTAL INVESTMENTS -- 100.11%
(Cost -- $1,947,587,136)(c).................... 2,470,934,466
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (0.11)%.............................. (2,763,034)
--------------
NET ASSETS -- 100%............................... $2,468,171,432
==============
</TABLE>
<TABLE>
<S> <C> <C>
ADR -- American Depository Receipt
NV -- Non-voting
ORD -- Ordinary
REGD -- Registered
SDR -- Swedish Depository Receipt
</TABLE>
<TABLE>
<S> <C> <C>
(a) Non-income producing security
(b) As of September 1, 1998, the repatriation of proceeds received
from the sale of these securities has been blocked until at
least September 1, 1999. These securities are considered
illiquid and are being fair valued using methods determined in
good faith by the Valuation Committee of the Board of Trustees.
(c) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation................... $ 710,907,501
Gross unrealized depreciation................... (187,560,171)
-------------
Net unrealized appreciation................. $ 523,347,330
=============
Purchases and sales of securities other than short-term obligations
aggregated $395,758,507 and $615,145,143, respectively, for the
period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 53
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $1,947,587,136)... $2,470,934,466
Cash........................................................ 99,548
Receivables
Fund shares sold.......................................... 373,801
Dividends and interest.................................... 6,851,435
Other assets................................................ 112,024
--------------
Total assets............................................ 2,478,371,274
--------------
LIABILITIES
Payables
Fund shares repurchased................................... 5,844,863
Management fee............................................ 2,080,328
12b-1 service and distribution fees....................... 898,424
Other payables to related parties......................... 857,079
Accrued expenses............................................ 519,148
--------------
Total liabilities................................... 10,199,842
--------------
NET ASSETS.................................................. $2,468,171,432
==============
CLASS A
Net asset value and redemption price per share
($1,613,797,174/39,169,165 shares outstanding)............ $ 41.20
==============
Maximum offering price per share ($41.20 x 100/94.25)*...... $ 43.71
==============
CLASS B
Net asset value, offering price and redemption price** per
share ($542,997,299/13,252,073 shares outstanding)........ $ 40.97
==============
CLASS C
Net asset value, offering price and redemption price*** per
share ($154,378,290/3,784,613 shares outstanding)......... $ 40.79
==============
CLASS I
Net asset value, offering price and redemption price per
share ($156,998,669/3,809,455 shares outstanding)......... $ 41.21
==============
NET ASSETS CONSIST OF
Capital paid-in........................................... $1,957,790,724
Accumulated net realized loss on investments and foreign
currency transactions................................... (13,363,124)
Undistributed net investment income....................... 144,612
Net unrealized appreciation on investments and foreign
currency transactions................................... 523,599,220
--------------
NET ASSETS.................................................. $2,468,171,432
==============
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 54
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $3,555,258 foreign taxes withheld....... $ 57,075,012
Interest.................................................. 6,172,165
------------
63,247,177
------------
EXPENSES
Management fee............................................ $26,278,962
Transfer agent............................................ 3,577,962
Administrative services fee............................... 2,514,615
Custodian fees............................................ 2,062,177
Blue Sky fees............................................. 90,064
Auditing and accounting fees.............................. 77,875
Shareholder reports....................................... 310,376
Fund accounting........................................... 216,241
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 11,470,341
Legal..................................................... 44,519
Other..................................................... 544,738
------------
Total expenses...................................... 47,196,341
------------
NET INVESTMENT INCOME....................................... 16,050,836
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 13,086,365
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 133,784,460
------------
Net gain on investment transactions..................... 146,870,825
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $162,921,661
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 55
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 16,050,836 $ 10,282,860
Net realized gain on investments.......................... 13,086,365 15,941,694
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 133,784,460 155,677,616
-------------- --------------
Net increase resulting from operations.................. 162,921,661 181,902,170
-------------- --------------
CLASS A DISTRIBUTIONS
From net investment income................................ (13,536,256) (9,161,845)
From net realized gain.................................... (8,545,034) (11,110,560)
In excess of net realized gain............................ (5,018,512) (4,390,449)
-------------- --------------
Total distributions to Class A shareholders............. (27,099,802) (24,662,854)
-------------- --------------
CLASS B DISTRIBUTIONS
From net investment income................................ -- (1,396)
From net realized gain.................................... (2,888,018) (3,054,436)
In excess of net realized gain............................ (1,696,137) (1,203,967)
-------------- --------------
Total distributions to Class B shareholders............. (4,584,155) (4,259,799)
-------------- --------------
CLASS C DISTRIBUTIONS
From net investment income................................ -- (71,441)
From net realized gain.................................... (828,687) (957,153)
In excess of net realized gain............................ (486,689) (377,280)
-------------- --------------
Total distributions to Class C shareholders............. (1,315,376) (1,405,874)
-------------- --------------
CLASS I DISTRIBUTIONS
From net investment income................................ (1,959,855) (928,674)
From net realized gain.................................... (810,329) (819,545)
In excess of net realized gain............................ (475,907) (323,041)
-------------- --------------
Total distributions to Class I shareholders............. (3,246,091) (2,071,260)
-------------- --------------
Fund share transactions (Note 4)
Class A................................................... (174,806,618) 616,356,715
Class B................................................... (54,146,360) 218,972,703
Class C................................................... (28,691,544) 121,136,209
Class I................................................... 34,921,011 59,040,747
-------------- --------------
Net (decrease) increase resulting from Fund share
transactions........................................... (222,723,511) 1,015,506,374
-------------- --------------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (96,047,274) 1,165,008,757
NET ASSETS
Beginning of period....................................... 2,564,218,706 1,399,209,949
-------------- --------------
END OF PERIOD............................................. $2,468,171,432 $2,564,218,706
============== ==============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 144,612 $ --
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 56
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 39.03 $ 35.89 $ 30.67 $ 27.60 $ 27.71
---------- ---------- -------- -------- --------
Income from investment operations
Net investment income..................................... .37 24 .20 .25 .07
Net realized and unrealized gain on investment
transactions............................................ 2.50 3.47 5.85 3.22 1.01
---------- ---------- -------- -------- --------
Total from investment operations........................ 2.87 3.71 6.05 3.47 1.08
---------- ---------- -------- -------- --------
Less distributions
From net investment income................................ .35 .21 .19 .25 .07
From net realized gain.................................... .22 .26 .64 .12 1.11
In excess of net realized gain............................ .13 .10 -- .03 --
From capital paid-in...................................... -- -- -- -- .01
---------- ---------- -------- -------- --------
Total distributions..................................... .70 .57 .83 .40 1.19
---------- ---------- -------- -------- --------
Net asset value, end of period.............................. $ 41.20 $ 39.03 $ 35.89 $ 30.67 $ 27.60
========== ========== ======== ======== ========
Total return(%)(a).......................................... 7.34 10.38 19.72 12.65 3.92
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,613,797 $1,705,772 $989,254 $475,989 $229,586
Ratio of expenses to average net assets (%)................. 1.58 1.59 1.65 1.52 1.58
Ratio of net investment income to average net assets(%)..... .83 .68 .76 .97 .30
Portfolio turnover rate(%).................................. 15 8 14 6 7
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 38.82 $ 35.73 $ 30.67 $ 27.60 $ 27.71
-------- -------- -------- -------- -------
Income from investment operations
Net investment (loss) income.............................. -- (.06) (.01) .01 (.10)
Net realized and unrealized gain on investment
transactions............................................ 2.50 3.44 5.76 3.20 .91
-------- -------- -------- -------- -------
Total from investment operations........................ 2.50 3.38 5.75 3.21 .81
-------- -------- -------- -------- -------
Less distributions
From net investment income................................ -- -- -- .01 --
In excess of net investment income........................ -- -- .05 -- --
From net realized gain.................................... .22 .21 .64 .10 .90
In excess of net realized gain............................ .13 .08 -- .03 --
From capital paid-in...................................... -- -- -- -- .02
-------- -------- -------- -------- -------
Total distributions..................................... .35 .29 .69 .14 .92
-------- -------- -------- -------- -------
Net asset value, end of period.............................. $ 40.97 $ 38.82 $ 35.73 $ 30.67 $ 27.60
======== ======== ======== ======== =======
Total return(%)(a).......................................... 6.43 9.46 18.76 11.62 2.96
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $542,997 $568,521 $312,161 $ 74,650 $30,143
Ratio of expenses to average net assets(%).................. 2.41 2.42 2.45 2.44 2.50
Ratio of net investment (loss) income to average net
assets(%)................................................. (.01) (.15) (.04) .05 (.62)
Portfolio turnover rate(%).................................. 15 8 14 6 7
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 57
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA -------- -------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 38.64 $ 35.58 $ 32.68
-------- -------- -------
Income from investment operations
Net investment loss....................................... -- (.05) --
Net realized and unrealized gain on investment
transactions............................................ 2.50 3.42 3.74
-------- -------- -------
Total from investment operations........................ 2.50 3.37 3.74
-------- -------- -------
Less distributions
From net investment income................................ -- .01 --
In excess of net investment income........................ -- -- 20
From net realized gain.................................... .22..... .21 .64
In excess of net realized gain............................ .13 .09 --
-------- -------- -------
Total distributions..................................... .35 .31 .84
-------- -------- -------
Net asset value, end of period.............................. $ 40.79 $ 38.64 $ 35.58
======== ======== =======
Total return(%)..................................... 6.46(a) 9.50(a) 11.45(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $154,378 $174,880 $44,450
Ratio of expenses to average net assets(%).................. 2.40 2.41 2.44(c)
Ratio of net investment income (loss) to average net
assets(%)................................................. .01 (.14) (.03)(c)
Portfolio turnover rate(%).................................. 15 8 14
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 6, 1994
CLASS I FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------------------------------------ ---------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- -------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 39.06 $ 35.89 $ 30.67 $ 27.60 $29.06
-------- -------- ------- ------- ------
Income from investment operations
Net investment income..................................... .55 .32 .27 .30 .03
Net realized and unrealized gain (loss) on investment
transactions............................................ 2.48 3.56 5.88 3.22 (.49)
-------- -------- ------- ------- ------
Total from investment operations.................... 3.03 3.88 6.15 3.52 (.46)
-------- -------- ------- ------- ------
Less distributions
From net investment income................................ .53 .32 .27 .30 .03
In excess of net investment income........................ -- -- .02 -- --
From net realized gain.................................... .22 .28 .64 .12 .92
In excess of net realized gain............................ .13 .11 -- .03 --
From capital paid-in...................................... -- -- -- -- .05
-------- -------- ------- ------- ------
Total distributions..................................... .88 .71 .93 .45 1.00
-------- -------- ------- ------- ------
Net asset value, end of period.............................. $ 41.21 $ 39.06 $ 35.89 $ 30.67 $27.60
======== ======== ======= ======= ======
Total return(%)............................................. 7.75(a) 10.87(a) 20.06(a) 12.85(a) (1.64)(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $156,999 $115,046 $53,344 $13,020 $4,921
Ratio of expenses to average net assets(%).................. 1.18 1.18 1.25 1.35 1.41(c)
Ratio of net investment income to average net assets(%)..... 1.23 1.08 1.16 1.14 .47(c)
Portfolio turnover rate(%).................................. 15 8 14 6 7
</TABLE>
<TABLE>
<S> <C>
(a) Total return does not reflect a sales charge.
Total return represents aggregate total return and does not
(b) reflect a sales charge.
(c) Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 58
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $43,197,701 (1.75% of net assets) and have
been noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $60,630,270. These dividends
were subject to foreign withholding tax in the amount of $3,555,258. 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 Code, the Fund designates $20,749,313 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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 and Net realized gain 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
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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; beginning October 12, 1998, the fee was
reduced to .90% on average net assets in excess of $2.5 billion. Northern Cross
Investments Limited is the subadviser of the Fund. IMI, not the Fund, is
obligated to compensate the subadviser.
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, 1998 the net amount of underwriting
discounts retained by IMDI was $50,268.
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 assets 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 assets attributable to Class B and Class C. IMDI
may use such distribution fee for purposes of advertising and marketing shares
of the Fund. Such fees of $4,046,813, $5,706,820 and $1,716,708, 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 $2,168,847, $1,068,337, $292,323 and $48,455, 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, 1998 DECEMBER 31, 1997
--------------------------- ---------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Sold................. 9,861,782 $ 405,629,284 24,535,217 $ 947,843,934
Issued on
reinvestment of
distributions....... 490,806 20,221,191 553,328 21,066,996
Repurchased.......... (14,882,098) (600,657,093) (8,953,220) (352,554,215)
----------- ------------- ----------- -------------
Net (decrease)/
increase............ (4,529,510) $(174,806,618) 16,135,325 $ 616,356,715
=========== ============= =========== =============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 768,565 $ 31,626,287 7,205,870 $269,571,973
Issued on reinvestment
of distributions...... 54,506 2,233,625 55,534 2,101,941
Repurchased............ (2,215,469) (88,006,272) (1,353,764) (52,701,211)
---------- ------------- ----------- ------------
Net (decrease)/
increase.............. (1,392,398) $ (54,146,360) 5,907,640 $218,972,703
========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 389,550 $ 15,972,472 3,605,650 $133,986,481
Issued on reinvestment
of distributions...... 11,181 456,136 12,771 481,083
Repurchased............ (1,141,755) (45,120,152) (342,252) (13,331,355)
---------- ------------- ----------- ------------
Net (decrease)/
increase.............. (741,024) $ (28,691,544) 3,276,169 $121,136,209
========== ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- --------------------------
CLASS I SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Sold................... 1,327,805 $ 53,170,870 1,663,567 $ 67,173,182
Issued on reinvestment
of distributions...... 66,618 2,745,340 41,606 1,584,389
Repurchased............ (530,519) (20,995,199) (245,848) (9,716,824)
---------- ------------- ----------- ------------
Net increase........... 863,904 $ 34,921,011 1,459,325 $ 59,040,747
========== ============= =========== ============
</TABLE>
Effective April 18, 1997, the Fund suspended the offer of its shares to new
investors. Shares 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> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IIFX123198
<PAGE> 61
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
The Ivy Growth Fund's investment approach remains unchanged: the Fund's assets
are invested primarily in mid- and large-cap US stocks, while providing
additional diversification by investing a portion of the portfolio in small-cap
US stocks and large-cap international stocks. According to Ibbotson, over the
long term, small-cap stocks have provided higher returns than large-cap stocks,
Treasury bills and government bonds. (There is, of course, no guarantee this
trend will continue in the future.) The inclusion of international stocks
provides geographic diversification, and, in our opinion, access to a
potentially better performing asset class and a wider universe of value stocks.
For the twelve months ended December 31, 1998, the Ivy Growth Fund returned
14.05%. (For the Fund's total return with sales charge and performance
commentary, please refer to the following page.)
As we enter 1999, there are a number of factors about which investors seemed
concerned that can easily cause another market correction. Experience suggests
that it is best to stay focused on the long-term trend of the market, and to
view corrections as buying opportunities. We believe long-term investors have
many reasons to remain optimistic.
First, in our view, the disinflationary environment that started in the early
1980s still exists -- rising inflation in the foreseeable future appears
unlikely. Second, stable or falling interest rates are likely to remain an
important support for the stock market. Third, the US is in the eighth year of
its economic expansion; and although economic growth is likely to slow in 1999,
according to our research, the threat of a recession is quite low. Of course, a
growing economy does not necessarily translate into growing corporate earnings;
however, we believe investors are already expecting profits to be weak.
Consequently, unless earnings collapse, there will probably be more room for
upside surprises than for downside disappointments as we move through 1999.
Finally, the increasing need for baby boomers to invest for retirement, in our
view, remains a positive influence on stock prices.
With respect to the small-cap sector, we seek out well-positioned companies
operating in fertile sectors of the economy. Smaller companies are often more
flexible and opportunistic, and are thus, we believe, able to take advantage of
change rather than be victimized by it. In our view, relative valuations of
emerging growth stocks are still at the low end of their historic range, despite
the year-end rally in small-cap stocks. Therefore, we are cautiously optimistic
that 1999 could be a productive year for small-cap investments.
Overseas investments for the Ivy Growth Fund are selected using a disciplined
value approach that concentrates on long-term earnings projections, asset
values, and cash flow generation. We continue to uncover opportunities in Europe
arising from a continuation of economic growth and ongoing corporate
restructuring efforts. And despite turmoil in Asia and Latin America, we
continue to believe that these two regions should resume their positions as
high-growth economies and contribute favorably to the Fund's returns over the
next several years. (It's important to note, however, that there are special
risks associated with investing in international markets including political and
economic developments.)
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 62
10-YEAR PERFORMANCE
COMPARISONS OF THE FUND OF A
$10,000 INVESTMENT
(CHART)
IVY GROWTH FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Growth Fund returned
14.05%. This compares to the S&P 500, which was up 29.78% for the same period.
The Fund's underperformance can be attributed to its allocation to domestic
small-cap stocks and international stocks, both of which underperformed the US
large-cap market.
The Lipper Average Growth Fund represents the performance of the average growth
fund as measured by Lipper Inc. It is not possible to invest in a benchmark. The
S&P 500 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY GROWTH FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a 7.99% 12.99%
C: C: C: C:
1 year n/a 7.50% n/a n/a 11.72% 12.72% n/a n/a
B: B: B: B:
11.70% 11.96% 11.69% 11.95%
C: C: C: C:
5 year 11.70% 11.68% n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
10 year 12.65% 12.62% n/a n/a n/a n/a n/a n/a
B: B: B: B:
11.88% 11.98% 11.83% 11.95%
C: C: C: C:
Since Inception(5) 10.86% 10.86% n/a n/a n/a 10.67% n/a (.14%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations January 12, 1960; Class B commenced operations
October 22, 1993; Class C commenced operations April 30, 1996; Advisor Class
commenced operations April 30, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 63
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.39% SHARES VALUE
- -----------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 4.61%
AKZO Nobel NV(a)......................... 24,000 $ 1,093,427
Anglo-American Corporation of South
Africa Limited(a)...................... 18,100 510,144
AssiDoman AB(a).......................... 24,200 382,158
Billiton Plc(a).......................... 282,200 561,081
Broken Hill Proprietary Company
Limited(a)............................. 93,800 691,491
COMAIR Holdings, Inc..................... 20,000 675,000
Companhia Vale do Rio Doce --
Preferred(a)........................... 10,000 128,290
Companhia Vale do Rio Doce -- Sponsored
ADR(a)................................. 30,000 384,900
Du Pont (E.I.) De Numours & Company...... 16,500 875,531
Stora Enso OYJ -- R Shares(a)............ 137,702 1,240,145
Fletcher Challenge Building(a)........... 183,750 284,408
Fletcher Challenge Paper(a).............. 184,500 123,779
Hanson plc(a)............................ 26,000 1,014,000
Holderbank Financiere Glaris AG(a)....... 1,170 1,385,107
Imperial Chemical Industries PLC --
Sponsored ADR(a)....................... 19,000 663,813
PPG Industries, Inc. .................... 35,000 2,038,750
Rio Tinto plc(a)......................... 51,000 588,885
Southwest Airlines Co. .................. 30,000 673,125
Trelleborg AB B Free Shares(a)........... 56,300 458,427
Union Carbide Corporation Holding
Company................................ 8,000 340,000
UPM-Kymmene OY(a)........................ 28,840 808,818
------------
14,921,279
------------
BUSINESS SERVICES -- 7.81%
Abacus Direct Corporation(b)............. 16,000 728,000
Advantage Learning Systems, Inc.(b)...... 21,600 1,420,200
Children's Comprehensive Services,
Inc.(b)................................ 40,400 570,650
Corporate Services Group Plc(a).......... 247,500 623,862
Cotelligent Group, Inc.(b)............... 17,900 381,494
Dendrite International, Inc.(b).......... 21,800 544,319
FactSet Research Systems Inc.(b)......... 42,900 2,649,075
First Consulting Group, Inc.(b).......... 69,200 1,418,600
HA-LO Industries, Inc.(b)................ 41,200 1,550,150
Inacom Corp.(b).......................... 20,000 297,500
Ingram Micro, Inc.(b).................... 8,800 306,900
Inspire Insurance Solutions, Inc.(b)..... 41,100 755,213
International Network Services(b)........ 19,000 1,263,500
Lason Holdings, Inc.(b).................. 32,500 1,891,094
MSC Industrial Direct Co., Inc.(b)....... 52,000 1,176,500
Metro Networks, Inc.(b).................. 28,200 1,202,025
NOVA Corporation......................... 42,900 1,488,094
Paychex, Inc. ........................... 22,500 1,157,344
Profit Recovery Group International,
Inc.(b)................................ 57,400 2,148,913
Sykes Enterprises, Inc.(b)............... 41,200 1,256,600
The Metzler Group, Inc.(b)............... 130,280 1,474,258
Transaction Network Services, Inc.(b).... 49,950 1,002,122
------------
25,306,413
------------
CAPITAL GOODS -- 4.04%
Caterpillar Inc. ........................ 35,000 1,610,000
General Electric Company................. 24,500 2,500,531
Harsco Corporation....................... 63,000 1,917,563
Harte-Hanks Communications............... 58,700 1,672,950
Kaydon Corporation....................... 20,000 801,250
Lockheed Martin Corporation.............. 15,000 1,271,250
Rauma OY(a).............................. 21,803 318,651
Schneider, S.A.(a)....................... 15,379 933,311
Tyco International Ltd. ................. 27,380 2,065,479
------------
13,090,985
------------
CONGLOMERATES -- .86%
Cheung Kong(a)........................... 69,500 500,144
Genting Berhad(a)(d)..................... 140,000 265,517
Investor AB(a)........................... 17,400 785,685
Pacific Dunlop Ltd.(a)................... 315,000 510,070
Sime Darby Bhd(a)(d)..................... 737,000 738,694
------------
2,800,110
------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
CONSUMER CYCLICAL -- 4.11%
General Motors Corporation............... 25,000 $ 1,789,063
Harley-Davidson, Inc. ................... 17,000 805,375
Hasbro, Inc. ............................ 21,500 776,688
J.C. Penney Co., Inc. ................... 25,000 1,171,875
Lowe's Companies, Inc. .................. 31,000 1,586,813
McDonald's Corporation................... 20,000 1,532,500
Scholastic Corporation(b)................ 17,500 938,437
The Goodyear Tire & Rubber Company....... 16,000 807,000
The May Department Stores Company........ 6,000 362,250
Tommy Hilfiger Corporation(b)............ 22,500 1,350,000
Tricon Global Restaurants, Inc.(b)....... 25,100 1,258,137
Warnaco Group, Inc. Class A.............. 37,400 944,350
------------
13,322,488
------------
CONSUMER DURABLES -- 1.99%
Compagnie Generale des Etablissements
Michelin(a)............................ 14,400 576,154
DaimlerChrysler AG(a).................... 8,291 823,861
Electrolux AB(a)......................... 62,500 1,075,653
Fiat Sp A(a)............................. 291,500 1,014,748
Perusahaan Otomobil Nasional
Berhad(a)(d)........................... 228,000 301,379
Peugeot Citroen(a)....................... 5,600 867,167
Volkswagen AG(a)......................... 14,000 1,133,096
Volvo AB B Shares(a)..................... 28,000 642,523
------------
6,434,581
------------
CONSUMER NON-DURABLES -- 4.60%
Action Performance Companies, Inc.(b).... 28,700 1,015,263
Blyth Industries, Inc.(b)................ 26,150 817,188
Cadbury Schweppes PLC(a)................. 27,000 460,007
Compagnie Financiere Richemont
AG(a).................................. 720 1,018,026
Cutter & Buck Inc.(b).................... 40,200 1,497,450
Diageo plc -- Sponsored ADR(a)........... 23,417 1,083,036
Fraser & Neave Ltd(a).................... 130,000 379,767
Fuji Photo Film(a)....................... 22,000 819,174
Gallaher Group Plc(a).................... 134,000 907,960
Groupe Danone(a)......................... 2,300 658,789
Gucci Group(a)........................... 22,000 1,043,339
Nestle AG Registered(a).................. 613 1,334,470
Pernod Ricard(a)......................... 8,600 558,861
Rembrandt Group Limited(a)............... 51,000 312,106
South African Breweries Ltd.(a).......... 10,022 168,833
South African Breweries Ltd. Sponsored
ADR(a)................................. 5,200 87,688
Swatch Group, The AG(a).................. 1,300 804,525
Tate & Lyle PLC(a)....................... 109,000 607,536
Unilever NV ADR(a)....................... 12,800 1,061,600
Vina Concha y Toro S.A.(a)............... 9,800 253,575
------------
14,889,193
------------
CONSUMER SERVICES -- 4.03%
Apollo Group, Inc. -- Class A(b)......... 19,700 667,338
British Airways plc(a)................... 115,000 778,741
Deutsche Lufthansa AG(a)................. 22,600 501,385
Dollar Tree Stores, Inc.(b).............. 26,300 1,148,981
Family Golf Centers, Inc.(b)............. 50,700 1,001,325
Galeries Lafayette(a).................... 460 494,092
Guitar Center, Inc.(b)................... 43,700 1,076,113
International Speedway Corp. --
Class A................................ 23,800 963,900
Lusomundo-SGPS S.A. Preferred
Shares(a).............................. 51,200 593,790
Next Plc(a).............................. 89,000 722,621
Premier Parks, Inc.(b)................... 71,700 2,168,925
SGS Societe Generale de Surveillance
Holding, SA(a)......................... 480 470,046
Singapore Airlines Ltd(a)................ 260,000 1,906,715
Tourism Holdings Limited(a)(b)........... 669,856 548,478
------------
13,042,450
------------
CONSUMER STAPLES -- 5.17%
Anheuser-Busch Companies, Inc. .......... 40,000 2,625,000
Avon Products, Inc. ..................... 30,000 1,327,500
Colgate-Palmolive Company................ 15,000 1,393,125
General Mills, Inc. ..................... 10,000 777,500
H.J. Heinz Company....................... 25,000 1,415,625
PepsiCo, Inc. ........................... 55,000 2,251,562
Philip Morris Companies Inc. ............ 25,000 1,337,500
</TABLE>
<PAGE> 64
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------
<S> <C> <C>
Ralston-Ralston Purina Group............. 40,000 $ 1,295,000
The Procter & Gamble Company............. 15,000 1,369,687
UST, Inc. ............................... 46,000 1,604,250
Wm. Wrigley Jr. Company.................. 15,000 1,343,437
------------
16,740,186
------------
ENERGY -- 4.67%
Amoco Corporation........................ 20,000 1,207,500
BP Amoco Plc(a).......................... 59,000 880,532
Chevron Corporation...................... 15,000 1,244,063
Elf Aquitaine S.A.(a).................... 6,700 774,829
Exxon Corporation........................ 30,000 2,193,750
Fletcher Challenge Energy(a)............. 133,750 254,356
Halliburton Company...................... 12,000 355,500
Mobil Corporation........................ 30,000 2,613,750
Norsk Hydro A.S. Sponsored ADR(a)........ 18,100 618,794
Repsol SA -- Sponsored ADR(a)............ 16,000 874,000
Schlumberger, Ltd. ...................... 8,000 369,000
Shell Transport & Trading Co.(a)......... 142,000 869,435
Texaco Inc. ............................. 30,000 1,586,250
Total S.A. ADR(a)........................ 16,155 803,711
YPF S.A. Sponsored ADR(a)................ 16,800 469,350
------------
15,114,820
------------
FINANCIAL SERVICES -- 12.95%
ABN Amro Bank(a)......................... 20,800 437,797
A.F.P. Provida S.A. Sponsored ADR(a)..... 10,300 138,406
AMBAC, Inc. ............................. 26,000 1,564,875
Arab Malaysian Corporation
Berhad(a)(b)(d)........................ 189,000 31,717
Australia & New Zealand Banking Group
Ltd.(a)................................ 78,000 510,953
BB&T Corporation......................... 35,000 1,410,938
Banca Popolare di Milano(a).............. 135,000 1,228,097
BankAmerica Corporation.................. 20,100 1,208,513
Bank of Ireland(a)....................... 48,175 1,058,832
Banque Nationale de Paris(a)............. 10,700 881,513
Barclays PLC(a).......................... 30,500 656,144
Citigroup, Inc. ......................... 39,315 1,946,093
Comerica Incorporated.................... 15,000 1,022,813
Compagnie Financiere de Paribas(a)....... 12,455 1,082,955
Den Danske Bank(a)....................... 3,900 523,934
Exel Limited............................. 24,000 1,800,000
Federal Agricultural Mortgage Corp.
Class C................................ 8,000 297,000
Federal National Mortgage Association.... 30,000 2,220,000
First Union Corporation.................. 28,000 1,702,750
Fortis Amev NV(a)........................ 16,700 1,384,646
Freddie Mac.............................. 50,000 3,221,875
HSBC Holdings plc(a)..................... 41,497 1,033,806
ING Group NV(a).......................... 16,156 985,716
J.P. Morgan & Company Inc. .............. 7,500 787,969
Kapital Holding(a)....................... 3,431 169,816
Liberty Life Association of Africa
Ltd.(a)................................ 20,000 275,388
Litchfield Financial Corp. .............. 43,500 826,500
Mellon Bank Corporation.................. 15,500 1,065,625
National Australia Bank Ltd.(a).......... 42,000 633,724
National Westminster Bank PLC(a)......... 41,500 799,572
Nava Finance and Securities Public
Company Limited(a)(c).................. 40,000 --
Overseas Union Bank Ltd.(a).............. 206,000 898,932
Providian Corporation.................... 39,000 2,925,000
Societe Generale(a)...................... 4,700 761,456
State Street Corporation................. 10,000 695,625
Terra Nova(Bermuda)Holdings Ltd. --
Class A(a)............................. 25,500 643,875
The Bank of New York Company, Inc. ...... 31,000 1,247,750
Unidanmark A/S(a)........................ 5,600 505,943
United Overseas Bank Ltd.(a)............. 60,000 385,464
Wells Fargo Company...................... 41,600 1,661,400
Westpac Banking Corp. Ltd.(a)............ 84,000 562,623
Willis Lease Finance Corporation(b)...... 48,200 759,150
------------
41,955,185
------------
HEALTHCARE -- 11.09%
Abbott Laboratories...................... 65,000 3,185,000
Agouron Pharmaceuticals, Inc.(b)......... 15,100 887,125
Alkermes, Inc.(b)........................ 20,000 443,750
Allegiance Corporation................... 49,000 2,284,625
American Home Products Corporation....... 40,000 2,252,500
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Bristol-Myers Squibb Company............. 5,000 $ 669,063
ChiRex Inc.(b)........................... 43,600 931,950
Curative Health Services, Inc.(b)........ 22,600 757,100
Geltex Pharmaceuticals, Inc.(b).......... 20,000 452,500
Health Management Associates, Inc.(b).... 48,950 1,058,544
Johnson & Johnson........................ 35,000 2,935,625
Medicis Pharmaceutical Corporation --
Class A(b)............................. 15,600 930,150
MedQuist, Inc.(b)........................ 28,500 1,125,750
Merck & Co, Inc. ........................ 20,000 2,953,750
Merck KGaA(a)............................ 24,000 1,080,740
NCS HealthCare, Inc. Class A(b).......... 17,700 420,375
Novartis AG(a)........................... 500 982,903
Omnicare, Inc. .......................... 39,200 1,362,200
Orthodontic Centers of America,
Inc.(b)................................ 110,900 2,155,619
PathoGenesis Corp.(b).................... 14,200 823,600
Pediatrix Medical Group Inc.(b).......... 22,500 1,348,594
Pharmacyclics, Inc.(b)................... 8,000 204,000
Schering-Plough Corporation.............. 10,000 552,500
Sepracor, Inc.(b)........................ 11,300 989,456
Serologicals Corporation(b).............. 80,100 2,403,000
Total Renal Care Holdings, Inc.(b)....... 78,740 2,327,751
Trinity Biotech PLC ADR
Warrants B(b).......................... 30,000 937
Ventana Medical Systems, Inc.(b)......... 19,500 421,687
------------
35,940,794
------------
INDUSTRIAL -- .73%
Clipsal Industries Ltd.(a)............... 152,000 152,000
Hunter Douglas NV(a)..................... 19,800 656,248
Societe Generale d'Enterprises
SA(a)(b)............................... 7,500 351,772
Suez Lyonnaise des Eaux(a)............... 5,899 1,212,324
------------
2,372,344
------------
INTERNET & ELECTRONIC COMMERCE -- 2.17%
America Online, Inc. .................... 20,000 2,895,000
Broadvision, Inc.(b)..................... 26,000 832,000
QRS Corporation(b)....................... 26,400 1,267,200
Sterling Commerce, Inc.(b)............... 16,100 724,500
Transactions Systems Architects,
Inc.(b)................................ 26,400 1,320,000
------------
7,038,700
------------
PROPERTY DEVELOPERS &
INVESTMENT -- .14%
New World Development Company Ltd.(a).... 114,654 288,595
Sime UEP Properties Berhad(a)(d)......... 200,000 165,517
------------
454,112
------------
TECHNOLOGY -- 23.92%
Adobe Systems Incorporated............... 25,000 1,168,750
Alcatel(a)............................... 5,700 697,958
Altera Corporation(b).................... 15,000 913,125
American Power Conversion Corp.(b)....... 52,200 2,528,437
Applied Materials, Inc.(b)............... 20,000 853,750
Ascend Communications Inc.(b)............ 23,100 1,518,825
Aspect Development, Inc.(b).............. 28,600 1,267,337
BMC Software Inc. ....................... 16,500 735,281
CNET, Inc.(b)............................ 15,400 844,112
Canon Inc.(a)............................ 26,000 556,666
Cisco Systems, Inc.(b)................... 138,750 12,877,734
Citrix Systems, Inc.(b).................. 9,900 960,919
Compaq Computer Corporation.............. 33,000 1,383,937
Comverse Technology, Inc.(b)............. 11,200 795,200
Concord Communications, Inc.(b).......... 16,000 908,000
Deltek Systems, Inc.(b).................. 37,400 631,125
Elec & Eltek International Co. Ltd.(a)... 79,500 429,300
Equifax, Inc. ........................... 65,000 2,222,187
Etec Systems............................. 12,800 512,000
Gemstar International Group
Limited(b)............................. 20,100 1,150,725
HNC Software Inc.(b)..................... 25,500 1,031,156
H.T.E., Inc.(b).......................... 60,800 304,000
IONA Technologies PLC(a)(b).............. 26,900 1,022,200
Inktomi Corporation(b)................... 3,219 416,458
Intel Corp. ............................. 38,000 4,505,375
International Business Machines Corp. ... 15,000 2,771,250
</TABLE>
<PAGE> 65
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------
<S> <C> <C>
International Telecommunication Data
Systems, Inc.(b)....................... 39,750 $ 586,312
Jabil Circuit, Inc.(b)................... 7,700 574,612
Koninklijke (Royal) Philips Electronics
NV(a).................................. 16,800 1,127,957
Linear Technology Corporation............ 8,000 716,500
Matsushita Electric Industrial Company,
Ltd(a)................................. 34,000 602,554
Maxim Integrated Products, Inc.(b)....... 24,800 1,083,450
Micromuse Inc.(b)........................ 21,200 413,400
Microsoft Corporation(b)................. 29,100 4,035,806
Molecular Devices Corporation(b)......... 200 4,350
Network Appliance, Inc.(b)............... 48,400 2,178,000
Network Associates, Inc.(b).............. 32,850 2,176,312
New Era of Networks, Inc.(b)............. 36,600 1,610,400
Nextel Communications, Inc.(b)........... 27,600 652,050
Novellus Systems, Inc.(b)................ 20,000 990,000
Peregrine Systems, Inc.(b)............... 12,000 556,500
Photronics, Inc.(b)...................... 13,700 328,372
Pilot Network Services, Inc.(b).......... 50,000 446,875
QuadraMed Corporation(b)................. 40,600 832,300
SIPEX Corporation(b)..................... 10,000 351,250
Sanmina Corporation(b)................... 13,100 818,750
Sharp Corporation(a)..................... 116,000 1,047,939
Sony Corporation(a)...................... 9,700 707,743
Sun Microsystems, Inc.(b)................ 53,400 4,572,375
Synopsys, Inc.(b)........................ 10,100 547,925
Tellabs, Inc.(b)......................... 14,900 1,021,581
Uniphase Corporation(b).................. 15,300 1,061,437
Veritas Software Corporation(b).......... 14,350 860,103
Whittman-Hart, Inc.(b)................... 46,000 1,270,750
WinStar Communications, Inc.(b).......... 24,000 936,000
Xerox Corporation........................ 20,000 2,360,000
------------
77,477,410
------------
UTILITIES -- 6.50%
ALLTELL Corporation...................... 40,000 2,392,500
AT&T Corporation......................... 25,000 1,881,250
BellSouth Corporation.................... 40,000 1,995,000
Centrais Eletricas Brasileiras
S.A.(Eletrobras)(a).................... 10,000,000 192,022
Cia. de Telecomunicaciones de Chile
S.A.(a)................................ 10,625 219,805
DPL Inc. ................................ 35,000 756,875
Duke Energy Corporation.................. 25,000 1,601,562
Endesa S. A -- Sponsored ADR............. 55,600 1,501,200
FPL Group, Inc. ......................... 25,000 1,540,625
Portugal Telecom S.A. -- ADR(a).......... 10,800 481,950
SBC Communications Inc. ................. 40,000 2,145,000
SCANA Corporation........................ 25,000 806,250
Southern Company......................... 45,000 1,307,812
Telecom Corporation of New Zeland
Limited(a)............................. 119,000 518,617
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Telecomunicacoes Brasileiras
S.A. -- Sponsored Preferred
Block(a)(b)............................ 26,355 $ 1,915,679
Telefonica de Argentina -- ADS(a)........ 9,100 254,231
Telefonica S.A.(a)....................... 11,526 1,560,332
------------
21,070,710
------------
TOTAL INVESTMENTS -- 99.39% (Cost --
$212,411,610)
(Cost on Federal income tax
basis -- $212,829,012)......................... 321,971,760
OTHER ASSETS, LESS LIABILITIES -- .61%............... 1,970,587
------------
NET ASSETS -- 100%................................... $323,942,347
============
ADR -- American Depository Receipt
ADS -- American Depository Share
NV -- Non-voting
(a) Foreign security
(b) Non-income producing security
(c) Securities valued in good faith by the Valuation Committee of
the Board of Trustees. See Note 1 to the Financial Statements.
(d) As of September 1, 1998, the repatriation of proceeds received
from the sale of these securities has been blocked until at
least September 1, 1999. These securities are considered
illiquid and are being fair valued using methods determined in
good faith by the Valuation Committee of the Board of Trustees.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation.................... $120,169,815
Gross unrealized depreciation.................... (10,609,665)
------------
Net unrealized appreciation for
financial statement purposes............... 109,560,150
Less: tax basis adjustments...................... (417,402)
------------
Net unrealized appreciation for
Federal income tax purposes................ $109,142,748
============
Purchases and sales of securities other than short-term obligations
aggregated $180,526,905 and $205,359,575 respectively, for the
period ended December 31, 1998.
Transactions in written put options during the period ended December
31, 1998 were:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Written.................................. 57,878 $ 2,099,068
Closing purchases........................ (57,878) (2,099,068)
------- -----------
Outstanding at December 31, 1998........... -- $ --
======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 66
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $212,411,610)..... $321,971,760
Cash........................................................ 4,441,829
Receivables
Fund shares sold.......................................... 9,157
Dividends and interest.................................... 321,107
Other assets................................................ 43,992
------------
Total assets.............................................. 326,787,845
------------
LIABILITIES
Payables
Investments purchased..................................... 2,236,437
Fund shares repurchased................................... 218,764
Management fee............................................ 224,855
12b-1 service and distribution fees....................... 19,055
Other payables to related parties......................... 98,957
Accrued expenses............................................ 47,430
------------
Total liabilities......................................... 2,845,498
------------
NET ASSETS.................................................. $323,942,347
============
CLASS A
Net asset value and redemption price per share
($318,443,527/16,015,068 shares outstanding).............. $ 19.88
============
Maximum offering price per share ($19.88 X 100/94.25)*...... $ 21.09
============
CLASS B
Net asset value, offering price and redemption price** per
share ($4,889,387/249,459 shares outstanding)............. $ 19.60
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($262,801/13,636 shares outstanding)................ $ 19.27
============
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($346,632/17,411 shares outstanding)................ $ 19.91
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $214,422,766
Accumulated net realized loss on investments and foreign
currency transactions................................... (68,531)
Accumulated net investment loss........................... (403)
Net unrealized appreciation on investments and foreign
currency transactions................................... 109,588,515
------------
NET ASSETS.................................................. $323,942,347
============
</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, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 3,714,504
Interest.................................................. 821,567
-----------
4,536,071
-----------
EXPENSES
Management fee............................................ $2,722,314
Transfer agent............................................ 755,710
Administrative services fee............................... 320,272
Custodian fees............................................ 101,759
Blue Sky fees............................................. 36,310
Auditing and accounting fees.............................. 68,217
Shareholder reports....................................... 44,878
Fund accounting........................................... 106,712
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 225,748
Legal..................................................... 24,608
Other..................................................... 60,285
-----------
Total expenses............................................ 4,475,284
-----------
NET INVESTMENT INCOME....................................... 60,787
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) on
Investments and foreign currency transactions........... 1,904,081
Written options......................................... (771,173)
Net change in unrealized appreciation on
Investments and foreign currency transactions........... 40,776,096
-----------
Net gain on investment transactions................. 41,909,004
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $41,969,791
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 67
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 60,787 $ 391,047
Net realized gain (loss) on
Investments and foreign currency transactions........... 1,904,081 37,355,207
Written options......................................... (771,173) (1,152,465)
Net change in unrealized appreciation (depreciation) on
Investments and foreign currency transactions........... 40,776,096 (1,186,211)
Written options......................................... -- 472,707
Forward foreign currency contracts...................... -- 70,156
------------ ------------
Net increase resulting from operations.............. 41,969,791 35,950,441
------------ ------------
Class A distributions
From net investment income................................ (237,344) (388,231)
In excess of net investment income........................ (24,015) (2,099,612)
From net realized gain.................................... (6,250,567) (29,374,568)
------------ ------------
Total distributions to Class A shareholders......... (6,511,926) (31,862,411)
------------ ------------
Class B distributions
From net investment income................................ (3,953) (2,415)
In excess of net investment income........................ (400) (13,058)
From net realized gain.................................... (104,113) (391,020)
------------ ------------
Total distributions to Class B shareholders......... (108,466) (406,493)
------------ ------------
Class C distributions
From net investment income................................ (201) (401)
In excess of net investment income........................ (20) (2,173)
From net realized gain.................................... (5,297) (36,669)
------------ ------------
Total distributions to Class C shareholders......... (5,518) (39,243)
------------ ------------
Advisor Class distributions
From net investment income................................ (255) --
In excess of net investment income........................ (26) --
From net realized gain.................................... (6,708) --
------------ ------------
Total distributions to Advisor Class shareholders... (6,989) --
------------ ------------
Fund share transactions (Note 4)
Class A................................................... (36,404,872) 1,470,182
Class B................................................... (5,127) 566,456
Class C................................................... (167,500) 307,343
Advisor Class............................................. 349,248 --
------------ ------------
Net (decrease) increase resulting from Fund share
transactions........................................ (36,228,251) 2,343,981
------------ ------------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (891,359) 5,986,275
NET ASSETS
Beginning period.......................................... 324,833,706 318,847,431
------------ ------------
END OF PERIOD............................................. $323,942,347 $324,833,706
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 180,966
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 68
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.80 $ 17.76 $ 16.75 $ 13.91 $ 15.14
-------- -------- -------- -------- --------
Income (loss) from investment operations
Net investment income..................................... .01 .02 .02(a) .05(a) .05(a)
Net realized and unrealized gain (loss) on investment
transactions............................................ 2.49 1.98 2.86 3.73 (.49)
-------- -------- -------- -------- --------
Total from investment operations.................... 2.50 2.00 2.88 3.78 (.44)
-------- -------- -------- -------- --------
Less distributions
From net investment income................................ .02 .02 .02 .02 .05
In excess of net investment income........................ -- .13 .11 -- --
From net realized gain.................................... .40 1.81 1.74 .89 .74
In excess of net realized gain............................ -- -- -- .03 --
-------- -------- -------- -------- --------
Total distributions................................. .42 1.96 1.87 .94 .79
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 19.88 $ 17.80 $ 17.76 $ 16.75 $ 13.91
======== ======== ======== ======== ========
Total return(%)(b).......................................... 14.05 11.69 17.22 27.33 (2.97)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $318,444 $320,000 $314,908 $289,954 $231,446
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 1.45 1.59 1.38
Without expense reimbursement(%).......................... 1.38 1.38 1.45 1.60 1.49
Ratio of net investment income to average net assets(%)..... .03 .13 .13(a) .32(a) .32(a)
Portfolio turnover rate(%).................................. 59 39 72 41 39
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $17.72 $17.69 $16.75 $13.91 $15.14
------ ------ ------ ------ ------
Income (loss) from investment operations
Net investment loss....................................... (.16) (.14) (.13)(a) (.08)(a) (.04)(a)
Net realized and unrealized gain (loss)
on investment transactions.............................. 2.46 1.96 2.81 3.71 (.54)
------ ------ ------ ------ ------
Total from investment operations.................... 2.30 1.82 2.68 3.63 (.58)
------ ------ ------ ------ ------
Less distributions
From net investment income................................ .02 -- -- -- --
In excess of net investment income........................ -- .07 -- -- --
From net realized gain.................................... .40 1.72 1.74 .73 .52
In excess of net realized gain............................ -- -- -- .06 .13
------ ------ ------ ------ ------
Total distributions................................. .42 1.79 1.74 .79 .65
------ ------ ------ ------ ------
Net asset value, end of period.............................. $19.60 $17.72 $17.69 $16.75 $13.91
====== ====== ====== ====== ======
Total return(%)(b).......................................... 12.99 10.69 16.02 26.13 (3.90)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $4,889 $4,433 $3,850 $2,669 $1,399
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 2.37 2.55 2.34
Without expense reimbursement(%).......................... 2.32 2.30 2.37 2.56 2.45
Ratio of net investment loss to average net assets(%)....... (.90) (.79) (.79)(a) (.64)(a) (.64)(a)
Portfolio turnover rate(%).................................. 59 39 72 41 39
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 69
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR APRIL 30, 1996
CLASS C ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------ -----------------
1998 1997 1996
SELECTED PER SHARE DATA ------ ------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $17.47 $17.59 $18.46
------ ------ ------
Loss from investment operations
Net investment loss....................................... (.16) (.07) (.06)(a)
Net realized and unrealized gain on investment
transactions............................................ 2.38 1.86 1.02
------ ------ ------
Total from investment operations.................... 2.22 1.79 .96
------ ------ ------
Less distributions
From net investment income................................ .02 -- --
In excess of net investment income........................ -- .13 .09
From net realized gain.................................... .40 1.78 1.74
------ ------ ------
Total distributions................................. .42 1.91 1.83
------ ------ ------
Net asset value, end of period.............................. $19.27 $17.47 $17.59
====== ====== ======
Total return(%)............................................. 12.72(b) 10.58(b) 5.20(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 263 $ 400 $ 90
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 2.44(d)
Without expense reimbursement(%).......................... 2.53 2.33 2.44(d)
Ratio of net investment loss to average net assets(%)....... (1.11) (.82) (.86)(a)(d)
Portfolio turnover rate(%).................................. 59 39 72
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
-----------------
1998
SELECTED PER SHARE DATA -----------------
<S> <C>
Net asset value, beginning of period........................ $20.36
------
Loss from investment operations
Net investment income..................................... .03
Net realized and unrealized loss on investment
transactions............................................ (.06)
------
Total from investment operations.................... (.03)
------
Less distributions
From net investment income................................ .02
From net realized gain.................................... .40
------
Total distributions................................. .42
------
Net asset value, end of period.............................. $19.91
======
Total return(%)(c).......................................... (.14)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 347
Ratio of expenses to average net assets(%)(d)............... 1.18
Ratio of net investment income to average net
assets(%)(d).............................................. .24
Portfolio turnover rate(%).................................. 59
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 70
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $1,502,834 (.46% of net assets) and have
been noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on ex-dividend date. If
such information is not available on the ex-dividend date, corporate actions are
recorded as soon as reliable information is available from the Fund's sources.
Realized gains and losses from security transactions are calculated on an
identified cost basis.
OPTIONS -- The Fund may invest in option contracts for the purpose of
increasing or decreasing its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
the value of the Fund's securities. An option is a right to buy or sell a
particular security at a specified price within a limited period of time. The
buyer of the option, in return for a premium paid to the seller, has the right
to buy, in the case of a call option, or sell, in the case of a put option, the
underlying security of the contract. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
When the Fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds of the sale in determining whether the Fund has realized a gain or
loss on the transaction. For options on indices, cash settlement by the Fund is
required if the option is exercised. The Fund, as writer of an option, has no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the securities underlying the written option. Exchange traded written
options are valued daily at the last sale price or, in the absence of a sale, at
the calculated mean of the bid and asked prices, subject to certain
reasonability criteria on the spread between the bid and asked prices.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 Code, the Fund designates $6,267,256 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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.
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, section 988 of the 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
counter parties 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 and Net realized gain 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; beginning October 12, 1998, the fee was reduced
to .75% of the average net assets in excess of $350 million.
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, 1998, the net amount of underwriting
discount retained by IMDI was $10,859.
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 assets of shares issued after December 31, 1991, excluding Advisor Class.
Class B and Class C shares are also subject to an ongoing distribution fee at an
annual rate of .75% of the average net assets of Class B and Class C. IMDI may
use such distribution fee for purposes of advertising and marketing shares of
the Fund. Such fees of $176,390, $47,478 and $1,880, 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 $743,905, $10,821, $816 and $168, for Class A, Class B, Class C and
Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 865,388 $ 15,843,739 2,926,280 $ 55,575,299
Issued on reinvestment of
distributions........... 305,995 5,966,659 1,722,605 29,508,347
Repurchased.............. (3,129,049) (58,215,270) (4,406,743) (83,613,464)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (1,957,666) $(36,404,872) 242,142 $ 1,470,182
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 87,314 $ 1,611,127 65,628 $ 1,231,249
Issued on reinvestment of
distributions........... 4,946 95,108 22,508 383,770
Repurchased.............. (92,930) (1,711,362) (55,634) (1,048,563)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (670) $ (5,127) 32,502 $ 566,456
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 9,823 $ 171,281 37,235 $ 674,963
Issued on reinvestment of
distributions........... 176 3,330 2,037 34,248
Repurchased.............. (19,282) (342,111) (21,478) (401,868)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (9,283) $ (167,500) 17,794 $ 307,343
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
-------------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 20,466 $ 408,401
Issued on reinvestment of
distributions........... 358 6,989
Repurchased.............. (3,413) (66,142)
---------- ------------
Net increase............. 17,411 $ 349,248
========== ============
</TABLE>
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Growth Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IGFX123198
<PAGE> 73
December 31, 1998
IVY GLOBAL
SCIENCE &
TECHNOLOGY
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
MARKET COMMENTARY
It was a good year, albeit a highly volatile one, for technology stocks. The Ivy
Global Science & Technology Fund posted a gain of 35.26% for 1998, and solidly
outperformed the broader market, which returned 29.78% as measured by the S&P
500. (For the Fund's total return with sales charge and performance commentary,
please refer to the following page.)
One of the most remarkable performances of this turbulent year was that of
Internet stocks. The recent growth of this new medium has been nothing short of
phenomenal, with traffic doubling every three to four months. Industry
projections call for 150 million users by the year 2000, up substantially from
80 million today and only five million in 1995. Yet, only a small percentage of
all commerce takes place online, and traditional media spending still overwhelms
the amount of net-based advertising. We believe that well-positioned Internet
companies offer considerable growth.
Our challenge is to guard against being swept up in the mania being generated by
unprecedented investor enthusiasm, while still keeping the Ivy Global Science &
Technology Fund positioned to benefit from the huge growth potential presented
by this dynamic industry. Accordingly, the Fund has invested in some of the
better-known stocks whose experience should position them well for long-term
leadership. The Fund is also invested in a number of infrastructure suppliers,
which are less direct beneficiaries of the Internet business, but whose
valuations are generally more realistic. These include suppliers of PCs,
communications equipment, security and network management software, e-commerce
enabling technologies, and communications-related semiconductors.
On the economic front in 1998, the Russian default and the widely publicized
collapse of a well-known hedge fund pushed investors toward the brink of panic
during a nasty two-month sell-off in which technology stocks were especially
hard-hit. The sell-off continued until early October, at which point the Ivy
Global Science & Technology Fund was down 21.47% for the year. Then, the Federal
Reserve Board stepped up to the plate with three interest rate cuts, the second
of which was particularly surprising since it occurred between Federal Open
Market Committee meetings. In our view, this sent a strong signal to investors
that the US central bank was not about to stand by and allow overseas problems
to push the US into a recession. Suddenly, investor confidence was restored and
a rally in tech stocks began. The Ivy Global Science & Technology Fund gained
over 72.00% from the October market low to the end of December, and finished the
year with a return of slightly more than 35.00%.
In 1999, Year 2000 (Y2k) compliance could prove challenging for some technology
companies. According to our research, Y2k concerns have prompted many companies
to boost spending over the last few years to replace noncompliant legacy
systems. We believe, however, that these outlays could slow by mid-1999. At this
point, it is difficult to predict how severely Y2k issues will affect normal
buying patterns and how the stock market will react to this nonrecurring
event. Although Y2k issues and extended valuations in the Internet sector are
likely to cause further volatility during 1999, we believe that technology
remains the major growth driver in today's global economy. Therefore, we are
optimistic that it should continue to be a rewarding area for long-term
investors.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 74
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (7/96)
OF A $10,000 INVESTMENT
(CHART)
IVY GLOBAL SCIENCE & TECHNOLOGY FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Global Science &
Technology Fund was up 35.26%. The Russell 2000 Technology Index was up 12.00%
for the same period. Because it more accurately reflects the Fund's
concentration in small-cap stocks, the Russell 2000 Technology Index will
continue to be the benchmark against which the performance of the Ivy Global
Science & Technology Fund will be measured. The Chicago Board of Options
Exchange (CBOE) Technology Index, which was up 97.70% for the same period, was
more heavily biased toward large-cap stocks and, therefore, not the most
relevant benchmark for the Fund. However, it was the Fund's limited exposure to
large- and mid-sized companies, which caused it to outperform the Russell 2000
Technology Index, and its bias toward small-cap stocks, which caused it to
underperform the CBOE Technology Index.
The Chicago Board of Options Exchange Technology Index and the Russell 2000
Technology Index 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
IVY GLOBAL SCIENCE & Advisor Class(4) CLASS I(5)
TECHNOLOGY FUND w/ w/o w/ w/o w/ w/o
AVERAGE ANNUAL Reimb. Reimb. w/ w/o Reimb. Reimb. Reimb. REIMB.
TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a 29.20% 34.20%
C: C: C: C:
1 year n/a 27.48% n/a n/a 33.37% 34.37% n/a n/a n/a n/a
B: B: B: B:
40.78% 41.59% 40.73% 41.48%
C: C: C: C:
Since Inception(6) 38.96% 38.87% n/a 41.64% n/a 41.59% n/a 16.99% n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class I shares are not subject to an initial sales charge or a CDSC. There
were no Class I shares outstanding.
(6)Class A, Class B and Class C commenced operations July 22, 1996; Advisor
Class commenced operations April 15, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 75
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS -- 93.24% SHARES VALUE COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BIOTECHNOLOGY -- 3.18%
Aastrom Biosciences, Inc.(a).... 8,400 $ 24,150
Agouron Pharmaceuticals,
Inc.(a)....................... 5,600 329,000
Alkermes, Inc.(a)............... 4,600 102,062
Geltex Pharmaceuticals,
Inc.(a)....................... 4,900 110,862
PathoGenesis Corp.(a)........... 3,400 197,200
Pharmacyclics, Inc.(a).......... 4,200 107,100
US Bioscience, Inc.(a).......... 11,500 82,656
Vertex Pharmaceuticals
Incorporated(a)............... 5,900 175,525
ViroPharma Inc.(a).............. 3,600 33,525
-----------
1,162,080
-----------
BUSINESS SERVICES -- 3.84%
Inspire Insurance Solutions,
Inc.(a)....................... 13,650 250,819
NOVA Corporation(a)............. 9,438 327,381
Profit Recovery Group
International, Inc.
(The)(a) ..................... 11,500 430,531
RWD Technologies, Inc.(a)....... 11,000 237,875
Transaction Network Services,
Inc.(a)....................... 7,700 154,481
-----------
1,401,087
-----------
COMPUTER SYSTEMS -- 2.51%
Compaq Computer Corporation..... 6,400 268,400
Dell Computer Corporation(a).... 2,900 212,244
Sun Microsystems, Inc.(a)....... 5,100 436,688
-----------
917,332
-----------
DISTRIBUTION -- .74%
CHS Electronics, Inc.(a)........ 12,350 209,178
Inacom Corp.(a)................. 4,200 62,475
-----------
271,653
-----------
EDUCATIONAL SERVICES -- .70%
Advantage Learning Systems,
Inc.(a)....................... 3,900 256,425
-----------
ELECTRONIC COMMERCE -- 3.55%
Pegasus Systems, Inc.(a)........ 11,400 410,400
QRS Corporation(a).............. 6,600 316,800
Sterling Commerce, Inc.(a)...... 3,800 171,000
Transactions Systems Architects,
Inc.(a)....................... 8,000 400,000
-----------
1,298,200
-----------
ELECTRONIC DESIGN
AUTOMATION -- 1.28%
Cadence Design Systems,
Inc.(a)....................... 5,700 169,575
Synopsys, Inc.(a)............... 5,500 298,375
-----------
467,950
-----------
ELECTRONIC MANUFACTURING
SERVICES -- 2.65%
Flextronics International
Ltd.(a)....................... 4,200 359,625
Jabil Circuit, Inc.(a).......... 3,800 283,575
Sanmina Corporation(a).......... 5,200 325,000
-----------
968,200
-----------
HEALTHCARE INFORMATION
SYSTEMS -- 2.65%
First Consulting Group,
Inc.(a)....................... 17,800 364,900
MedQuist Inc.(a)................ 9,800 387,100
QuadraMed Corporation(a)........ 10,500 215,250
-----------
967,250
-----------
HEALTHCARE SERVICES -- 1.74%
Serologicals Corporation(a)..... 21,225 636,750
-----------
INFORMATION SERVICES -- 5.30%
DA Consulting Group, Inc.(a).... 11,700 255,937
Dendrite International,
Inc.(a)....................... 7,800 194,756
FactSet Research Systems
Inc.(a)....................... 9,700 598,975
Forrester Research, Inc.(a)..... 3,700 161,875
Lason Holdings, Inc.(a)......... 8,300 482,956
Meta Group, Inc.(a)............. 8,100 240,975
-----------
1,935,474
-----------
INTERNET -- 9.14%
AboveNet Communications
Inc(a)........................ 6,800 $ 142,800
America Online, Inc. ........... 10,000 1,447,500
At Home Corporation -- Series
A(a).......................... 3,400 252,450
BroadVision, Inc.(a)............ 7,600 243,200
CNET, Inc.(a)................... 4,200 230,212
Exodus Communications,
Inc.(a)....................... 4,800 308,400
NetGravity, Inc.(a)............. 4,200 70,350
Network Solutions Inc.(a)....... 2,000 261,750
Pilot Network Services,
Inc.(a)....................... 16,600 148,363
Yahoo! Inc.(a).................. 1,000 235,063
-----------
3,340,088
-----------
MEDICAL DEVICES &
INSTRUMENTS -- .34%
Ventana Medical Systems,
Inc.(a)....................... 5,800 125,425
-----------
MISCELLANEOUS TECHNOLOGY -- .79%
Gemstar International Group
Ltd.(a)....................... 3,800 217,550
ONTRACK Data International,
Inc.(a)....................... 10,900 69,488
-----------
287,038
-----------
NETWORK EQUIPMENT &
SOFTWARE -- 7.92%
American Power Conversion
Corp.(a)...................... 8,700 421,406
Ascend Communications Inc.(a)... 3,800 249,850
Cisco Systems, Inc.(a).......... 9,900 918,844
Concord Communications,
Inc.(a)....................... 4,400 249,700
Micromuse Inc.(a)............... 8,000 156,000
Network Appliance, Inc.(a)...... 12,400 558,000
Visual Networks, Inc.(a)........ 9,000 337,500
-----------
2,891,300
-----------
OPERATIONAL SUPPORT
SYSTEMS -- .81%
DSET Corporation(a)............. 10,300 106,862
International Telecommunication
Data Systems, Inc.(a)......... 12,750 188,062
-----------
294,924
-----------
PHARMACEUTICALS -- 3.26%
Anesta Corp.(a)................. 11,500 306,187
ChiRex Inc.(a).................. 11,400 243,675
EPIX Medical, Inc.(a)........... 10,000 93,125
Inhale Therapeutic Systems(a)... 3,300 108,900
Nastech Pharmaceutical Co.(a)... 5,500 21,313
Sepracor, Inc.(a)............... 2,500 218,906
SkyePharma plc(a)(b)............ 16,000 200,000
-----------
1,192,106
-----------
SEMICONDUCTOR EQUIPMENT -- 3.31%
ASM Lithography Holding
NV(a)(b)...................... 4,500 137,250
Applied Materials, Inc.(a)...... 9,500 405,531
Etec Systems, Inc.(a)........... 3,600 144,000
Novellus Systems, Inc.(a)....... 4,100 202,950
PRI Automation, Inc.(a)......... 5,900 153,400
Photronics, Inc.(a)............. 3,600 86,288
Teradyne, Inc.(a)............... 1,900 80,513
-----------
1,209,932
-----------
SEMICONDUCTORS -- 8.26%
Altera Corporation(a)........... 5,600 340,900
Applied Micro Circuits
Corporation(a)................ 3,200 108,700
Genesis Microchip Inc.(a)(b).... 9,000 218,250
Intel Corp. .................... 3,200 379,400
Level One Communications,
Inc.(a)....................... 4,000 142,000
Linear Technology Corporation... 1,800 161,213
Maxim Integrated Products,
Inc.(a)....................... 7,700 336,394
Micrel, Inc.(a)................. 3,400 187,000
Rambus Inc.(a).................. 600 57,750
Sipex Corporation(a)............ 5,000 175,625
Texas Instruments
Incorporated.................. 5,500 470,594
Vitesse Semiconductor
Corporation(a)................ 9,600 438,000
-----------
3,015,826
-----------
</TABLE>
<PAGE> 76
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS SHARES VALUE COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOFTWARE -- 14.78%
Actuate Software
Corporation(a)................ 11,200 $ 221,200
Aspect Development, Inc.(a)..... 6,000 265,875
BMC Software, Inc.(a)........... 4,500 200,531
Best Software, Inc.(a).......... 8,600 204,250
Citrix Systems, Inc.(a)......... 2,900 281,481
Deltek Systems, Inc.(a)......... 13,900 234,562
Great Plains Software,
Inc.(a)....................... 3,700 178,525
HNC Software Inc.(a)............ 6,500 262,844
H.T.E., Inc.(a)................. 30,800 154,000
IONA Technologies PLC(a)(b)..... 6,900 262,200
Memco Software Ltd.(a)(b)....... 10,000 152,500
Microsoft Corporation(a)........ 5,300 735,044
Network Associates, Inc.(a)..... 11,600 768,500
New Era of Networks, Inc.(a).... 9,400 413,600
Peregrine Systems, Inc.(a)...... 3,400 157,676
SOFTWORKS, Inc.(a).............. 15,000 105,938
Symantec Corporation(a)......... 8,000 174,000
Veritas Software Corp.(a)....... 4,675 280,208
Visio Corporation(a)............ 9,500 347,344
-----------
5,400,278
-----------
SYSTEM INTEGRATORS -- 6.19%
4Front Technologies, Inc.(a).... 25,000 276,562
Condor Technology Solutions,
Inc.(a)....................... 15,700 157,000
Cotelligent Group, Inc.(a)...... 5,800 123,612
ForSoft Ltd(a)(b)............... 19,600 203,350
Intelligroup, Inc.(a)........... 6,700 119,762
International Integration
Incorporated(a)............... 4,400 74,800
International Network
Services(a)................... 4,800 319,200
Sapient Corporation(a).......... 1,200 67,200
Superior Consultant Holdings
Corporation(a)................ 6,400 278,400
Technisource, Inc.(a)........... 10,800 106,650
Tier Technologies, Inc. -- Class
B(a).......................... 8,600 148,350
Whittman-Hart, Inc.(a).......... 14,000 386,750
-----------
2,261,636
-----------
TELECOMMUNICATIONS
EQUIPMENT -- 4.92%
Advanced Fibre Communications,
Inc.(a)....................... 15,000 164,063
Carrier Access Corporation(a)... 7,000 241,062
Comverse Technology Inc.(a)..... 4,000 284,000
Gilat Satellite Networks
Ltd.(a)(b).................... 5,000 275,625
Orckit Communications
Ltd.(a)(b).................... 6,700 108,456
SDL, Inc.(a).................... 3,800 150,575
Tellabs, Inc.(a)................ 4,300 294,819
Uniphase Corporation(a)......... 4,000 277,500
-----------
1,796,100
-----------
TELECOMMUNICATION
SERVICES -- 4.41%
Global Crossing Ltd.(a)(b)...... 4,600 $ 207,575
MCI WorldCom, Inc.(a)........... 8,000 574,000
Nextel Communications,
Inc.(a)....................... 9,200 217,350
Pacific Gateway Exchange,
Inc.(a)....................... 3,300 158,606
Qwest Communications
International Inc.(a)......... 3,200 160,000
WinStar Communications,
Inc.(a)....................... 7,500 292,500
-----------
1,610,031
-----------
TELESERVICES -- .97%
Sykes Enterprises, Inc.(a)...... 11,600 353,800
-----------
TOTAL INVESTMENTS -- 93.24%
(Cost -- $20,379,140)(c).............. 34,060,885
OTHER ASSETS, LESS
LIABILITIES -- 6.76%.................. 2,469,864
-----------
NET ASSETS -- 100%...................... $36,530,749
===========
NV -- Non-voting
(a) Non-income producing
security
(b) Foreign security
(c) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation....... $14,150,614
Gross unrealized depreciation....... (468,869)
-----------
Net unrealized appreciation..... $13,681,745
===========
Purchases and sales of securities other than
short-term obligations aggregated $19,521,724 and
$21,318,371, respectively, for the period ended
December 31, 1998.
Transactions in written put options during the period
ended December 31, 1998 were:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
<S> <C> <C>
Written............................... 12,251 $ 496,305
Closing purchases..................... (12,251) (496,305)
------- ---------
Outstanding on December 31, 1998...... -- $ --
======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 77
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $20,379,140)...... $34,060,885
Cash........................................................ 2,568,494
Receivables
Fund shares sold.......................................... 36,567
Dividends and interest.................................... 128
Deferred organization expenses.............................. 30,486
Other assets................................................ 4,952
-----------
Total assets.............................................. 36,701,512
-----------
LIABILITIES
Payables
Investments purchased..................................... 79,800
Fund shares repurchased................................... 24,673
Management fees........................................... 27,264
12b-1 service and distribution fees....................... 17,540
Other payables to related parties......................... 12,260
Accrued expenses............................................ 9,226
-----------
Total liabilities....................................... 170,763
-----------
NET ASSETS.................................................. $36,530,749
===========
CLASS A
Net asset value and redemption price per share
($17,887,696/756,832 shares outstanding).................. $ 23.63
===========
Maximum offering price per share ($23.63 x 100/94.25)*...... $ 25.07
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($10,196,694/437,445 shares outstanding)............ $ 23.31
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($8,431,480/360,657 shares outstanding)............. $ 23.38
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($14,879/630 shares outstanding).................... $ 23.62
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $23,592,964
Accumulated net realized loss on investments.............. (743,960)
Net unrealized appreciation on investments................ 13,681,745
-----------
NET ASSETS.................................................. $36,530,749
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 78
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 2,043
Interest.................................................. 75,943
----------
77,986
----------
EXPENSES
Management fee............................................ $280,079
Transfer agent............................................ 63,868
Administrative services fee............................... 28,008
Custodian fees............................................ 10,406
Blue Sky fees............................................. 32,625
Auditing and accounting fees.............................. 21,707
Shareholder reports....................................... 7,616
Amortization of organization expenses..................... 12,009
Fund accounting........................................... 38,210
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 185,750
Legal..................................................... 22,764
Other..................................................... 7,171
----------
Total expenses............................................ 718,684
----------
NET INVESTMENT LOSS......................................... (640,698)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) on
Investments............................................. 327,469
Written options......................................... (210,691)
Net change in unrealized appreciation on investments...... 9,515,504
----------
Net gain on investment transactions..................... 9,632,282
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $8,991,584
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 79
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (640,698) $ (530,718)
Net investment loss on
Investments............................................. 327,469 (847,104)
Written options......................................... (210,691) --
Net change in unrealized appreciation on investments...... 9,515,504 3,158,134
----------- -----------
Net increase resulting from operations.............. 8,991,584 1,780,312
----------- -----------
Distributions in excess of net realized gain
Class A................................................... -- (212)
Class B................................................... -- (165)
Class C................................................... -- (102)
----------- -----------
Total distributions to shareholders................. -- (479)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... 1,495,065 2,928,480
Class B................................................... (964,996) 4,780,042
Class C................................................... (87,574) 3,740,708
Advisor Class............................................. 12,519 --
----------- -----------
Net increase resulting from Fund share
transactions........................................ 455,014 11,449,230
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 9,446,598 13,229,063
NET ASSETS
Beginning of period....................................... 27,084,151 13,855,088
----------- -----------
END OF PERIOD............................................. $36,530,749 $27,084,151
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 80
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 22, 1996
CLASS A FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.47 $ 16.40 $10.00
------- ------- ------
Income from investment operations
Net investment loss....................................... (.36)(e) (.31)(e) (.06)(a)
Net realized and unrealized gain on investments........... 6.52(e) 1.38(e) 6.49
------- ------- ------
Total from investment operations........................ 6.16 1.07 6.43
------- ------- ------
Less distributions
From net realized gain.................................... -- -- .03
------- ------- ------
Total distributions..................................... -- -- .03
------- ------- ------
Net asset value, end of period.............................. $ 23.63 $ 17.47 $16.40
======= ======= ======
Total return(%)............................................. 35.26(b) 6.53(b) 64.34(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $17,888 $12,159 $8,324
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 2.19(d)
Without expense reimbursement(%).......................... 2.16 2.11 2.90(d)
Ratio of net investment loss to average net assets(%)....... (1.88) (1.91) (2.18)(a)(d)
Portfolio turnover rate(%).................................. 73 54 23
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 22, 1996
CLASS B FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.37 $ 16.44 $10.00
------- ------- ------
Income from investment operations
Net investment loss....................................... (.50)(e) (.32)(e) (.06)(a)
Net realized and unrealized gain on investments........... 6.44(e) 1.25(e) 6.52
------- ------- ------
Total from investment operations........................ 5.94 .93 6.46
------- ------- ------
Less distributions
From net realized gain.................................... -- -- .02
------- ------- ------
Total distributions..................................... -- -- .02
------- ------- ------
Net asset value, end of period.............................. $ 23.31 $ 17.37 $16.44
======= ======= ======
Total return(%)............................................. 34.20(b) 5.66(b) 64.59(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $10,197 $ 8,577 $3,425
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 2.99(d)
Without expense reimbursement(%).......................... 2.95 2.92 3.70(d)
Ratio of net investment loss to average net assets(%)....... (2.67) (2.72) (2.98)(a)(d)
Portfolio turnover rate(%).................................. 73 54 23
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 81
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 22, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 17.40 $ 16.46 $10.00
------- ------- ------
Income from investment operations
Net investment loss....................................... (.48)(e) (.42)(e) (.05)(a)
Net realized and unrealized gain on investments........... 6.46(e) 1.36(e) 6.53
------- ------- ------
Total from investment operations........................ 5.98 .94 6.48
------- ------- ------
Less distributions
From net realized gain.................................... -- -- .02
------- ------- ------
Total distributions..................................... -- -- .02
------- ------- ------
Net asset value, end of period.............................. $ 23.38 $ 17.40 $16.46
======= ======= ======
Total return(%)............................................. 34.37(b) 5.71(b) 64.84(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 8,431 $ 6,348 $2,106
Ratio of expenses to average net assets
With expense reimbursement(%)............................. -- -- 2.95(d)
Without expense reimbursement(%).......................... 2.84 2.85 3.66(d)
Ratio of net investment loss to average net assets(%)....... (2.56) (2.65) (2.94)(a)(d)
Portfolio turnover rate(%).................................. 73 54 23
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 15, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $20.19
------
Income from investment operations
Net investment loss(e).................................... (.20)
Net realized and unrealized gain on investments(e)........ 3.63
------
Total from investment operations........................ 3.43
------
Net asset value, end of period.............................. $23.62
======
Total return(%)(c).......................................... 16.99
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 15
Ratio of expenses to average net assets(%)(d)............... 2.18
Ratio of net investment loss to average net assets(%)(d).... (1.91)
Portfolio turnover rate(%).................................. 73
</TABLE>
<TABLE>
<S> <C>
(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) Based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 82
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, Advisor
Class 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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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 invest in option contracts for the purpose of
increasing or decreasing its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
the value of the Fund's securities. An option is a right to buy or sell a
particular security at a specified price within a limited period of time. The
buyer of the option, in return for a premium paid to the seller, has the right
to buy, in the case of a call option, or sell, in the case of a put option, the
underlying security of the contract. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
When the Fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds of the sale in determining whether the Fund has realized a gain or
loss on the transaction. For options on indices, cash settlement by the Fund is
required if the option is exercised. The Fund, as writer of an option, has no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. Exchange traded written
options are valued daily at the last sale price or, in the absence of a sale, at
the calculated mean of the bid and asked prices, subject to certain
reasonability criteria on the spread between the bid and asked prices.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998 the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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
$744,000 as of December 31, 1998, 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
$373,000 in 2005 and $371,000 in 2006.
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 loss
and Net realized gain on investments 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 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, 1998, the net amount of underwriting
discount retained by IMDI was $7,170.
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 Advisor Class and 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 assets attributable to Class B and Class C. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$31,407, $83,768, and $70,575 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 $29,228, $22,672, $11,913 and $55, for Class A, Class B, Class C and
Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 320,126 $ 6,486,249 466,094 $ 7,484,210
Issued on reinvestment of
distributions................ -- -- 20 329
Repurchased................... (259,273) (4,991,184) (277,596) (4,556,059)
-------- ----------- -------- -----------
Net increase.................. 60,853 $ 1,495,065 188,518 $ 2,928,480
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 88,408 $ 1,667,703 377,437 $ 6,237,513
Issued on reinvestment of
distributions................ -- -- 15 252
Repurchased................... (144,818) (2,632,699) (91,906) (1,457,723)
-------- ----------- -------- -----------
Net (decrease)/increase....... (56,410) $ (964,996) 285,546 $ 4,780,042
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 56,748 $ 1,055,472 284,174 $ 4,497,638
Issued on reinvestment of
distributions................ -- -- 10 170
Repurchased................... (60,890) (1,143,046) (47,327) (757,100)
-------- ----------- -------- -----------
Net (decrease)/increase....... (4,142) $ (87,574) 236,857 $ 3,740,708
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 15, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 1,642 $ 32,780
Repurchased................... (1,012) (20,261)
-------- -----------
Net increase.................. 630 $ 12,519
======== ===========
</TABLE>
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Science & Technology Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IGST123198
<PAGE> 85
DECEMBER 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
Emerging markets came under pressure again in 1998. Throughout the year, markets
with very different fundamentals acted similarly -- a clear sign that, in our
opinion, sentiment, rather than fundamentals, was driving market performance.
According to our research, by the middle of the year, emerging market stocks
were oversold. But by the fourth quarter, many of these markets, in particular
those in Asia, rebounded significantly from their oversold conditions and made
strong contributions to the performance of the Ivy Developing Nations Fund.
Within this difficult environment for emerging market investing, the Ivy
Developing Nations Fund was down 11.67% for the twelve months ended December 31,
1998. This compares favorably to the Morgan Stanley Capital International
Emerging Markets Free Index, which was down 25.35% for the same period. (For the
Fund's total return with sales charge and performance commentary, please refer
to the following page.)
As of year-end, 45% percent of the Ivy Developing Nations Fund was invested
in non-Japan Asia. We believe that most Asian economies have bottomed out, and
therefore believe they will return to positive growth in 1999. Currency
stabilization and revaluation, sparked by appreciation of the Japanese yen last
summer, set the stage for considerable interest rate declines across the region;
as a result, equity markets rebounded. While we cannot say for certain, we
believe the Fund's Asian investments should make favorable contributions to
performance as the apparent economic recovery in that region gains momentum.
As of year-end, 38% percent of the Fund's assets was invested in Latin
America -- a region that has perhaps been hit the hardest by turmoil in global
financial markets. Despite lower growth expectations as a result of the Asian
crisis, according to our research, the underlying economies in Latin America
remain relatively strong. In our opinion, at their current levels, valuations in
those markets are attractive. Within the region, the Fund's largest exposure
continues to be Brazil, where as of year-end more than 19% of the portfolio was
invested. Since the onset of the crisis, global economic turmoil has placed
substantial pressure on the Brazilian currency, the real. The Brazilian
government's decision to float the real at the beginning of 1999 seems to have
relieved much of that pressure, although it did not eliminate the need for an
aggressive fiscal adjustment. In our view, fiscal reforms continue to be
critical for a reduction in interest rates, which, in turn, could contribute to
a recovery in equity markets and improve long-term growth prospects.
We have increased the Fund's exposure to emerging European markets, primarily
those in Eastern Europe such as Hungary and the Czech Republic. Market
valuations in that region have fallen despite strong macroeconomic fundamentals,
especially in the context of emerging markets. We believe that prospective
European Union membership would likely spur further reform and development going
forward.
In the short term, continued volatility in developing markets is likely.
Overall, however, we continue to believe that economics, international trade,
geography, and demographics provide strong support for investing in the
developing world, and that excessive pessimism has created compelling
opportunities for bargain hunters. Although there are special risks associated
with investing in emerging markets, such as political and economic developments,
emerging market exposure should continue to provide valuable diversification
benefits over time.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 86
PERFORMANCE COMPARISON OF THE
FUND SINCE INCEPTION (11/94)
OF A $10,000 INVESTMENT
(CHART)
IVY DEVELOPING NATIONS FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Developing Nations Fund
was down 11.67%. The Morgan Stanley Capital International (MSCI) Emerging
Markets Free Index was down 25.35% for the same period. The relative
outperformance of the Fund is attributed to its overweight position in Asia at
45%, compared to the index, which had a 28% allocation to Asia.
The Morgan Stanley Capital International (MSCI) 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY DEVELOPING NATIONS FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(16.73%) (12.35%) (18.01%) (13.68%)
C: C: C: C:
1 year (16.75%) (18.01%) (13.16%) (12.16%) (14.14%) (13.14%) n/a n/a
B: B: B: B:
(10.60%) (10.17%) (12.19%) (11.77%)
C: C: C: C:
Since Inception(5) (10.76%) (12.39%) n/a (15.22%) n/a (15.63%) (19.06%) (19.68%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A and Class B commenced operations November 1, 1994; Class C commenced
operations April 30, 1996; Advisor Class commenced operations April 30, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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 Developing Nations Fund will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
- --------------------------------------------------------------------------------
<PAGE> 87
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 93.68% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOUTH AFRICA -- 3.51%
- ---------------------
Anglo American Corporation
S.A. .............. 8,700 $ 245,207
Rembrandt Group Ltd. ... 42,300 258,865
------------
504,072
------------
ASIA/PACIFIC -- 45.35%
- ---------------------
CHINA -- 1.24%
Anhui Expressway Co.
Ltd. .............. 252,000 29,601
China Southern Airlines
Company Ltd.(a).... 158,000 16,520
Guangdong Kelon Electrical
Holdings --
H Shares........... 45,000 40,080
Huaneng Power
International, Inc.
ADR(a)............. 1,200 17,400
Inner Mongolia Erdos
Cashmere Products Co.
'B'................ 64,000 8,320
Qinling Motors Company... 67,000 11,762
Shanghai Diesel Engine Co.
Ltd. 'B'........... 81,200 9,744
Shanghai Post &
Telecommunications
Equipment 'B'(a)... 55,900 12,801
Zhenhai Refining and
Chemical Company Ltd. ... 210,000 32,258
------------
178,486
------------
HONG KONG -- 11.32%
Asia Satellite
Telecommunications
Holdings Ltd. ..... 16,000 28,501
CDL Hotels International
Ltd. .............. 130,000 33,394
CLP Holdings Ltd. ... 11,000 54,808
Cheung Kong Holdings
Ltd. .............. 17,000 122,337
Cheung Kong Infrastructure
Holdings........... 10,000 22,331
Citic Pacific........ 31,000 66,826
Dao Heng Bank Group
Ltd. .............. 50,000 154,576
Giordano International
Ltd. .............. 132,000 24,706
Gold Peak Industries... 236,000 66,258
Guangzhou Investment
Company Ltd. ...... 481,000 47,808
HSBC Holdings........ 5,241 130,568
Hong Kong Electric Holdings
Ltd. .............. 20,500 62,185
Hong Kong
Telecommunications
Ltd. .............. 34,400 60,168
Jardine International Motor
Holdings Ltd. ..... 68,000 26,991
Li & Fung............ 60,000 124,306
Moulin International
Holding Ltd. ...... 232,000 28,150
NG Fung Hong Ltd. ... 48,000 43,062
National Mutual Asia
Ltd. .............. 140,000 104,815
New World Development
Company
Ltd. .............. 41,000 103,201
Shanghai Industrial
Holdings Ltd. ..... 35,000 70,705
Sun Hung Kai Properties
Ltd. .............. 9,000 65,638
Techtronic Industries
Company............ 194,000 34,558
Union Bank of Hong Kong
Ltd. .............. 97,600 78,110
Wharf Holdings Ltd. (with
4,100 Warrants(a))... 48,000 70,353
------------
1,624,355
------------
INDONESIA -- 1.38%
PT Hanjaya Mandala
Sampoerna
Tbk(a)............. 298,500 198,067
------------
ISRAEL -- .64%
Koor Industries
Limited -- Sponsored
ADR................ 5,300 92,419
------------
MALAYSIA(B) -- 8.34%
Arab Malaysian Corporation
Berhad(a).......... 140,000 23,494
Berjaya Sports Toto
Berhad............. 65,000 70,828
Genting Berhad....... 41,000 77,759
Johor Port Berhad.... 146,000 45,646
KFC Holdings (Malaysia)
Berhad............. 97,000 68,681
London & Pacific Insurance
Company Berhad..... 90,400 77,723
Malakoff Berhad...... 26,000 53,196
Malayan Banking Berhad... 58,000 102,667
Malayan Cement Berhad... 48,000 15,117
Perusahaan Otomobil
Nasional Berhad.... 88,000 116,322
Petronas Gas Berhad... 30,000 59,311
Public Bank Berhad... 139,200 64,000
Public Bank
Berhad -- Foreign... 102,000 43,379
Sime Darby Berhad.... 80,000 80,184
Sime UEP Properties
Berhad............. 120,000 $ 99,311
Telekom Malaysia Berhad... 52,000 119,540
Tenaga Nasional Berhad... 45,000 80,690
------------
1,197,848
------------
PHILIPPINES -- 3.04%
Alaska Milk
Corporation(a)..... 1,700,000 99,643
Asian Terminals, Inc.(a)... 677,500 19,159
Bacnotan Cement
Corporation........ 180,000 31,466
Belle Corporation(a) (With
61,400 Warrants(a))... 607,000 33,528
Benpres Holdings Corp.
GDR(a)............. 15,000 45,000
La Tondena Distillers
Inc.(a)............ 50,300 40,086
Manila Electric
Company -- B Shares... 10,000 32,135
Metropolitan Bank & Trust
Company............ 11,728 84,420
Music Corporation(a)... 127,000 10,448
Southeast Asia Cement
Holdings,
Inc.(a)............ 1,041,855 12,856
Universal Robina
Corporation........ 249,000 27,845
------------
436,586
------------
SINGAPORE -- 9.13%
Asia Pulp & Paper Company
Ltd.(a)............ 4,000 32,750
Clipsal Industries
Limited............ 131,000 131,000
DBS Land Limited..... 176,000 259,207
Development Bank of
Singapore -- Foreign
Registered Limited... 24,200 218,539
Elec & Eltek International
Co. Ltd. .......... 12,700 68,580
Fraser & Neave Ltd. ORD... 90,000 262,916
Hong Kong Land Holdings,
Ltd. .............. 7,000 8,260
Jardine Strategic Holdings
Ltd. .............. 50,062 72,590
Singapore Airlines
Ltd. -- Foreign
Registered......... 35,000 256,673
------------
1,310,515
------------
SOUTH KOREA -- 6.83%
Hyundai Motor Company
Ltd. .............. 9,729 173,145
Hyundai Motor Company Ltd.
GDR 144A........... 500 1,626
Korea Electric Power
Corp. ............. 12,400 194,525
Pohang Iron & Steel Co.
Ltd. .............. 4,000 257,471
Samsung Fire & Marine
Insurance (with 179
rights (a))........ 588 254,465
Shinhan Bank(a)...... 13,016 99,587
------------
980,819
------------
THAILAND -- 3.43%
Advanced Info Service
Public Company
Limited -- Foreign
Registered......... 5,000 29,724
Bangkok Bank Public Company
Ltd.(a)............ 20,000 28,624
Bangkok Bank Public Company
Ltd -- Foreign
Registered(a)...... 36,000 74,311
Delta Electronics
(Thailand) Public Company
Limited -- Foreign
Registered......... 4,000 21,137
K.R. Precision Public
Company Limited --
Foreign Registered(a)... 56,000 27,358
Krung Thai Thanakit
PLC -- Foreign
Registered(a)...... 24,000 10,734
Robinson Department Store
Public Company
Limited -- Foreign
Registered(a)...... 637,200 42,090
Siam Cement Public Co.
Limited (The) -- Foreign
Registered(a)...... 9,300 210,910
Thai Farmers Bank Public
Company
Limited -- Foreign
Registered(a)...... 27,000 47,559
------------
492,447
------------
EUROPE -- 6.63%
- ---------------------
CZECH REPUBLIC -- 1.65%
Czech Power Company,
(The)(a)........... 3,500 78,683
Inzenyrske a Prumyslove
Stavby (IPS)....... 12,500 38,324
Restitucni Invest Fund... 1,200 36,891
Skoda Plzen a.s.(a)... 2,000 11,655
Zivnobanka -- Investicni
Fond............... 5,300 71,743
------------
237,296
------------
ESTONIA -- .77%
Hansabank Ltd.(a).... 29,500 110,116
------------
</TABLE>
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
HUNGARY -- .83%
Pannonplast Rt............ 1,800 $ 50,960
Pick Szeged Rights........ 1,600 68,002
------------
118,962
------------
POLAND -- 1.68%
Bank Rozwoju Eksportu
S.A. ................... 1,550 35,770
Telekomunikacja Polska
S.A.(a)................. 40,000 205,000
------------
240,770
------------
PORTUGAL -- .98%
Investec-Consultoria
Internacional S.A. ..... 850 29,275
Lusomundo SGPS S.A. ...... 2,300 28,843
Portugal Telecom S.A.
ADR..................... 1,100 49,088
Sonae Industria E
Investimentos........... 700 34,031
------------
141,237
------------
RUSSIA -- .06%
Gorkovsky Auto Plant
(GAZ)(a)................ 500 9,025
------------
TURKEY -- .66%
Cimentas A.S.(a).......... 561,725 21,373
Otokar Otobus
Karoseri(a)............. 537,500 41,328
Turkiye Garanti Bankasi
A.S.(a)................. 1,302,093 32,203
------------
94,904
------------
SOUTH AND CENTRAL
AMERICA -- 38.19%
- --------------------------
ARGENTINA -- 6.66%
Banco De Galicia y Buenos
Aires S.A. de C.V. ..... 16,350 72,005
Banco Frances S.A. ....... 7,500 53,298
Bansud S.A.(a)............ 52,401 225,003
Inversiones y
Representaciones S.A.
(IRSA).................. 65,139 178,623
Quilmes Industrial........ 20,000 186,250
Telefonica De Argentina
S.A. ADR................ 3,500 97,781
YPF S.A. Sponsored ADR.... 5,100 142,481
------------
955,441
------------
BRAZIL -- 19.24%
Centrais Electricas
Brasileiras S.A. ....... 10,200,000 175,601
Centrais Electricas
Brasileiras S.A.
Preferred B............. 5,580,000 107,148
Companhia Brasileira de
Distribuicao Grupo Pao
de Acucar............... 14,100,000 227,570
Companhia Energetica de
Minas Gerais (CEMIG).... 1,879,016 35,770
Companhia Energetica de
Sao Paulo (CESP)........ 7,650,000 164,625
Companhia Paranaense de
Energia (Copel)......... 7,000,000 39,977
Companhia Paulista de
Forca e Luz Dividend
Preferred Receipt....... 1,156 77
Companhia Vale do Rio Doce
Preferred Shares (with
5,000 Non Tradeable
Debentures(a)).......... 7,000 89,803
Elevadores Atlas S.A.
144A.................... 18,200 195,829
Embratel Participacoes
S.A.(a)................. 1,000 13,938
Itaubanco................. 266,000 129,894
Marcopolo S.A. -- B....... 124,000 112,896
Petroleo Brasileiro S.A.
(Petrobras)............. 2,520,000 285,748
Tam Transport Aereos
Regionais S.A.
Preferred............... 9,200,000 494,876
Tele Celular Sul
Participacoes S.A.(a)... 100 1,744
Tele Centro Oeste Celular
Participacoes S.A.(a)... 333 978
Tele Centro Sul
Participacoes S.A.(a)... 200 8,363
Tele Leste Celular
Participacoes
S.A.(a)................. 20 568
Tele Nordeste Celular
Participacoes S.A.(a)... 50 925
Tele Norte Celular
Participacoes
S.A.(a)................. 20 451
Tele Norte Leste
Participacoes S.A.(a)... 1,000 12,438
Tele Sudeste Celular
Partcipacoes S.A.(a).... 200 4,138
Telecomunicacoes
Brasileiras S.A. --
Sponsored ADR Preferred
Block(a)................ 6,400 465,200
Telecomunicacoes
Brasileiras S.A.
(Telebras) ADR.......... 1,000 $ 110
Telemig Celular
Participacoes S.A.(a)... 50 1,063
Telesp Celular
Participacoes S.A.(a)... 400 7,000
Telesp Participacoes
S.A.(a)................. 1,000 22,125
Uniao de Bancos
Brasileiros S.A. ....... 4,600,000 93,280
Unibanco-Units............ 1,950,000 67,787
------------
2,759,922
------------
CHILE -- 7.99%
A.F.P. Provida S.A. ADR... 11,000 147,813
Antofagasta Holdings
PLC..................... 65,263 192,738
Banco Santander
Chile -- Sponsored
ADR..................... 4,200 61,425
Banco Santiago............ 8,000 119,000
Cristalerias de
Chile -- Sponsored
ADR..................... 14,800 194,250
Embotelladora Andina S.A.
Sponsored ADR (Class
A)...................... 3,400 49,300
Embotelladora Andina S.A.
Sponsored ADR (Class
B)...................... 3,400 44,200
Gener S.A. Sponsored
ADR..................... 3,590 57,440
Laboratorio Chile S.A.
ADR..................... 4,000 57,500
Sociedad Quimica y Minera
de Chile S.A. Sponsored
ADR..................... 2,400 80,850
Vina Concha y Toro S.A.
ADR..................... 5,500 142,313
------------
1,146,829
------------
COLOMBIA -- .74%
Bancolombia
S.A. -- Sponsored ADR... 22,700 106,406
------------
MEXICO -- 2.10%
Grupo Posadas
S.A. -- 'A'(a).......... 83,785 34,735
Panamerican Beverages
Inc. ................... 5,500 119,969
Telefonos de Mexico S.A.
ADR Class L............. 3,000 146,063
------------
300,767
------------
PERU -- .93%
CPT Telefonica del Peru
S.A. -- 'B'............. 105,900 133,218
------------
VENEZUELA -- .53%
CANTV CIA Anonima Telef... 4,300 76,594
------------
TOTAL INVESTMENTS --93.68%
(Cost -- $18,805,034)(Cost on Federal
income tax basis -- $18,812,987)... 13,447,101
OTHER ASSETS, LESS
LIABILITIES -- 6.32%................. 907,875
------------
NET ASSETS -- 100%..................... $ 14,354,976
============
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
ORD -- Ordinary
(a) Non-income producing security
(b) As of September 1, 1998, the repatriation of
proceeds received from the sale of these
securities has been blocked until at least
September 1, 1999. These securities are considered
illiquid and are being fair valued using methods
determined in good faith by the Valuation
Committee of the Board of Trustees. See Note 5 to
the Financial Statements.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation...... $ 1,324,905
Gross unrealized depreciation...... (6,682,838)
------------
Net unrealized depreciation for
financial
statement purposes........... (5,357,933)
Less: tax basis adjustments........ (7,953)
------------
Net unrealized depreciation for
Federal
income tax purposes.......... $ (5,365,886)
============
Purchases and sales of securities other than
short-term obligations aggregated $7,244,624 and
$10,954,448, respectively, for the period ended
December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 89
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $18,805,034)...... $13,447,101
Cash........................................................ 983,770
Receivables
Fund shares sold.......................................... 113,775
Dividends and interest.................................... 39,340
Manager for expense reimbursement......................... 37,906
Deferred organization expenses.............................. 8,183
Other assets................................................ 5,438
-----------
Total assets.............................................. 14,635,513
-----------
LIABILITIES
Payables
Investments purchased..................................... 131,517
Fund shares repurchased................................... 87,189
Management fee............................................ 12,093
12b-1 service and distribution fees....................... 8,528
Other payables to related parties......................... 10,545
Accrued expenses............................................ 30,665
-----------
Total liabilities......................................... 280,537
-----------
NET ASSETS.................................................. $14,354,976
===========
CLASS A
Net asset value and redemption price per share
($5,487,376/911,193 shares outstanding)................... $ 6.02
===========
Maximum offering price per share ($6.02 x 100/94.25)*....... $ 6.39
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($6,144,548/1,035,951 shares outstanding)........... $ 5.93
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($2,641,408/443,448 shares outstanding)............. $ 5.96
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($81,644/13,499 shares outstanding)................. $ 6.05
===========
Net assets consist of
Capital paid-in........................................... $26,493,350
Accumulated net realized loss on investments and foreign
currency transactions................................... (6,773,288)
Accumulated net investment loss........................... (9,349)
Net unrealized depreciation on investments and foreign
currency transactions................................... (5,355,737)
-----------
NET ASSETS.................................................. $14,354,976
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 90
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $54,718 foreign taxes withheld.......... $ 462,797
Interest.................................................. 15,535
------------
478,332
------------
EXPENSES
Management fee............................................ $156,166
Transfer agent............................................ 71,214
Administrative services fee............................... 15,617
Custodian fees............................................ 112,358
Blue Sky fees............................................. 36,955
Auditing and accounting fees.............................. 20,969
Shareholder reports....................................... 10,286
Amortization of organization expenses..................... 9,873
Fund accounting........................................... 34,475
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 109,157
Legal..................................................... 21,946
Other..................................................... 6,866
------------
614,353
Expenses reimbursed by Manager............................ (200,839)
------------
Net expenses............................................ 413,514
------------
NET INVESTMENT INCOME....................................... 64,818
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (6,212,483)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 3,893,124
------------
Net loss on investment transactions..................... (2,319,359)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (2,254,541)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 91
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income (loss).............................. $ 64,818 $ (85,818)
Net realized (loss) gain on investments and foreign
currency transactions................................... (6,212,483) 814,367
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 3,893,124 (10,222,275)
------------ ------------
Net decrease resulting from operations.............. (2,254,541) (9,493,726)
------------ ------------
Class A distributions
From net investment income................................ (3,738) --
In excess of net investment income........................ -- (14,575)
From net realized gain.................................... -- (382,865)
In excess of net realized gain............................ -- (222,371)
------------ ------------
Total distributions to Class A shareholders......... (3,738) (619,811)
------------ ------------
Class B distributions
From net investment income................................ (4,282) --
In excess of net investment income........................ -- (10,338)
From net realized gain.................................... -- (339,775)
In excess of net realized gain............................ -- (197,344)
------------ ------------
Total distributions to Class B shareholders......... (4,282) (547,457)
------------ ------------
Class C distributions
From net investment income................................ (1,761) --
In excess of net investment income........................ -- (2,619)
From net realized gain.................................... -- (91,727)
In excess of net realized gain............................ -- (53,275)
------------ ------------
Total distributions to Class C shareholders......... (1,761) (147,621)
------------ ------------
Advisor Class distributions
From net investment income................................ (54) --
------------ ------------
Total distributions to Advisor Class shareholders... (54) --
------------ ------------
Fund share transactions (Note 4)
Class A................................................... (2,149,545) 3,513,031
Class B................................................... (1,249,929) 6,879,152
Class C................................................... 436,012 1,861,647
Advisor Class............................................. 90,457 --
------------ ------------
Net (decrease) increase resulting from Fund share
transactions........................................ (2,873,005) 12,253,830
------------ ------------
TOTAL (DECREASE) INCREASE IN NET ASSETS..................... (5,137,381) 1,445,215
NET ASSETS
Beginning of period....................................... 19,492,357 18,047,142
------------ ------------
END OF PERIOD............................................. $ 14,354,976 $ 19,492,357
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 92
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS A (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------------- ----------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 6.82 $ 10.12 $ 9.05 $ 8.64 $ 10.00
------- ------- ------ ------ -------
Income (loss) from investment operations
Net investment income (loss)(a)........................ .06 .01 (.02) .01 --
Net realized and unrealized (loss) gain on investment
transactions......................................... (.86) (2.80) 1.09 .54 (1.36)
------- ------- ------ ------ -------
Total from investment operations..................... (.80) (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........................... $ 6.02 $ 6.82 $10.12 $ 9.05 $ 8.64
======= ======= ====== ====== =======
Total return(%).......................................... (11.67)(b) (27.42)(b) 11.83(b) 6.40(b) (13.50)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................. $ 5,487 $ 8,584 $9,925 $3,435 $ 611
Ratio of expenses to average net assets(e)
With expense reimbursement(%).......................... 2.18 2.31 2.45 2.55 2.20(d)
Without expense reimbursement (%)...................... 3.47 2.39 2.82 7.18 20.74(d)
Ratio of net investment income (loss) to average net
assets(%)(a)........................................... .88 .09 (.23) .24 .52(d)
Portfolio turnover rate (%).............................. 47 42 27 14 --
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
CLASS B (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, TO DECEMBER 31,
-------------------------------------------------- ----------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period..................... $ 6.77 $ 10.04 $ 9.05 $ 8.64 $ 10.00
------- ------- ------ ------ -------
Income (loss) from investment operations
Net investment income (loss)(a)........................ .01 (.06) (.06) (.02) --
Net realized and unrealized gain (loss) on investment
transactions......................................... (.85) (2.76) 1.05 .51 (1.36)
------- ------- ------ ------ -------
Total from investment operations..................... (.84) (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........................... $ 5.93 $ 6.77 $10.04 $ 9.05 $ 8.64
======= ======= ====== ====== =======
Total return(%).......................................... (12.35)(b) (27.93)(b) 10.95(b) 5.62(b) (13.60)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)................. $ 6,145 $ 8,488 $6,269 $ 945 $ 121
Ratio of expenses to average net assets(e)
With expense reimbursement(%).......................... 2.96 3.09 3.20 3.30 2.95(d)
Without expense reimbursement(%)....................... 4.25 3.17 3.57 7.93 21.49(d)
Ratio of net investment income (loss) to average net
assets(%)(a)........................................... .10 (.69) (.98) (.51) (.23)(d)
Portfolio turnover rate(%)............................... 47 42 27 14 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 93
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 6.79 $ 10.06 $ 9.89
------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .01 (.07) (.02)
Net realized and unrealized gain (loss) on investment
transactions............................................ (.84) (2.76) .19
------- ------- -------
Total from investment operations........................ (.83) (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.............................. $ 5.96 $ 6.79 $ 10.06
======= ======= =======
Total return(%)............................................. (12.16)(b) (28.01)(b) 1.73(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 2,641 $ 2,420 $ 1,854
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 2.96 3.12 3.16(d)
Without expense reimbursement(%).......................... 4.25 3.20 3.53(d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .10 (.72) (.94)(d)
Portfolio turnover rate(%).................................. 47 42 27
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $ 7.48
-------
Loss from investment operations
Net investment income(a).................................. .04
Net realized and unrealized loss on investment
transactions............................................ (1.47)
-------
Total from investment operations........................ (1.43)
-------
Net asset value, end of period.............................. $ 6.05
=======
Total return(%)(c).......................................... (19.06)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 82
Ratio of expenses to average net assets(e)
With expense reimbursement(%)(d).......................... 1.68
Without expense reimbursement(%)(d)....................... 2.97
Ratio of net investment income to average net
assets(%)(a)(d)........................................... 1.38
Portfolio turnover rate(%).................................. 47
</TABLE>
<TABLE>
<S> <C>
(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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
Ivy Developing Nations 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 Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $1,197,848 (8.34% of net assets) and have
been noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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
$6,641,000 as of December 31, 1998 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 in 2006.
The Fund earned foreign source dividends of $517,515. These dividends were
subject to foreign withholding tax in the amount of $54,718. 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.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 and Net realized 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 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 period ended December 31, 1998, the net amount of underwriting
discount retained by IMDI was $2,582.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $15,533,
$72,269 and $21,355, 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 $27,151, $33,944, $10,043 and $76, for Class A, Class B, Class C and
Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 339,762 $ 1,889,391 869,379 $ 9,079,143
Issued on reinvestment of
distributions................ 449 2,705 60,778 399,920
Repurchased................... (688,352) (4,041,641) (651,905) (5,966,032)
-------- ----------- -------- -----------
Net (decrease)/increase....... (348,141) $(2,149,545) 278,252 $ 3,513,031
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 249,973 $ 1,513,934 938,685 $ 9,742,013
Issued on reinvestment of
distributions................ 414 2,490 41,091 268,328
Repurchased................... (469,091) (2,766,353) (349,402) (3,131,189)
-------- ----------- -------- -----------
Net (decrease)/increase....... (218,704) $(1,249,929) 630,374 $ 6,879,152
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 240,773 $ 1,338,143 277,166 $ 2,892,984
Issued on reinvestment of
distributions................ 106 548 14,440 94,723
Repurchased................... (153,701) (902,679) (119,522) (1,126,060)
-------- ----------- -------- -----------
Net increase.................. 87,178 $ 436,012 172,084 $ 1,861,647
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 14,503 $ 95,403
Issued on reinvestment of
distributions................ 9 54
Repurchased................... (1,013) (5,000)
-------- -----------
Net increase.................. 13,499 $ 90,457
======== ===========
</TABLE>
5. SUBSEQUENT EVENT
The Malaysian Government announced on February 4, 1999, a new policy
regarding repatriation of proceeds received from the sale of Malaysian
securities. Under the new policy, which goes into effect February 15, 1999,
repatriation will no longer be blocked; instead the new policy provides for a
graduated levy. The levy will range from zero to thirty percent of proceeds,
depending on the holding period and the time of repatriation.
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Developing Nations Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IDNF123198
<PAGE> 97
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
Ivy International Fund II seeks to provide investors with a diversified
portfolio of large-capitalization foreign stocks. Investments are chosen for the
Fund using a disciplined value approach that concentrates on long-term earnings
projections, asset values, and cash-flow generation-criteria that were ignored
by investors in 1998. In our view, this disregard for future earnings potential
and value caused large-cap international funds to underperform their
international growth fund counterparts by approximately eight percentage points
(Source: Morningstar). Within this difficult environment for value investors,
the Ivy International Fund II finished the year with a positive return of 6.63%
for the twelve months ended December 31, 1998.(For the Fund's total return with
sales charge and performance commentary, please refer to the following page.)
Several investment trends have been in place for at least the past five years,
and many investors have positioned their portfolios as if these trends will
continue indefinitely. Investors now seem to believe that US equities will
outperform everything else; emerging market investments will lose money;
commodity prices will never recover; value investing is dead; and large-cap
stocks will outperform small caps. We believe these trends have not only
accelerated, but were exaggerated in 1998. Extreme swings in worldwide markets
in 1998 indicate how quickly sentiment can turn from greed to fear and back
again. Global financial market turmoil drove investors to safe havens, shunning
anything that looked risky, investing close to home in large-cap defensive
stocks, and not paying much attention to valuation.
We believe the world's central banks most likely averted a global recession in
1999 as a result of their concerted easing of interest rates world wide during
the past several months. In Europe, the advent of a single currency zone has
sparked a wave of corporate restructuring efforts that are leading to attractive
investment opportunities in Europe. Throughout 1998, the Fund maintained a 60%
to 70% weighting in Europe. The Fund has also maintained its exposure to Asia
(approximately 21% of assets) and Latin America (approximately 5% of assets).
According to our research, Asia's export engines are back at work, and economic
growth in the region should resume in the second half of 1999. Despite the
turmoil in these two regions, we continue to believe that over the next several
years Asia and Latin America will resume their positions as high-growth
economies and should contribute favorably to overall portfolio returns.
As calm returns to financial markets and the risk aversion of the past year
eases, we expect that the traditional analytical tools for stock selection
should begin working once again. The valuation discrepancies that now exist
between domestic and foreign equities, large- and small-cap stocks, growth and
value disciplines, and developed and emerging markets should begin to narrow as
investors become more willing to accept greater risk in exchange for what we
expect should be higher returns.
This past year has reinforced the need for a disciplined approach to investing.
We remain committed to value management. Within this context we are flexible,
not dogmatic. While we cannot say for certain, we believe that this patient,
long-term approach should provide solid investment returns to the Fund's
shareholders over time.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 98
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (5/97)
OF A $10,000 INVESTMENT
(CHART)
IVY INTERNATIONAL FUND II
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy International Fund II was
up 6.63%. The Morgan Stanley Capital International (MSCI) Europe, Australasia,
Far East (EAFE) Index was up 20.00% for the same period. The primary reason for
the Fund's underperformance was its Asian and emerging market content. Unlike
the Fund, which is actively managed, EAFE is an unmanaged index. As a result of
the 1998 sell-off in Asia, the Asian weighting of the index was reduced and not
rebalanced back to its original value. Our research indicated that the sell-off
in Asia caused many stocks, which were once considered expensive, to now
represent good long-term value. As a result, the Fund's weighting in Asia was
maintained.
The Lipper Average International Fund represents the performance of the average
international fund as measured by Lipper Inc. It is not possible to invest in a
benchmark. The Morgan Stanley Capital International (MSCI) 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
Advisor Class(4) CLASS I(5)
IVY INTERNATIONAL FUND II w/ w/o w/ w/o w/ w/o
AVERAGE ANNUAL Reimb. Reimb. w/ w/o Reimb. Reimb. Reimb. REIMB.
TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
.84% 5.84% .71% 5.71%
C: C: C: C:
1 year .50% .37% 4.79% 5.79% 4.66% 5.66% n/a n/a n/a n/a
B: B: B: B:
(5.81%) (3.45%) (5.89%) (3.52%)
C: C: C: C:
Since Inception(6) (6.12%) (6.20%) n/a (3.48%) n/a (3.56%) (.15%) (.24%) n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class I shares are not subject to an initial sales charge or a CDSC. There
were no Class I shares outstanding.
(6)Class A, Class B and Class C commenced operations May 13, 1997, Advisor Class
commenced operations February 23, 1998.
Total returns were higher due to reimbursement of certain Fund 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 Fund II will
fluctuate and at redemption shares may be worth more or less than the amount of
the original investment.
- --------------------------------------------------------------------------------
<PAGE> 99
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 96.19% SHARES VALUE
- -----------------------------------------
<S> <C> <C>
AFRICA -- 1.51%
- -----------------------------------------
SOUTH AFRICA -- 1.51%
Anglo American Corporation of South
Africa Ltd............................. 19,900 $ 560,876
Liberty Life Association of Africa
Limited................................ 29,000 399,312
Nampak Limited........................... 100,948 153,585
Rembrandt Group Ltd...................... 68,484 419,103
South African Breweries Ltd.............. 40,841 688,017
------------
2,220,893
------------
ASIA/PACIFIC -- 20.59%
- -----------------------------------------
AUSTRALIA -- 3.38%
Australia & New Zealand Banking Group
Ltd.................................... 201,700 1,321,273
Broken Hill Proprietary Company Limited.. 139,200 1,026,179
National Australia Bank Ltd.............. 51,600 778,575
Pacific Dunlop Limited................... 457,520 740,849
Westpac Banking Corp. Ltd................ 164,000 1,098,454
------------
4,965,330
------------
HONG KONG -- 2.51%
Cheung Kong Holdings Ltd................. 204,000 1,468,047
HSBC Holdings............................ 43,800 1,091,180
New World Development Company Ltd........ 164,000 412,804
Swire Pacific Ltd........................ 82,000 367,289
Tsingtao Brewery Co. Ltd Series H(a)..... 592,000 62,661
Wheelock & Company, Ltd.................. 357,000 285,710
------------
3,687,691
------------
JAPAN -- 4.82%
Canon Inc................................ 62,000 1,327,434
Fuji Photo Film ORD...................... 37,000 1,377,701
Matsushita Electric Industrial Co........ 87,000 1,541,828
Sharp Corp............................... 134,000 1,210,551
Sony Corp................................ 22,200 1,619,783
------------
7,077,297
------------
MALAYSIA(B) -- 2.23%
Arab Malaysian Corporation(a)............ 225,000 37,759
Berjaya Sports Toto Bhd.................. 202,000 220,110
Genting Berhad........................... 239,000 453,276
Perusahaan Otomobil Nasional Berhad...... 752,000 994,023
Sime Darby Berhad........................ 1,410,000 1,413,241
Sime UEP Properties Berhad............... 187,000 154,759
------------
3,273,168
------------
NEW ZEALAND -- 1.52%
Fletcher Challenge Building.............. 253,123 391,783
Fletcher Challenge Energy................ 85,488 162,575
Fletcher Challenge Forestry.............. 320,042 106,511
Fletcher Challenge Paper................. 160,540 107,704
Telecom Corp. of New Zealand Ltd......... 170,000 740,882
Tourism Holdings Limited(a).............. 872,827 714,671
------------
2,224,126
------------
PHILIPPINES -- .22%
Benpres Holdings Corporation GDR(a)...... 109,900 329,700
------------
SINGAPORE -- 5.91%
Clipsal Industries Ltd................... 377,000 377,000
DBS Land Limited......................... 305,000 449,193
Elec & Eltek International Co. Ltd....... 147,300 795,420
Fraser & Neave Ltd ORD................... 285,000 832,567
Jardine Matheson Holdings Ltd............ 219,600 566,568
Jardine Strategic Holdings Ltd........... 378,000 548,100
Overseas Union Bank Ltd.................. 388,000 1,693,134
Singapore Airlines Ltd................... 346,000 2,537,398
United Overseas Bank Ltd................. 137,000 880,144
------------
8,679,524
------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
EUROPE -- 69.47%
- -----------------------------------------
DENMARK -- 2.37%
Den Danske Bank.......................... 10,200 $ 1,370,290
Kapital Holding.......................... 9,185 454,607
Unidanmark A/S........................... 18,400 1,662,386
------------
3,487,283
------------
FINLAND -- 2.72%
Stora Enso OY -- R Shares................ 218,569 1,968,433
Rauma OY................................. 72,700 1,062,511
UPM -- Kymmene Corp...................... 34,179 958,550
------------
3,989,494
------------
FRANCE -- 13.07%
Alcatel.................................. 9,600 1,175,508
Banque Nationale de Paris................ 17,900 1,474,681
Compagnie Financiere de Paribas.......... 17,800 1,547,699
Compagnie Generale des Etablissements
Michelin............................... 30,000 1,200,320
Elf Aquitaine S.A........................ 12,904 1,492,297
Galeries Lafayette....................... 840 902,254
Groupe Danone............................ 4,900 1,403,507
Pernod-Ricard............................ 28,100 1,826,045
Peugeot Citroen.......................... 10,820 1,675,490
Schneider S.A............................ 18,709 1,135,400
Societe Generale......................... 7,800 1,263,693
Societe Generale d'Entreprises S.A....... 13,500 633,189
Suez Lyonnaise des Eaux.................. 9,664 1,986,082
Total S.A. ADR........................... 29,600 1,472,600
------------
19,188,765
------------
GERMANY -- 4.78%
DaimlerChrysler AG....................... 11,055 1,098,514
Deutsche Lufthansa AG.................... 81,400 1,805,875
Merck KGaA............................... 44,630 2,009,727
Volkswagen AG............................ 26,040 2,107,559
------------
7,021,675
------------
IRELAND -- 1.03%
Bank of Ireland.......................... 68,626 1,508,316
------------
ITALY -- 3.63%
Banco Popolare di Milano................. 167,000 1,519,201
Fiat S.p.A............................... 453,200 1,577,646
Gucci Group.............................. 47,000 2,228,950
------------
5,325,797
------------
NETHERLANDS -- 7.30%
ABN Amro Bank............................ 24,685 519,568
Akzo Nobel NV............................ 29,604 1,348,743
Fortis Amev NV........................... 30,645 2,540,866
Hunter Douglas NV........................ 29,500 977,744
ING Groep NV............................. 28,800 1,757,157
Koninklijke (Royal) Philips Electronics
NV..................................... 28,158 1,890,536
Unilever NV ADR.......................... 20,400 1,691,925
------------
10,726,539
------------
NORWAY -- .75%
Norsk Hydro Sponsored ADR................ 32,300 1,104,256
------------
PORTUGAL -- 1.49%
Lusomundo -- SGPS S.A. Preferred Shares.. 55,021 638,104
Portugal Telecom S.A. ADR................ 34,900 1,557,412
------------
2,195,516
------------
SPAIN -- 4.56%
Endesa S.A. -- Sponsored ADR............. 64,900 1,752,300
Repsol S.A. -- Sponsored ADR............. 36,800 2,010,200
Telefonica S.A. ADR...................... 21,624 2,927,349
------------
6,689,849
------------
</TABLE>
<PAGE> 100
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
- -----------------------------------------
<S> <C> <C>
SWEDEN -- 4.95%
AssiDoman AB............................. 46,749 $ 738,245
Electrolux AB............................ 105,000 1,807,097
Investor AB "B" Shares................... 33,400 1,508,153
S.K.F. AB Series "B"..................... 87,100 1,015,472
Trelleborg AB "B" Free Shares............ 80,600 656,292
Volvo AB B Shares........................ 67,483 1,548,550
------------
7,273,809
------------
SWITZERLAND -- 7.41%
Compagnie Financiere Richemont AG........ 1,300 1,838,102
Holderbank Financiere Glaris AG.......... 1,527 1,807,743
Nestle AG Registered..................... 998 2,172,595
Novartis AG.............................. 1,000 1,965,807
SGS Societe Generale de Surveillance
Holding SA............................. 1,300 1,273,042
Swatch Group, The AG..................... 2,940 1,819,463
------------
10,876,752
------------
UNITED KINGDOM -- 15.41%
BP Amoco plc............................. 108,000 1,611,822
Barclays plc............................. 41,506 892,915
Barclays plc ADR......................... 500 45,000
Billiton plc............................. 647,200 1,286,789
British Airways plc...................... 218,000 1,476,222
Cadbury Schweppes plc.................... 82,635 1,407,877
Corporate Services Group Plc............. 485,000 1,222,518
Diageo plc............................... 156,463 1,758,482
Gallaher Group plc....................... 359,000 2,432,520
Hanson plc ADR........................... 50,400 1,965,600
Imperial Chemical Industries plc......... 126,660 1,093,724
National Westminster Bank plc............ 66,662 1,284,363
Next plc................................. 223,000 1,810,613
Rio Tinto plc............................ 104,200 1,203,173
Shell Transport & Trading Co............. 308,040 1,886,061
Tate & Lyle plc.......................... 223,000 1,242,941
------------
22,620,620
------------
LATIN AMERICA -- 4.62%
- -----------------------------------------
ARGENTINA -- 1.15%
Telecom Argentina S.A. Sponsored ADR..... 18,000 495,000
Telefonica De Argentina S.A.............. 18,600 519,637
YPF S.A. Sponsored ADR................... 24,000 670,500
------------
1,685,137
------------
BRAZIL -- 2.62%
Centrais Electricas Brasileiras S.A
Preferred (Electrobras)................ 24,400,000 468,532
Centrais Geradoras do Sul do Brasil S.A
Preferred(a)........................... 18,400,000 22,844
Companhia Vale do Rio Doce Preferred..... 53,000 679,938
Petroleo Brasileiro S.A. Preferred
(Petrobras)............................ 4,000,000 453,568
Telecomunicacoes Brasileiras S.A.
Sponsored ADR Preferred Block(a)....... 30,600 2,224,238
------------
3,849,120
------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
CHILE -- .85%
A.F.P Provida S.A. Sponsored ADR......... 23,900 $ 321,156
Cia de Telecomunicaciones de Chile S.A
Sponsored ADR.......................... 18,200 376,512
Empresa Nacional de Electricidad S.A..... 16,900 192,238
Vina Concha y Toro S.A. ADR.............. 14,000 362,250
------------
1,252,156
------------
TOTAL INVESTMENTS -- 96.19% (Cost --
$145,925,456)(Cost on Federal
income tax basis -- $146,205,488).... 141,252,813
OTHER ASSETS, LESS
LIABILITIES -- 3.81%................... 5,596,458
------------
NET ASSETS -- 100%....................... $146,849,271
============
</TABLE>
<TABLE>
<S> <C> <C>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
NV -- Non-voting
ORD -- Ordinary
</TABLE>
<TABLE>
<S> <C> <C>
(a) Non-income producing security
(b) As of September 1, 1998, the repatriation of proceeds received
from the sale of these securities has been blocked until at
least September 1, 1999. These securities are considered
illiquid and are being fair valued using methods determined in
good faith by the Valuation Committee of the Board of Trustees.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation.................... $ 18,712,322
Gross unrealized depreciation.................... (23,384,965)
------------
Net unrealized depreciation for financial
statement purposes......................... (4,672,643)
Less: tax basis adjustments...................... (280,032)
------------
Net unrealized depreciation for Federal
income tax purposes........................ $ (4,952,675)
============
Purchases and sales of securities other than short-term obligations
aggregated $67,616,207 and $21,397,235, respectively, for the period
ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 101
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $145,925,456)..... $141,252,813
Cash........................................................ 5,605,403
Receivables
Fund shares sold.......................................... 646,520
Dividends and interest.................................... 347,347
Manager for expense reimbursement......................... 30,400
Deferred organization expenses.............................. 43,288
Other assets................................................ 8,698
------------
Total assets............................................ 147,934,469
------------
LIABILITIES
Payables
Fund shares repurchased................................... 758,977
Management fee............................................ 122,179
12b-1 service and distribution fees....................... 106,160
Other payables to related parties......................... 56,125
Accrued expenses............................................ 41,757
------------
Total liabilities....................................... 1,085,198
------------
NET ASSETS.................................................. $146,849,271
============
CLASS A
Net asset value and redemption price per share
($24,993,436/2,637,301 shares outstanding)................ $ 9.48
============
Maximum offering price per share ($9.48 x 100/94.25)*....... $ 10.06
============
CLASS B
Net asset value, offering price and redemption price** per
share ($80,937,726/8,591,776 shares outstanding).......... $ 9.42
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($40,407,741/4,290,013 shares outstanding).......... $ 9.42
============
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($510,368/53,816 shares outstanding)................ $ 9.48
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $157,846,048
Accumulated net realized loss on investments and foreign
currency transactions................................... (6,333,113)
Accumulated net investment loss........................... (2,637)
Net unrealized depreciation on investments and foreign
currency transactions................................... (4,661,027)
------------
NET ASSETS.................................................. $146,849,271
============
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 102
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $265,683 foreign taxes withheld......... $ 3,240,854
Interest.................................................. 320,212
------------
3,561,066
------------
EXPENSES
Management fee............................................ $1,356,028
Transfer agent............................................ 316,274
Administrative services fee............................... 135,329
Custodian fees............................................ 130,009
Blue Sky fees............................................. 30,125
Auditing and accounting fees.............................. 27,311
Shareholder reports....................................... 37,120
Amortization of organization expenses..................... 13,337
Fund accounting........................................... 101,019
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 1,175,139
Legal..................................................... 22,752
Other..................................................... 42,805
------------
3,395,719
Expenses reimbursed by Manager............................ (186,536)
------------
Net expenses............................................ 3,209,183
------------
NET INVESTMENT INCOME....................................... 351,883
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (6,356,123)
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 8,408,731
------------
Net gain on investment transactions..................... 2,052,608
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 2,404,491
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 103
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1997
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1998 1997
------------ ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income (loss).............................. $ 351,883 $ (219,499)
Net realized (loss) gain on investments and foreign
currency transactions................................... (6,356,123) 507,375
Net change in unrealized appreciation (depreciation) on
investments and foreign currency transactions........... 8,408,731 (13,069,758)
------------ ------------
Net increase (decrease) resulting from operations... 2,404,491 (12,781,882)
------------ ------------
CLASS A DISTRIBUTIONS
From net investment income................................ (201,553) --
From net realized gain.................................... (50,056) --
------------ ------------
Total distributions to Class A shareholders......... (251,609) --
------------ ------------
CLASS B DISTRIBUTIONS
From net investment income................................ (108,829) --
From net realized gain.................................... (162,528) --
------------ ------------
Total distributions to Class B shareholders......... (271,357) --
------------ ------------
CLASS C DISTRIBUTIONS
From net investment income................................ (34,675) --
From net realized gain.................................... (81,212) --
------------ ------------
Total distributions to Class C shareholders......... (115,887) --
------------ ------------
ADVISOR CLASS DISTRIBUTIONS
From net investment income................................ (6,205) --
From net realized gain.................................... (1,005) --
------------ ------------
Total distributions to Advisor Class shareholders (7,210) --
------------ ------------
Fund share transactions (Note 4)
Class A................................................... 8,457,795 18,898,090
Class B................................................... 26,171,167 60,033,750
Class C................................................... 13,054,497 30,777,875
Advisor Class............................................. 479,551 --
------------ ------------
Net increase resulting from Fund share transactions..... 48,163,010 109,709,715
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 49,921,438 96,927,833
NET ASSETS
Beginning of period....................................... 96,927,833 --
------------ ------------
END OF PERIOD............................................. $146,849,271 $ 96,927,833
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 104
FINANCIAL HIGHLIGHTS
[CAPTION]
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1997
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
CLASS A ------------ ---------------
<S> <C> <C>
SELECTED PER SHARE DATA 1998 1997
------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.98 $ 10.01
------- -------
Income (loss) from investment operations
Net investment income (a)................................. .08 --(e)
Net realized and unrealized gain (loss) on investment
transactions............................................ .52 (1.03)(e)
------- -------
Total from investment operations........................ .60 (1.03)
------- -------
Less distributions
From net investment income................................ .08 --
From net realized gain.................................... .02 --
------- -------
Total distributions..................................... .10 --
------- -------
Net asset value, end of period.............................. $ 9.48 $ 8.98
======= =======
Total return (%)............................................ 6.63(b) (10.29)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $24,993 $16,202
Ratio of expenses to average net assets
With expense reimbursement (%)............................ 1.74 1.80(d)
Without expense reimbursement (%)......................... 1.88 2.11(d)
Ratio of net investment income to average net
assets(%)(a).............................................. .80 .12(d)
Portfolio turnover rate (%)................................. 16 10
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1997
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
CLASS B ------------ ---------------
<S> <C> <C>
SELECTED PER SHARE DATA 1998 1997
------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.93 $ 10.01
------- -------
Income (loss) from investment operations
Net investment income (loss) (a).......................... .01 (.02)(e)
Net realized and unrealized gain (loss) on investment
transactions............................................ .51 (1.06)(e)
------- -------
Total from investment operations........................ .52 (1.08)
------- -------
Less distributions
From net investment income................................ .01 --
From net realized gain.................................... .02 --
------- -------
Total distributions..................................... .03 --
------- -------
Net asset value, end of period.............................. $ 9.42 $ 8.93
======= =======
Total return(%)............................................. 5.84(b) (10.29)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $80,938 $53,652
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 2.49 2.63(d)
Without expense reimbursement(%).......................... 2.63 2.94(d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .05 (.71)(d)
Portfolio turnover rate(%).................................. 16 10
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 105
FINANCIAL HIGHLIGHTS -- (CONTINUED)
[CAPTION]
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1997
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
CLASS C ------------ ---------------
<S> <C> <C>
SELECTED PER SHARE DATA 1998 1997
------- -------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.93 $ 10.01
------- -------
Income (loss) from investment operations
Net investment income (loss) (a).......................... .01 (.02)(e)
Net realized and unrealized gain (loss) on investment
transactions............................................ .51 (1.06)(e)
------- -------
Total from investment operations........................ .52 (1.08)
------- -------
Less distributions
From net investment income................................ .01 --
From net realized gain.................................... .02 --
------- -------
Total distributions..................................... .03 --
------- -------
Net asset value, end of period.............................. $ 9.42 $ 8.93
======= =======
Total return(%)............................................. 5.79(b) (10.79)(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $40,408 $27,074
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 2.52 2.63(d)
Without expense reimbursement(%).......................... 2.66 2.94(d)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .03 (.71)(d)
Portfolio turnover rate(%).................................. 16 10
</TABLE>
[CAPTION]
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 23, 1998
(COMMENCEMENT)
TO DECEMBER 31,
ADVISOR CLASS -----------------
<S> <C>
SELECTED PER SHARE DATA 1998
-------
<S> <C>
Net asset value, beginning of period........................ $ 9.63
-------
Loss from investment operations
Net investment income(a).................................. .11
Net realized and unrealized loss on investment
transactions............................................ (.13)
-------
Total from investment operations........................ (.02)
-------
Less distributions
From net investment income................................ .11
From net realized gain.................................... .02
-------
Total distributions..................................... .13
-------
Net asset value, end of period.............................. $ 9.48
=======
Total return(%)(c).......................................... (.15)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 510
Ratio of expenses to average net assets
With expense reimbursement(%)(d).......................... 1.32
Without expense reimbursement(%)(d)....................... 1.45
Ratio of net investment income to average net
assets(%)(a)(d)........................................... 1.23
Portfolio turnover rate(%).................................. 16
</TABLE>
<TABLE>
<S> <C>
Net investment income is net of expenses reimbursed by
(a) Manager.
(b) Total return does not reflect a sales charge.
Total return represents aggregate total return and does not
(c) reflect a sales charge.
(d) Annualized.
(e) Based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 106
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, Advisor Class 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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $3,273,168 (2.23% of net assets) and have
been noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 $3,506,537. These dividends
were subject to foreign withholding tax in the amount of $265,683. 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.
The Fund has a net tax basis capital loss carryforward of approximately
$5,002,000 as of December 31, 1998, 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 carryforward expires in
2006.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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, certain securities sold at a loss and non-deductible
organization expenses. As a result, Net investment income and Net realized 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
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1.50% 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, 1998, the net amount of underwriting
discount retained by IMDI was $31,171.
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 Advisor Class and 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 assets attributable to Class B and Class C. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$59,094, $738,981 and $377,064, 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 $52,816, $167,993, $95,012 and $453, for Class A, Class B, Class C
and Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold.................... 3,061,303 $ 29,570,905 3,012,394 $ 30,130,174
Issued on reinvestment
of distributions....... 15,261 144,365 -- --
Repurchased............. (2,243,793) (21,257,475) (1,207,864) (11,232,084)
---------- ------------ ----------- ------------
Net increase............ 832,771 $ 8,457,795 1,804,530 $ 18,898,090
========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- --------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold.................... 4,025,742 $ 39,206,826 6,385,899 $ 63,560,068
Issued on reinvestment
of distributions....... 10,410 97,963 -- --
Repurchased............. (1,449,615) (13,133,622) (380,660) (3,526,318)
---------- ------------ ----------- ------------
Net increase............ 2,586,537 $ 26,171,167 6,005,239 $ 60,033,750
========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- --------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Sold.................... 2,507,595 $ 24,353,309 3,698,302 $ 36,867,171
Issued on reinvestment
of distributions....... 2,941 27,679 -- --
Repurchased............. (1,251,137) (11,326,491) (667,688) (6,089,296)
---------- ------------ ----------- ------------
Net increase............ 1,259,399 $ 13,054,497 3,030,614 $ 30,777,875
========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 23, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
-------------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold.................... 153,684 $ 1,513,323
Issued on reinvestment
of distributions....... 442 4,188
Repurchased............. (100,310) (1,037,960)
---------- ------------
Net increase............ 53,816 $ 479,551
========== ============
</TABLE>
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy International Fund II (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for the year then ended and for the period May 13, 1997 (commencement of
operations) through December 31, 1997, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IIF2123198
<PAGE> 109
December 31, 1998
IVY
PAN-EUROPE
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
Market Commentary
We are optimistic about the prospects for European markets. The formal
announcement of the Economic and Monetary Union's (EMU) 11 founding members at
a special summit held last May and the advent of the single European currency,
the euro, marked the beginning of a new era for the continental economies. We
expect a number of the EMU-related trends that drove equity performance in 1998
to gain momentum in 1999. Within this environment, the Ivy Pan-Europe Fund was
up 6.72% for the twelve months ended December 31, 1998. (For the Fund's total
return with sales charge and performance commentary, please refer to the
following page.)
According to our research, continental Europe's economic recovery gathered
steam in 1998, fueled by lower interest rates and strong exports. In the second
half of the year, consumer spending accelerated as consumer confidence
increased. In 1999, growth should remain strong, although slightly lower than
in 1998. While exports remain important to Europe's overall health, we expect
consumer demand to drive the second phase of the economic expansion. Consumers
in the 11 "Euroland" countries should benefit from increased disclosure and
lower prices in Europe's new competitive environment.
According to our research, European merger and acquisition activity reached an
all-time high of over $630 billion in 1998. In our view, the current wave of
restructuring and consolidation is likely to continue in 1999 as a result of
EMU. A US-style focus on improving economies of scale, disposing of noncore
assets, and eliminating excess fat from cost structures has spread throughout
corporate Europe. We believe that this will result in increased profitability
and contribute to strong earnings growth over the next three to five years,
much as it has in the US over the last five years.
The Ivy Pan-Europe Fund's positioning reflects Ivy's value orientation. While
overall valuation levels in Europe have risen over the past 12 months, we
believe many countries and sectors continue to represent compelling investment
opportunities. Our research has uncovered undervalued companies in France and
Sweden, where restructuring benefits are only just becoming visible. Also, the
UK, which is more advanced in the economic cycle than the continental
economies, has set the stage for rate cuts next year. Combined with a weaker
currency, we believe these rate cuts should prevent the recently anticipated
recession from taking place. In our view, the UK is among the most attractive
economies in the developed world and offers considerable upside potential.
Also in keeping with our value style, the Ivy Pan-Europe Fund's portfolio is
overweight in industrial and consumer cyclical stocks. While these economically
sensitive sectors did not fare as well as more defensive sectors in 1998, such
as pharmaceuticals and telecommunications, our research indicates that
investors have factored in the most pessimistic scenario into the various stock
prices. As fears of a global recession subside, we believe that in the future
value stocks will outperform their pricier counterparts in other sectors.
It appears that economies across the continent are poised to reap the benefits
of pre-EMU fiscal adjustments and lower rates. And after three or four years of
uncertainty, consumer confidence is returning. We expect that 1999 will be
another good year for European equity markets as the recovery broadens and
EMU-related trends gather momentum.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 110
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (5/97)
OF A $10,000 INVESTMENT
(CHART)
IVY PAN-EUROPE FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Pan-Europe Fund returned
6.72%. The Morgan Stanley Capital International (MSCI) Europe Index returned
24.50% for the same period. The Fund's underperformance relative to the index is
attributed to the "large-cap effect"--as European markets rallied in 1998,
investors focused on the largest-cap issues, which contributed to a significant
divergence in performance. A similar phenomenon took place in the US--the
strength of the US market was derived primarily from the largest, most liquid
stocks and certain isolated sectors such as technology. In Europe, as in other
parts of the world, investors shunned value stocks in favor of growth stocks as
part of a flight to quality.
The Morgan Stanley Capital International (MSCI) 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY PAN-EUROPE FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
.98% 5.98% (2.11%) 2.75%
C: C: C: C:
1 year .59% (2.49%) 1.38% 2.38% .76% 1.76% n/a n/a
B: B: B: B:
4.54% 6.91% .19% 2.45%
C: C: C: C:
Since Inception(5) 3.71% (3.92%) n/a 2.38% n/a 1.76% (8.37%) (11.98%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A and Class B commenced operations May 13, 1997; Class C commenced
operations January 29, 1998; Advisor Class commenced operations March 23,
1998.
Total returns were higher due to reimbursement of certain Fund 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 Pan-Europe Fund will fluctuate
and at redemption shares may be worth more or less than the amount of the
original investment.
- --------------------------------------------------------------------------------
<PAGE> 111
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 93.65% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUSTRIA -- .46%
Bank Austria AG.................. 266 $ 16,266
Julius Meinl International AG.... 722 13,534
----------
29,800
----------
BELGIUM -- .96%
Solvay S.A. ..................... 815 61,446
----------
CZECH REPUBLIC -- .12%
SPT Telekom A/S(a)............... 500 7,639
----------
DENMARK -- 3.93%
Jyske Bank A/S................... 687 66,627
Sydbank A/S...................... 1,186 50,874
Unidanmark A/S................... 1,480 133,714
----------
251,215
----------
FINLAND -- 5.09%
Pohjola Insurance Group B........ 1,203 66,051
Stora Enso OYJ -- R Shares....... 16,643 149,887
UPM -- Kymmene Corp. ............ 3,908 109,600
----------
325,538
----------
FRANCE -- 15.93%
Alcatel.......................... 500 61,224
Assurances Banque Populaire...... 595 67,105
Banque Nationale de Paris........ 1,889 155,624
Bongrain S.A. ................... 173 77,426
Bouygues......................... 522 107,652
Eurotunnel S.A.(a)............... 22,200 28,217
Eurotunnel S.A. Warrants(a)...... 9,200 972
Groupe Danone.................... 347 99,391
Scor............................. 2,248 148,699
Societe Generale................. 842 136,414
Usinor Sacilor................... 7,948 88,287
WEBS-France...................... 2,200 47,575
----------
1,018,586
----------
GERMANY -- 5.77%
BMW AG........................... 29 22,775
BMW AG -- New Shares(a).......... 3 2,302
DaimlerChrysler AG............... 1,208 120,037
Dyckerhoff AG.................... 225 61,467
Dyckerhoff AG Preferred.......... 75 20,939
Merck KGaA....................... 1,879 84,613
WEBS-Germany, WEBS-World Equity
Benchmark Series............... 2,540 56,515
----------
368,648
----------
HUNGARY -- .02%
BorsodChem GDR 144A.............. 41 1,064
----------
ITALY -- 5.67%
Fiat S.p.A. ..................... 21,610 75,227
Gucci Group...................... 3,125 148,202
Safilo S.p.A. ................... 20,300 108,093
WEBS-Italy....................... 1,150 31,266
----------
362,788
----------
NETHERLANDS -- 8.11%
Akzo Nobel NV.................... 1,822 83,009
Fortis Amev NV................... 570 47,260
Hagemeyer NV..................... 1,558 56,951
ING Groep NV..................... 664 40,512
Koninklijke KPN NV............... 1,400 70,124
Koninklijke (Royal) Philips
Electronics NV................. 2,138 143,546
Nedlloyd Groep NV................ 2,965 40,288
WEBS-Netherlands................. 1,420 36,565
----------
518,255
----------
NORWAY -- 2.83%
Bergesen......................... 2,820 32,572
Saga Petroleum ASA............... 7,916 72,212
Smedvig ASA-A Shares............. 9,050 76,023
----------
180,807
----------
PORTUGAL -- 1.08%
Portugal Telecom S.A. ........... 530 24,301
Portugal Telecom S.A. ADR........ 1,000 44,625
----------
68,926
----------
RUSSIA -- .01%
LUKoil Holding Co. -- Sponsored
ADR............................ 30 482
----------
SPAIN -- 2.12%
Corp. Financiera Reunida, S.A.
(COFIR)(a)..................... 3,170 $ 46,199
Telefonica S.A. ................. 393 17,488
Telefonica S.A. ADR.............. 532 72,079
----------
135,766
----------
SWEDEN -- 6.91%
ABB AB -- B Shares............... 7,187 76,254
AssiDoman AB..................... 1,020 16,108
Astra AB "B" Shares.............. 1,564 31,838
Electrolux AB.................... 9,365 161,176
S.K.F. AB Series "B"............. 6,116 71,305
Sandvik AB -- "B" Shares......... 1,006 17,376
Volvo AB B Shares................ 2,954 67,786
----------
441,843
----------
SWITZERLAND -- 10.86%
Compagnie Financiere Richemont
AG............................. 43 60,799
Edipresse S.A. .................. 191 54,930
Fotolabo S.A. ................... 163 49,844
Georg Fischer AG Bearer.......... 225 76,093
Holderbank Financiere Glaris
AG............................. 46 54,457
Jelmoli Holding AG Bearer........ 34 38,122
Nestle AG Registered............. 58 126,263
Pargesa Holding AG -- B Shares... 18 28,439
SGS Societe Generale de
Surveillance Holding S.A. ..... 45 44,067
Sulzer AG Registered............. 119 72,432
Swatch Group, (The) AG........... 80 49,509
WEBS-Switzerland................. 2,300 39,100
----------
694,055
----------
UNITED KINGDOM -- 23.78%
Barclays PLC..................... 3,789 81,513
British Steel plc................ 45,175 68,961
Cadbury Schweppes PLC............ 5,240 89,275
Corporate Services Group PLC..... 37,950 95,659
Diageo PLC....................... 8,250 92,721
Gallaher Group PLC............... 21,890 148,323
HSBC Holdings plc................ 2,980 81,164
Hanson plc....................... 19,550 154,586
Hanson plc Sponsored ADR......... 400 15,600
Hazelwood Foods PLC.............. 13,660 30,341
Imperial Chemical Industries
PLC............................ 7,232 62,449
Jarvis Hotels PLC................ 28,468 54,470
National Westminster Bank PLC.... 1,921 37,012
Next PLC......................... 14,140 114,807
PizzaExpress PLC................. 3,877 51,927
Shell Transport & Trading Co. ... 11,422 69,934
Standard Chartered PLC........... 4,270 49,305
Tate and Lyle PLC................ 14,300 79,704
Waterford Wedgwood PLC........... 52,744 43,000
WEBS-United Kingdom.............. 4,860 99,326
----------
1,520,077
----------
TOTAL INVESTMENTS -- 93.65%
(Cost -- $6,420,202)(b)........ 5,986,935
OTHER ASSETS, LESS
LIABILITIES -- 6.35%................... 406,253
----------
NET ASSETS -- 100%....................... $6,393,188
==========
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
NV -- Non-voting
WEBS -- World Equity Benchmark Series
(a) Non-income producing security
(b) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation........ $ 448,225
Gross unrealized depreciation........ (881,492)
----------
Net unrealized depreciation...... $ (433,267)
==========
Purchases and sales of securities other than
short-term obligations aggregated $6,889,311 and
$992,263, respectively, for the period ended December
31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 112
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $6,420,202)....... $5,986,935
Cash........................................................ 399,326
Receivables
Fund shares sold.......................................... 68,319
Dividends and interest.................................... 16,123
Manager for expense reimbursement......................... 2,157
Deferred organization expenses.............................. 46,387
Other assets................................................ 3,630
----------
Total assets.............................................. 6,522,877
----------
LIABILITIES
Payables
Investments purchased..................................... 86,405
Fund shares repurchased................................... 8,787
Management fee............................................ 5,107
12b-1 service and distribution fees....................... 3,880
Other payables to related parties......................... 3,754
Accrued expenses............................................ 21,756
----------
Total liabilities......................................... 129,689
----------
NET ASSETS.................................................. $6,393,188
==========
CLASS A
Net asset value and redemption price per share
($1,861,822/165,222 shares outstanding)................... $ 11.27
==========
Maximum offering price per share ($11.27 X 100/94.25)*...... $ 11.96
==========
CLASS B
Net asset value, offering price and redemption price** per
share ($3,604,033/322,730 shares outstanding)............. $ 11.17
==========
CLASS C
Net asset value, offering price and redemption price*** per
share ($862,743/77,264 shares outstanding)................ $ 11.17
==========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($64,590/5,724 shares outstanding).................. $ 11.28
==========
NET ASSETS CONSIST OF
Capital paid-in........................................... $6,825,292
Undistributed net realized gain on investments and foreign
currency transactions................................... 1,210
Accumulated net investment loss........................... (541)
Net unrealized depreciation on investments and foreign
currency transactions................................... (432,773)
----------
NET ASSETS.................................................. $6,393,188
==========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 113
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $8,167 foreign taxes withheld........... $ 90,489
---------
EXPENSES
Management fee............................................ $43,978
Transfer agent............................................ 8,191
Administrative services fee............................... 4,398
Custodian fees............................................ 80,601
Blue Sky fees............................................. 26,696
Auditing and accounting fees.............................. 17,302
Shareholder reports....................................... 2,963
Amortization of organization expenses..................... 11,596
Fund accounting........................................... 19,820
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 30,283
Legal..................................................... 22,140
Other..................................................... 1,285
---------
277,724
Expenses reimbursed by Manager............................ (148,399)
Fees paid indirectly...................................... (13,285)
---------
Net expenses............................................ 116,040
---------
NET INVESTMENT LOSS......................................... (25,551)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments and foreign currency
transactions............................................ 5,714
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (416,183)
---------
Net loss on investment transactions..................... (410,469)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(436,020)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 114
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE MAY 13, 1997
YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1998 1997
------------ ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (25,551) $ (1,041)
Net realized gain on investments and foreign currency
transactions............................................ 5,714 1,919
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (416,183) (16,590)
---------- --------
Net decrease resulting from operations.................. (436,020) (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................................................... 1,378,851 589,270
Class B................................................... 3,813,765 72,520
Class C................................................... 921,918 --
Advisor Class............................................. 69,443 --
---------- --------
Net increase resulting from Fund share transactions..... 6,183,977 661,790
---------- --------
TOTAL INCREASE IN NET ASSETS................................ 5,747,957 645,231
NET ASSETS
Beginning of period....................................... 645,231 --
---------- --------
END OF PERIOD............................................. $6,393,188 $645,231
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 115
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR MAY 13, 1997
CLASS A ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1998 1997
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $10.56 $10.02
------ ------
Income from investment operations
Net investment loss(a).................................... (.01)(f) (.02)
Net realized and unrealized gain on investment
transactions............................................ .72(f) .58
------ ------
Total from investment operations........................ .71 .56
------ ------
Less distributions
From net realized gain.................................... -- .02
------ ------
Total distributions..................................... -- .02
------ ------
Net asset value, end of period.............................. $11.27 $10.56
====== ======
Total return(%)............................................. 6.72(d) 5.54(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $1,862 $ 575
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 2.49 2.20(c)
Without expense reimbursement(%).......................... 5.86 28.41(c)
Ratio of net investment loss to average net assets(%)(a).... (.12) (.48)(c)
Portfolio turnover rate(%).................................. 25 5
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
YEAR MAY 13, 1997
CLASS B ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------ ---------------
1998 1997
SELECTED PER SHARE DATA ------------ ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $10.54 $10.02
------ ------
Income from investment operations
Net investment loss(a).................................... (.01)(f) (.03)
Net realized and unrealized gain on investment
transactions............................................ .64(f) .56
------ ------
Total from investment operations........................ .63 .53
------ ------
Less distributions
From net realized gain.................................... -- .01
------ ------
Total distributions..................................... -- .01
------ ------
Net asset value, end of period.............................. $11.17 $10.54
====== ======
Total return(%)............................................. 5.98(d) 5.26(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $3,604 $ 70
Ratio of expenses to average net assets(e)
With expense reimbursement(%)............................. 3.27 3.29(c)
Without expense reimbursement(%).......................... 6.64 29.50(c)
Ratio of net investment loss to average net assets(%)(a).... (.90) (1.58)(c)
Portfolio turnover rate(%).................................. 25 5
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 116
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 29, 1998
CLASS C (COMMENCEMENT)
TO DECEMBER 31,
----------------
1998
SELECTED PER SHARE DATA ----------------
<S> <C>
Net asset value, beginning of period........................ $10.91
------
Income from investment operations
Net investment loss(a).................................... (.02)(f)
Net realized and unrealized gain on investment
transactions............................................ .28(f)
------
Total from investment operations........................ .26
------
Net asset value, end of period.............................. 11.17
======
Total return(%)(b).......................................... 2.38
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 863
Ratio of expenses to average net assets(e)
With expense reimbursement(%)(c).......................... 3.26
Without expense reimbursement(%)(c)....................... 6.63
Ratio of net investment loss to average net
assets(%)(a)(c)........................................... (.89)
Portfolio turnover rate(%).................................. 25
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 23, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $12.31
------
Loss from investment operations
Net investment loss(a).................................... (.01)(f)
Net realized and unrealized loss on investment
transactions............................................ (1.02)(f)
------
Total from investment operations........................ (1.03)
------
Net asset value, end of period.............................. $11.28
======
Total return(%)(b).......................................... (8.37)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 65
Ratio of expenses to average net assets(e)
With expense reimbursement(%)(c).......................... 2.41
Without expense reimbursement(%)(c)....................... 5.78
Ratio of net investment loss to average net
assets(%)(a)(c)........................................... (.04)
Portfolio turnover rate(%).................................. 25
</TABLE>
<TABLE>
<S> <C>
Net investment loss is net of expenses reimbursed by
(a) Manager.
Total return represents aggregate total return and does not
(b) reflect a sales charge.
(c) Annualized
(d) Total return does not reflect a sales charge.
Total expenses include fees paid indirectly through an
(e) expense offset arrangement.
(f) Based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 117
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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, 1998, there were no Board
valued 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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998 the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 $99,560. These dividends were
subject to foreign withholding tax in the amount of $8,167. 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.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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
and non-deductible organization expenses. As a result, Net investment loss and
Net realized gain 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 percentage of quarterly cumulative credits resulting from cash
balances on deposit with the custodian are used to offset custody
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fees, including transaction and out-of-pocket expenses. For the year ended
December 31, 1998, custody fees were reduced by $13,285 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. At December 31, 1998, MIMI
owned 6.57% of the Fund's outstanding shares.
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, 1998, the net amount of underwriting
discount retained by IMDI was $5,032.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $4,454,
$18,920 and $6,909, 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 $3,103, $3,695, $1,280 and $113, for Class A, Class B, Class C and
Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Sold............................. 252,535 $ 3,085,553 81,901 $ 893,474
Issued on reinvestment of
distributions................... -- -- 77 804
Repurchased...................... (141,799) (1,706,702) (27,492) (305,008)
-------- ----------- ------- ---------
Net increase..................... 110,736 $ 1,378,851 54,486 $ 589,270
======== =========== ======= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- ------- ---------
<S> <C> <C> <C> <C>
Sold............................. 445,347 $ 5,372,927 6,634 $ 72,488
Issued on reinvestment of
distributions................... -- -- 4 42
Repurchased...................... (129,254) (1,559,162) (1) (10)
-------- ----------- ------- ---------
Net increase..................... 316,093 $ 3,813,765 6,637 $ 72,520
======== =========== ======= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 29, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
CLASS C SHARES AMOUNT
- ------- -------- -----------
<S> <C> <C>
Sold............................. 162,521 $ 1,904,211
Repurchased...................... (85,257) (982,293)
-------- -----------
Net increase..................... 77,264 $ 921,918
======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 23, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- -----------
<S> <C> <C>
Sold............................. 5,765 $ 69,889
Repurchased...................... (41) (446)
-------- -----------
Net increase..................... 5,724 $ 69,443
======== ===========
</TABLE>
<PAGE> 119
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Pan-Europe Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, the
results of its operations for the year then ended, the changes in its net assets
for the year then ended and for the period May 13, 1997 (commencement of
operations) through December 31, 1997, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
<PAGE> 120
DECEMBER 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
The year ended December 31, 1998 was once again a volatile period for stock
markets in the China region. Economic uncertainties emanating from continued
problems in Asia, as well as in other parts of the world, dominated the region's
financial markets during the first eight months. By August, skyrocketing
interest rates and a major crisis of confidence drove the Hong Kong stock market
to its lowest level in more than five years. During this period, the Ivy China
Region Fund lost 44.00% of its value. In early September, however, a
controversial move by the Hong Kong Monetary Authority to confront speculators
head on proved to be very successful in stabilizing the equity market. This move
addressed concerns that the Hong Kong dollar might be unpegged from the US
dollar, and helped to restore investor confidence in the region. From September
1, 1998 through year-end, the Ivy China Region Fund gained 41.00% to finish with
a loss of 20.60% for the twelve months ended December 31, 1998. (For the Fund's
total return with sales charge and performance commentary, please refer to the
following page.)
Although, in the short run, Hong Kong's stock market is heavily influenced by
domestic interest rates, property prices, and consumer sentiment, we believe
over the longer term that Hong Kong's fate will be tied to mainland China's
growth. We continue to be impressed by China's gradualist approach to reform.
China appears to be successfully managing a fine balance between maintaining
economic growth and tackling longer-term structural problems.
Preliminary government statistics indicate that China's economy grew 7.8% in
1998, and we expect it will grow close to that rate in 1999. China's government
is using both fiscal and monetary tools to keep the economy growing. Lower
interest rates would help stimulate domestic demand. In our view, an economic
recovery in the rest of the region should help China's exports to recover and
take the place of the government-induced investment spending of the past several
quarters.
According to our research, China's structural reforms are far-reaching and
are steadily being implemented. Although the banking system is still weak,
financial sector reforms of the past year, including the closing of several
lending institutions and the passage of a new securities law, should result in a
more transparent, better regulated system. Progress is also being made in regard
to inefficiencies within the state sector. Other new legislation related to
social welfare and liberalization of several key industries has been passed, and
we believe more legislation will follow.
We continue to believe that Hong Kong provides the best investment access to
mainland China and, accordingly, at year-end approximately 63% of the Ivy China
Region Fund was invested in Hong Kong. We believe good opportunities exist in
the H-shares-Chinese companies that are listed and traded in Hong Kong.
Although equity prices in the China region have recovered somewhat, they are
still considerably below their all-time highs. The Hang Seng Index, for
instance, would have to gain 63% before reaching its August 1997 high. According
to our research, equity prices throughout the region are undervalued by most
measures, especially considering that corporate earnings are depressed and
should likely stage a recovery over the next few quarters. While there are no
guarantees, we believe that declining interest rates and improving regional
economies, combined with the gradual return of international investors, point to
a much improved outlook for equity markets in the China region in 1999.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 121
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (10/93)
OF A $10,000 INVESTMENT
(GRAPH)
IVY CHINA REGION FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998 the Ivy China Region Fund was down
20.60%. Hong Kong's Hang Seng Index was down 6.29% for the same period. The
underperformance of the Fund can be directly attributed to its exposure to
Chinese stocks (approximately 11% of its total assets), which significantly
underperformed Hong Kong stocks in 1998.
The Lipper Average China Region Fund represents the performance of the average
China fund as measured by Lipper Inc. It is not possible to invest in a
benchmark. The Hang Seng 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY CHINA REGION FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
(24.99%) (21.04%) (25.47%) (21.54%)
C: C: C: C:
1 year (25.13%) (25.68%) (21.81%) (21.02%) (22.47%) (21.68%) n/a n/a
B: B: B: B:
(11.63%) (11.27%) (11.99%) (11.63%)
C: C: C: C:
5 year (11.68%) (12.07%) n/a n/a n/a n/a n/a n/a
B: B: B: B:
(8.55%) (8.38%) (8.93%) (8.76%)
C: C: C: C:
Since Inception(5) (8.76%) (9.17%) n/a (13.93%) n/a (14.27%) (19.56%) (19.91%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A and Class B commenced operations October 22, 1993; Class C commenced
operations April 30, 1996; Advisor Class commenced operations February 10,
1998.
Total returns were higher due to reimbursement of certain Fund 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.
- --------------------------------------------------------------------------------
<PAGE> 122
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 93.17% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CHINA -- 12.89%
Anhui Expressway Co.
Ltd...................... 1,246,000 $ 146,361
China Southern Airlines
Company Limited(a)....... 794,000 83,018
China Southern Glass
Co. -- Class B(a)........ 342,137 31,356
First Tractor Company
Limited -- H Shares...... 460,000 105,098
Guangdong Kelon Elec
Holding.................. 266,000 236,917
Hainan Airlines Co.,
Ltd...................... 350,000 72,100
Huaneng Power
International, Inc.(a)... 200,000 70,995
Inner Mongolia Erdos
Cashmere Products
Co. -- Class B........... 681,000 88,530
Qinling Motors Company
Ltd...................... 1,900,000 333,547
Shanghai China
International Travel
Service Co., Ltd. - Class
B........................ 236,500 35,002
Shanghai Dazhong Taxi
Company -- Class B(a).... 639,000 269,658
Shanghai Diesel Engine Co.
Ltd. -- Class B.......... 648,000 77,760
Shanghai Narcissus Electric
Appliances Industrial
Company Ltd. -- Class
B(a)..................... 467,500 32,725
Shanghai Posts &
Telecommunications
Equipment Co.
Ltd. -- Class B(a)....... 510,900 116,996
Shanghai Shangling Electric
Appliances Co.
Ltd. -- Class B(a)....... 312,000 56,160
Shanghai Worldbest Co.,
Ltd...................... 432,000 64,800
Shenzhen Konka Electronics
Group Limited -- Class
B........................ 260,000 131,225
Zhejiang Southeast Electric
Power Co., Ltd -- Class
B........................ 289,393 60,773
Zhenhai Refining and
Chemical Company
Limited.................. 200,000 30,721
-----------
2,043,742
-----------
HONG KONG -- 63.05%
Asia Satellite
Telecommunications
Holdings Ltd............. 100,000 178,133
Asia Satellite
Telecommunications
Holdings Ltd. ADR........ 4,000 70,000
CDL Hotels International
Limited.................. 840,000 215,773
CLP Holdings Limited....... 30,000 149,477
Cathay Pacific Airways..... 230,000 228,604
Cheung Kong Holdings
Ltd...................... 100,000 719,631
Cheung Kong Infrastructure
Holdings................. 111,000 247,876
China Resources Enterprise
Limited.................. 168,000 262,397
China Travel International
Investment Hong Kong
Ltd...................... 864,400 111,578
Citic Pacific Ltd.......... 88,000 189,699
Cosco Pacific Limited...... 220,000 91,584
Dao Heng Bank Group Ltd.... 106,000 327,700
Founder Hong Kong Ltd...... 417,600 92,716
Giordano Holdings Ltd...... 1,246,000 233,212
Gold Peak Industries....... 983,000 275,980
Gold Peak Industries
Warrants 2000(a)......... 184,600 11,795
Guangdong Tannery Ltd...... 39,950 1,341
Guangzhou Investment
Company Ltd.............. 1,310,000 130,205
HSBC Holdings.............. 36,000 896,860
Hang Seng Bank............. 20,900 186,823
Hong Kong & China Gas
Company Ltd.............. 155,520 197,737
Hong Kong Electric Holdings
Ltd...................... 120,000 364,011
Hong Kong
Telecommunications
Limited.................. 160,000 279,849
Jardine International Motor
Holdings Co.............. 524,000 207,990
Johnson Electric Holdings
Ltd...................... 84,800 217,828
Kumagai Gumi (Hong Kong)
Ltd. Warrants(a)......... 72,000 5,762
Lamex Holdings............. 650,000 15,942
Li & Fung.................. 215,800 447,086
National Mutual Asia
Ltd...................... 440,000 $ 329,417
New World Development
Company Ltd.............. 107,535 270,676
New World Infrastructure
Ltd.(a).................. 200,133 293,211
Ng Fung Hong Limited....... 224,000 200,955
Shanghai Industrial
Holdings Limited......... 113,000 228,275
Siu-Fung Ceramics Holdings,
Ltd(a)(b)................ 1,110,327 45,863
Sun Hung Kai Properties
Ltd...................... 53,800 392,370
Swire Pacific Ltd Class
A........................ 39,500 176,926
Techtronic Industries
Co....................... 968,200 172,468
Tingyi (Cayman Island)
Holding Co............... 3,810,000 344,261
Union Bank of Hong Kong
Ltd...................... 266,833 213,548
Vtech Holdings............. 58,000 253,052
Wharf Holdings Ltd (with
11,600 warrants(a))...... 232,000 339,359
Wing Hang Bank Limited..... 50,000 124,564
Yue Yuen Industrial
Holdings................. 133,200 252,747
-----------
9,995,281
-----------
MALAYSIA (C) -- .09%
Leader Universal
Holdings -- Class A(a)... 61,666 14,885
-----------
SINGAPORE -- 6.97%
Clipsal Industries
Limited.................. 323,000 323,000
Elec & Eltek International
Co. Ltd.................. 42,500 229,500
Hong Kong Land Holdings
Ltd...................... 222,000 261,960
Jardine Strategic Holdings
Ltd...................... 200,250 290,363
-----------
1,104,823
-----------
SOUTH KOREA -- 5.77%
Daewoo Corporation......... 400 1,507
Hyundai Motor Co, Ltd...... 6,701 119,256
Korea Electric Power
Corporation.............. 10,300 255,259
Pohang Iron & Steel Co.
Ltd...................... 2,000 128,736
Samsung Electronics Co.
GDR...................... 640 9,720
Samsung Electronics Co. GDR
144A Registered.......... 376 14,852
Samsung Electronics Co. New
Common................... 2,650 177,847
Samsung Heavy
Industries(a)............ 509 2,895
Shinhan Bank(a)............ 26,840 205,352
-----------
915,424
-----------
TAIWAN -- 4.40%
Acer Incorporation(a)...... 144,687 167,517
Far Eastern Department
Stores Ltd............... 254,495 159,570
Systex Corporation(a)...... 43,331 114,324
Taiwan Semiconductor
Manufacturing
Company(a)............... 66,000 145,453
Yung Shin Pharmaceuticals
Industries Co............ 45,280 110,331
-----------
697,195
-----------
TOTAL INVESTMENTS -- 93.17%
(Cost -- $18,528,282)
(Cost on Federal
income tax
basis -- $18,956,383)... 14,771,350
OTHER ASSETS, LESS
LIABILITIES -- 6.83%..... 1,083,056
-----------
NET ASSETS -- 100%......... $15,854,406
===========
</TABLE>
<TABLE>
<S> <C> <C>
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
</TABLE>
<TABLE>
<S> <C> <C>
(a) Non-income producing security
(b) Securities valued in good faith by the Valuation Committee of
the Board of Trustees. See Note 1 to the Financial Statements.
(c) As of September 1, 1998, the repatriation of proceeds received
from the sale of securities has been blocked until at least
September 1, 1999. These securities are considered illiquid and
are being fair valued using methods determined in good faith by
the Valuation Committee of the Board of Trustees.
</TABLE>
<PAGE> 123
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost for
financial statement and Federal income tax purposes is as follows:
Gross unrealized appreciation.................... $ 1,999,081
Gross unrealized depreciation.................... (5,756,013)
------------
Net unrealized depreciation for financial
statement purposes......................... (3,756,932)
Less: tax basis adjustments...................... (428,101)
------------
Net unrealized depreciation for Federal
income tax purposes........................ $ (4,185,033)
============
Purchases and sales of securities other than short-term obligations
aggregated $9,756,620 and $11,878,282, respectively, for the period
ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 124
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $18,528,282)...... $14,771,350
Cash........................................................ 1,098,134
Receivables
Investments sold.......................................... 27,300
Fund shares sold.......................................... 9,227
Dividends and interest.................................... 13,572
Manager for expense reimbursement......................... 19,148
-----------
Total assets............................................ 15,938,731
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 29,081
Management fee............................................ 13,723
12b-1 service and distribution fees....................... 7,876
Other payables to related parties......................... 13,730
Accrued expenses............................................ 19,915
-----------
Total liabilities....................................... 84,325
-----------
NET ASSETS.................................................. $15,854,406
===========
CLASS A
Net asset value and redemption price per share
($9,060,648/1,437,294 shares outstanding)................. $ 6.30
===========
Maximum offering price per share ($6.30 x 100/94.25)*....... $ 6.68
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($6,079,613/975,027 shares outstanding)............. $ 6.24
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($704,103/112,655 shares outstanding)............... $ 6.25
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($10,042/1,601 shares outstanding).................. $ 6.27
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $27,300,805
Accumulated net realized loss on investments and foreign
currency transactions................................... (7,692,790)
Undistributed net investment income....................... 3,264
Net unrealized depreciation on investments and foreign
currency transactions................................... (3,756,873)
-----------
NET ASSETS.................................................. $15,854,406
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 125
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $11,574 foreign taxes withheld.......... $ 642,968
Interest.................................................. 68,228
-----------
711,196
-----------
EXPENSES
Management fee............................................ $187,381
Transfer agent............................................ 101,423
Administrative services fee............................... 18,738
Custodian fees............................................ 37,577
Blue Sky fees............................................. 32,382
Auditing and accounting fees.............................. 20,719
Shareholder reports....................................... 10,200
Fund accounting........................................... 36,178
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 102,835
Legal..................................................... 21,522
Other..................................................... 15,609
-----------
593,035
Expenses reimbursed by Manager............................ (105,095)
Fees paid indirectly...................................... (19,553)
-----------
Net expenses............................................ 468,387
-----------
NET INVESTMENT INCOME....................................... 242,809
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (5,197,689)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 1,012,350
-----------
Net loss on investment transactions..................... (4,185,339)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(3,942,530)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 126
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment income (loss).............................. $ 242,809 $ (1,188)
Net realized loss on investments and foreign currency
transactions............................................ (5,197,689) (897,380)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... 1,012,350 (6,275,142)
----------- ------------
Net decrease resulting from operations.................. (3,942,530) (7,173,710)
----------- ------------
Distributions to shareholders from net investment income
Class A................................................... (124,272) --
Class B................................................... (44,037) --
Class C................................................... (2,395) --
Advisor Class............................................. (121) --
----------- ------------
Total distributions to shareholders..................... (170,825) --
----------- ------------
Fund share transactions (Note 5)
Class A................................................... (616,533) 1,133,531
Class B................................................... (87,455) 1,383,129
Class C................................................... (382,691) 965,525
Advisor Class............................................. 12,424 --
----------- ------------
Net (decrease) increase resulting from Fund share
transactions........................................... (1,074,255) 3,482,185
----------- ------------
TOTAL DECREASE IN NET ASSETS................................ (5,187,610) (3,691,525)
NET ASSETS
Beginning of period....................................... 21,042,016 24,733,541
----------- ------------
END OF PERIOD............................................. $15,854,406 $ 21,042,016
=========== ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 3,264 $ --
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 127
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 8.04 $ 10.30 $ 8.58 $ 8.61 $ 11.55
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income(a).................................. .13 .02(b) .03 .14 .05
Net realized and unrealized (loss) gain on investment
transactions............................................ (1.78) (2.28)(b) 1.74 (.01) (2.91)
------- ------- ------- ------- -------
Total from investment operations.................... (1.65) (2.26) 1.77 .13 (2.86)
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .09 -- .03 .14 .05
In excess of net investment income........................ -- -- .02 -- 03
In excess of net realized gain............................ -- -- -- .02 --
------- ------- ------- ------- -------
Total distributions................................. .09 -- .05 .16 .08
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 6.30 $ 8.04 $ 10.30 $ 8.58 $ 8.61
======= ======= ======= ======= =======
Total return(%)(c).......................................... (20.56) (21.94) 20.50 1.59 (24.88)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 9,061 $12,020 $15,290 $12,855 $13,180
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 2.30 2.44 2.20 2.20 2.20
Without expense reimbursement(%).......................... 2.86 2.51 2.48 2.73 2.76
Ratio of net investment income to average net
assets(%)(a).............................................. 1.60 .28 .32 1.61 .55
Portfolio turnover rate(%).................................. 56 20 22 25 4
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.96 $10.28.. $ 8.58 $ 8.61 $ 11.55
------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .05 (.04)(b) (.04) .08 (.02)
Net realized and unrealized (loss) gain on investment
transactions............................................ (1.73) (2.28)(b) 1.74 (.02) (2.92)
------- ------- ------- ------- -------
Total from investment operations........................ (1.68) (2.32) 1.70 .06 (2.94)
------- ------- ------- ------- -------
Less distributions
From net investment income................................ .04 -- -- .08 --
In excess of net realized gain............................ -- -- -- .01 --
------- ------- ------- ------- -------
Total distributions..................................... .04 -- -- .09 --
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 6.24 $ 7.96 $ 10.28 $ 8.58 $ 8.61
======= ======= ======= ======= =======
Total return (%)(c)......................................... (21.04) (22.57) 19.67 .83 (25.45)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 6,080 $ 7,893 $ 8,995 $ 6,905 $ 7,336
Ratio of expenses to average net assets(d)
With expense reimbursement(%)............................. 3.08 3.17 2.95 2.95 2.95
Without expense reimbursement(%).......................... 3.64 3.24 3.23 3.48 3.51
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .82 (.45) (.43) .86 (.20)
Portfolio turnover rate(%).................................. 56 20 22 25 4
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 128
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------ ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------ ------ ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 7.94 $10.24 $ 9.44
------ ------ ------
Income (loss) from investment operations
Net investment income (loss)(a)........................... .08 (.03)(b) --
Net realized and unrealized gain (loss) on investment
transactions............................................ (1.75) (2.27)(b) .89
------ ------ ------
Total from investment operations........................ (1.67) (2.30) .89
------ ------ ------
Less distributions
From net investment income................................ .02 -- --
In excess of net investment income........................ -- -- .09
------ ------ ------
Total distributions..................................... .02 -- .09
------ ------ ------
Net asset value, end of period.............................. $ 6.25 $ 7.94 $10.24
====== ====== ======
Total return (%)............................................ (21.02)(c) (22.46)(c) 9.39(f)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 704 $1,129 $ 449
Ratio of expenses to average net assets(d)
With expense reimbursement (%)............................ 2.98 3.05 2.71(e)
Without expense reimbursement (%)......................... 3.54 3.12 2.99(e)
Ratio of net investment income (loss) to average net
assets(%)(a).............................................. .92 (.33) (.19)(e)
Portfolio turnover rate(%).................................. 56 20 22
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 10, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
-----------------
1998
SELECTED PER SHARE DATA -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 7.89
------
Loss from investment operations
Net investment income(a).................................. .08
Net realized and unrealized loss on investment
transactions............................................ (1.62)
------
Total from investment operations........................ (1.54)
------
Less distributions
From net investment income................................ 08
------
Total distributions..................................... .08
------
Net asset value, end of period.............................. $ 6.27
======
Total return (%)(f)......................................... (19.56)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 10
Ratio of expenses to average net assets(d)
With expense reimbursement(%)(e).......................... 2.92
Without expense reimbursement (%)(e)...................... 3.48
Ratio of net investment income to average net
assets(%)(a)(e)........................................... .98
Portfolio turnover rate(%).................................. 56
</TABLE>
<TABLE>
<S> <C>
(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 through an expense offset arrangement.
(e) Annualized
(f) Total return represents aggregate total return and does not
reflect a sales charge.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 129
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $60,748 (.38% of net assets) and have been
noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998 the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 $654,542. These dividends were
subject to foreign withholding tax in the amount of $11,574. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$6,154,000 as of December 31, 1998, 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, $416,000 in 2005, and
$4,238,000 in 2006.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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 and Net realized loss on investments
and foreign currency transactions for a reporting period may differ
significantly in
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 ended December
31, 1998, custody fees were reduced by $19,553 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, 1998, the net amount of underwriting
discount retained by IMDI was $6,494.
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 Advisor Class. Class B and Class C are also subject to an
ongoing distribution fee at an annual rate of .75% of the average net assets
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
$28,156, $64,686 and $9,993, 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 $59,939, $36,722, $4,652 and $110, for Class A, Class B, Class C and
Advisor Class 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 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, Class C, and Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 2,287,353 $ 14,147,859 2,028,607 $ 21,422,934
Issued on reinvestment of
distributions........... 17,535 109,945 -- --
Repurchased.............. (2,363,014) (14,874,337) (2,017,783) (20,289,403)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (58,126) $ (616,533) 10,824 $ 1,133,531
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 665,157 $ 4,445,368 1,013,613 $ 10,381,225
Issued on reinvestment of
distributions........... 5,669 35,150 -- --
Repurchased.............. (687,061) (4,567,973) (897,479) (8,998,096)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (16,235) $ (87,455) 116,134 $ 1,383,129
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 275,555 $ 1,869,126 234,668 $ 2,360,065
Issued on reinvestment of
distributions........... 245 1,523 -- --
Repurchased.............. (305,285) (2,253,340) (136,401) (1,394,540)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (29,485) $ (382,691) 98,267 $ 965,525
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 10, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
-------------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 82,048 $ 621,435
Issued on reinvestment of
distributions........... 19 121
Repurchased.............. (80,466) (609,132)
---------- ------------
Net increase............. 1,601 $ 12,424
========== ============
</TABLE>
<PAGE> 131
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Ivy
China Region Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02ICRF123198
<PAGE> 132
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
After undergoing a relatively brief but significant bear market in the spring
and summer of 1998, the US market hit its lowest point of the year in early
October and then staged a comeback. In October, small-cap stocks led the market
higher; but in early November, large-cap stocks took the lead. This resulted in
new all-time highs for many indices, including the S&P 500 and the Dow Jones
Industrial Average. Within this environment the Ivy Growth with Income Fund was
up 9.84%. (For the Fund's total return with sales charge and performance
commentary, please refer to the following page.)
As we enter 1999, it appears that there are a number of issues causing concern
for investors. For example, many statistical measures of value, such as price to
earnings and price to book value, are at historically high levels. At the same
time, earnings growth appears to be slowing, and foreign economies continue to
present a major challenge for the market. In addition, the political situation
in Washington, D.C. continues to cast a cloud of uncertainty over the market as
well.
Although a change in investor sentiment regarding any one of these concerns can,
in our opinion, easily cause another market correction, experience suggests that
it is best to stay focused on the long-term trend of the market, and to view
corrections as buying opportunities. We believe that long-term investors have
many reasons to remain optimistic.
First, in our view, the disinflationary environment that started in the early
1980s still exists--rising inflation in the foreseeable future appears unlikely.
In fact, deflation could be a greater threat today than inflation. Second,
falling interest rates are likely to remain an important support for the stock
market. The Federal Reserve Board has cut rates three times since last August,
signaling that it will take action to prevent foreign economic turmoil from
forcing the US into a recession. With nominal GDP expanding at approximately 4%,
we believe the US central bank has room to lower rates further. Third, the
economic environment remains favorable. The US is in the eighth year of its
economic expansion; and although economic growth is likely to slow in 1999,
according to our research, the threat of a recession is quite low. Consumer
spending represents two-thirds of all economic activity and, therefore, as
spending remains strong, the economy should continue to expand. Of course, a
growing economy does not necessarily translate into growing corporate earnings;
however, we believe that investors are already expecting profits to be weak.
Consequently, unless earnings collapse, there will probably be more room for
upside surprises than for downside disappointments as we move through 1999.
Finally, the increasing need for baby boomers to invest for retirement remains,
in our view, a positive influence on stock prices. Each year, billions of
dollars flow into the market by way of IRAs and pension plans between January 1
and April 15. With current low interest rates, more of this money will likely
find its way into stocks.
Although the Fund's investment policies permit investment in foreign companies,
the management team has decided to keep foreign exposure to a minimum. Thus,
this Fund may be appropriate for those investors seeking a more domestically
oriented investment positioned, we believe, to take advantage of the current
market environment and the long-term trends of the stock market.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 133
PERFORMANCE COMPARISONS OF
THE FUND SINCE INCEPTION (4/84)
OF A $10,000 INVESTMENT
(CHART)
IVY GROWTH WITH INCOME FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Growth with Income Fund
was up 9.84%. The S&P 500 was up 29.78% for the same period. The S&P 500 is
oriented toward large-capitalization stocks, which generated the strongest
performance during calendar-year 1998. Since the Fund held a combination of
large- and mid-cap stocks throughout the year, its investment in mid-cap stocks
caused the Fund to underperform the S&P 500. Moreover, performance was hurt by
investments in the poorly performing real estate investment trust industry and
by investments in cash equivalents earlier in the year.
The Lipper Average Growth and Income Fund represents the performance of the
average growth with income fund as measured by Lipper Inc. It is not possible to
invest in a benchmark. The S&P 500 Index is an unmanaged index of stocks which
assumes 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY GROWTH WITH INCOME FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a 4.01% 9.01%
C: C: C: C:
1 year n/a 3.53% n/a n/a 8.16% 9.16% n/a n/a
B: B: B: B:
n/a n/a 13.39% 13.63%
C: C: C: C:
5 year n/a 13.16% n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
10 year 13.41% 13.40% n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a 13.12% 13.22%
C: C: C: C:
Since Inception(5) 15.06% 15.06% n/a n/a n/a 15.82% n/a (.36%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations April 1, 1984; Class B commenced operations
October 22, 1993; Class C commenced operations April 30, 1996; Advisor Class
commenced operations April 30, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
expenses.
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 Growth with Income Fund
will fluctuate and at redemption may be worth more or less than the amount of
the original investment.
- --------------------------------------------------------------------------------
<PAGE> 134
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS -- 99.18% SHARES VALUE COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC INDUSTRIES -- 4.08%
COMAIR Holdings, Inc. ............. 30,000 $ 1,012,500
PPG Industries, Inc. .............. 17,500 1,019,375
Praxair, Inc. ..................... 40,000 1,410,000
Union Carbide Corporation.......... 10,000 425,000
-----------
3,866,875
-----------
CAPITAL GOODS -- 7.11%
Briggs & Stratton Corporation...... 35,000 1,745,625
General Electric Company........... 9,000 918,562
Harsco Corporation................. 20,000 608,750
Hon Industries Inc. ............... 30,000 718,125
Hubbell Incorporated Class B....... 30,000 1,140,000
Kaydon Corporation................. 40,000 1,602,500
-----------
6,733,562
-----------
CONSUMER CYCLICAL -- 9.87%
Carlisle Companies Incorporated.... 25,000 1,290,625
Goodyear Tire & Rubber Company..... 25,000 1,260,937
Harley-Davidson, Inc. ............. 17,000 805,375
Lowe's Companies, Inc. ............ 10,000 511,875
May Department Stores Company...... 20,000 1,207,500
Superior Industries International,
Inc. ............................ 20,000 556,250
Tommy Hilfiger Corporation(a)...... 30,000 1,800,000
Tricon Global Restaurants,
Inc.(a).......................... 14,800 741,850
V.F. Corporation................... 25,000 1,171,875
-----------
9,346,287
-----------
CONSUMER STAPLES -- 10.22%
Anheuser-Busch Companies, Inc. .... 12,500 820,312
Avon Products, Inc. ............... 15,000 663,750
General Mills, Inc. ............... 15,000 1,166,250
H.J. Heinz Company................. 15,000 849,375
Philip Morris Companies Inc. ...... 20,000 1,070,000
Proctor & Gamble Company........... 10,000 913,125
Ralston-Ralston Purina Group....... 45,000 1,456,875
UST Inc. .......................... 40,000 1,395,000
Wm. Wrigley Jr. Company............ 15,000 1,343,438
-----------
9,678,125
-----------
ENERGY -- 7.29%
Amoco Corporation.................. 19,000 1,147,125
Chevron Corporation................ 18,000 1,492,875
Helmerich & Payne, Inc. ........... 55,000 1,065,625
Mobil Corporation.................. 18,000 1,568,250
Noble Drilling Corporation(a)...... 50,000 646,875
Texaco Inc. ....................... 18,500 978,188
-----------
6,898,938
-----------
FINANCIAL SERVICES -- 18.34%
A.G. Edwards, Inc. ................ 10,000 372,500
Ambac Financial Group, Inc. ....... 21,200 1,275,975
BB&T Corporation................... 25,000 1,007,813
Comerica Incorporated.............. 15,000 1,022,812
EXEL Limited -- Class A............ 19,500 1,462,500
Fannie Mae......................... 31,000 2,294,000
First Tennessee National
Corporation...................... 20,000 761,250
First Virginia Banks, Inc. ........ 25,000 1,175,000
Freddie Mac........................ 42,000 2,706,375
Mercantile Bankshares
Corporation...................... 25,000 962,500
Old Kent Financial Corporation..... 25,000 1,162,500
Paine Webber Group Inc. ........... 10,000 386,250
Providian Financial Corporation.... 30,000 2,250,000
Tera Nova (Bermuda) Holdings
Ltd. -- Class A.................. 21,000 530,250
-----------
17,369,725
-----------
HEALTHCARE -- 12.11%
Abbott Laboratories................ 25,000 $ 1,225,000
Allegiance Corporation............. 32,000 1,492,000
American Home Products
Corporation...................... 20,000 1,126,250
Ballard Medical Products........... 40,000 972,500
Bristol-Myers Squibb Company....... 10,000 1,338,125
Johnson & Johnson.................. 15,000 1,258,125
Mallinckrodt Inc. ................. 40,000 1,232,500
Merck & Co., Inc. ................. 15,000 2,215,313
Safeskin Corporation............... 25,000 603,125
-----------
11,462,938
-----------
TECHNOLOGY -- 19.42%
Altera Corporation................. 30,000 1,826,250
American Power Conversion
Corporation(a)................... 40,000 1,937,500
Andrew Corporation(a).............. 50,000 825,000
C&D Technologies, Inc. ............ 35,000 962,500
Cisco Systems, Inc.(a)............. 15,000 1,392,188
Dionex Corporation(a).............. 50,000 1,831,250
Equifax Inc. ...................... 50,000 1,709,375
Intel Corporation.................. 18,000 2,134,125
International Business Machines
Corporation...................... 6,000 1,108,500
KLA-Tencor Corporation(a).......... 9,000 390,375
Microsoft Corporation(a)........... 10,000 1,386,875
Novellus Systems, Inc.(a).......... 15,000 742,500
Sun Microsystems, Inc.(a).......... 25,000 2,140,625
-----------
18,387,063
-----------
UTILITIES -- 10.74%
ALLTEL Corporation................. 30,000 1,794,375
DPL Inc. .......................... 95,000 2,054,375
Northern States Power Company...... 55,000 1,526,250
OGE Energy Corp.................... 60,000 1,736,250
SBC Communications Inc. ........... 27,000 1,447,874
SCANA Corporation.................. 50,000 1,612,500
-----------
10,171,624
-----------
TOTAL INVESTMENTS -- 99.18%
(Cost -- $70,096,658) (Cost on Federal
income tax basis -- $70,236,251)........ 93,915,137
OTHER ASSETS, LESS LIABILITIES -- .82%...... 775,483
-----------
NET ASSETS -- 100%.......................... $94,690,620
===========
(a) Non-income producing security
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation based on
cost for financial statement and Federal income tax
purposes is as follows:
Gross unrealized appreciation........... $24,752,595
Gross unrealized depreciation........... (934,116)
-----------
Net unrealized appreciation for
financial statement purposes...... 23,818,479
Less: tax basis adjustments............. (139,593)
-----------
Net unrealized appreciation for
Federal income tax purposes....... $23,678,886
===========
Purchases and sales of securities (other than short-term
obligations) aggregated $97,285,506 and $93,420,610,
respectively, for the period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 135
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $70,096,658)...... $93,915,137
Cash........................................................ 775,936
Receivables
Fund shares sold.......................................... 47,793
Dividends and interest.................................... 121,084
Other assets................................................ 14,342
-----------
Total assets.............................................. 94,874,292
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 18,788
Fund shares repurchased................................... 22,897
Management fee............................................ 58,780
12b-1 service and distribution fees....................... 31,920
Other payables to related parties......................... 36,448
Accrued expenses............................................ 14,839
-----------
Total liabilities......................................... 183,672
-----------
NET ASSETS.................................................. $94,690,620
===========
CLASS A
Net asset value and redemption price per share
($69,733,444/5,148,772 shares outstanding)................ $ 13.54
===========
Maximum offering price per share ($13.54 X 100/94.25)*...... $ 14.37
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($23,975,182/1,791,685 shares outstanding).......... $ 13.38
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($643,317/48,421 shares outstanding)................ $ 13.29
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($338,677/24,935 shares outstanding)................ $ 13.58
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $73,061,674
Accumulated net realized loss on investments.............. (2,183,848)
Accumulated net investment loss........................... (5,685)
Net unrealized appreciation on investments................ 23,818,479
-----------
NET ASSETS.................................................. $94,690,620
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 136
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $1,398,440
Interest.................................................. 361,417
----------
1,759,857
----------
EXPENSES
Management fee............................................ $702,361
Transfer agent............................................ 235,695
Administrative services fee............................... 93,648
Custodian fees............................................ 12,930
Blue Sky fees............................................. 35,991
Auditing and accounting fees.............................. 22,831
Shareholder reports....................................... 18,627
Fund accounting........................................... 94,539
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 394,391
Legal..................................................... 25,885
Other..................................................... 37,932
----------
Total expenses............................................ 1,683,301
----------
NET INVESTMENT INCOME....................................... 76,556
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS
Net realized gain on investments.......................... 3,269,440
Net change in unrealized appreciation on investments...... 5,444,602
----------
Net gain on investment transactions................... 8,714,042
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $8,790,598
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 137
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 76,556 $ 364,445
Net realized gain (loss) on
Investments............................................. 3,269,440 10,191,136
Written options......................................... -- (553,068)
Net change in unrealized appreciation on
Investments............................................. 5,444,602 6,207,015
Written options......................................... -- 223,772
----------- -----------
Net increase resulting from operations................ 8,790,598 16,433,300
----------- -----------
Class A distributions
From net investment income................................ (44,407) (181,666)
From net realized gain.................................... (1,399,111) (5,979,580)
----------- -----------
Total distributions to Class A shareholders........... (1,443,518) (6,161,246)
----------- -----------
Class B distributions
From net investment income................................ -- (46,840)
From net realized gain.................................... (492,051) (1,644,525)
----------- -----------
Total distributions to Class B shareholders........... (492,051) (1,691,365)
----------- -----------
Class C distributions
From net investment income................................ -- (1,929)
From net realized gain.................................... (31,265) (380,885)
----------- -----------
Total distributions to Class C shareholders........... (31,265) (382,814)
----------- -----------
Class D distributions
From net investment income................................ -- (915)
From net realized gain.................................... -- (1,831)
----------- -----------
Total distributions to Class D shareholders........... -- (2,746)
----------- -----------
Advisor Class distributions
From net realized gain.................................... (5,709) --
----------- -----------
Total distributions to Advisor Class shareholders..... (5,709) --
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (5,017,773) (482,774)
Class B................................................... 2,325,537 5,280,128
Class C................................................... (3,935,114) 4,566,407
Class D................................................... -- (931,565)
Advisor Class............................................. 331,216 --
----------- -----------
Net (decrease) increase resulting from Fund share
transactions......................................... (6,296,134) 8,432,196
----------- -----------
TOTAL INCREASE IN NET ASSETS................................ 521,921 16,627,325
NET ASSETS
Beginning of period....................................... 94,168,699 77,541,374
----------- -----------
END OF PERIOD............................................. $94,690,620 $94,168,699
=========== ===========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 38,689
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 138
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.59 $ 11.38 $ 10.98 $ 9.08 $ 9.70
------- ------- ------- ------- -------
Income from investment operations
Net investment income..................................... .04 .08 .08 .11 .17
Net realized and unrealized gain (loss) on investment
transactions............................................ 1.19 2.37 2.16 2.13 (.36)
------- ------- ------- ------- -------
Total from investment operations........................ 1.23 2.45 2.24 2.24 (.19)
------- ------- ------- ------- -------
Less distributions
From net investment income................................ -- .03 .08 .08 .17
In excess of net investment income........................ -- -- .03 -- .01
From net realized gain.................................... .28 1.21 1.73 .26 .25
------- ------- ------- ------- -------
Total distributions..................................... .28 1.24 1.84 .34 .43
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 13.54 $ 12.59 $ 11.38 $ 10.98 $ 9.08
======= ======= ======= ======= =======
Total return(%)(a).......................................... 9.64 21.57 20.46 24.93 (2.03)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $69,733 $69,742 $63,219 $59,054 $26,017
Ratio of expenses to average net assets(%).................. 1.60 1.59 1.81 1.96 1.84
Ratio of net investment income to average net assets(%)..... .28 .58 .68 1.06 1.83
Portfolio turnover rate(%).................................. 108 36 138 81 36
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.54 $ 11.36 $ 10.98 $ 9.08 $ 9.70
------- ------- ------- ------ ------
Income (loss) from investment operations
Net investment (loss) income.............................. (.06) (.02) (.01) .03 .09
Net realized and unrealized gain (loss) on investment
transactions............................................ 1.18 2.37 2.15 2.13 (.36)
------- ------- ------- ------ ------
Total from investment operations........................ 1.12 2.35 2.14 2.16 (.27)
------- ------- ------- ------ ------
Less distributions
From net investment income................................ -- .03 -- .01 .09
In excess of net investment income........................ -- -- .08 -- .01
From net realized gain.................................... .28 1.14 1.68 .25 .25
------- ------- ------- ------ ------
Total distributions..................................... .28 1.17 1.76 .26 .35
------- ------- ------- ------ ------
Net asset value, end of period.............................. $ 13.38 $ 12.54 $ 11.36 $10.98 $ 9.08
======= ======= ======= ====== ======
Total return(%)(a).......................................... 9.01 20.74 19.59 23.94 (2.88)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $23,975 $20,071 $13,473 $8,868 $5,849
Ratio of expenses to average net assets(%).................. 2.33 2.31 2.55 2.75 2.70
Ratio of net investment (loss) income to average net
assets(%)................................................. (.45) (.13) (.06) .27 .97
Portfolio turnover rate(%).................................. 108 36 138 81 36
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 139
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE APRIL 30, 1996
CLASS C YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
------------------ -----------------
1998 1997 1996
SELECTED PER SHARE DATA ------ ------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $12.44 $11.37 $11.73
------ ------ ------
Income from investment operations
Net investment loss....................................... (.05) (.01) (.08)
Net realized and unrealized gain on investment
transactions............................................ 1.18 2.35 1.53
------ ------ ------
Total from investment operations........................ 1.13 2.34 1.45
------ ------ ------
Less distributions
In excess of net investment income........................ -- -- .08
From net realized gain.................................... .28 1.27 1.73
------ ------ ------
Total distributions..................................... .28 1.27 1.81
------ ------ ------
Net asset value, end of period.............................. $13.29 $12.44 $11.37
====== ====== ======
Total return(%)............................................. 9.16(a) 20.70(a) 12.37(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 643 $4,356 $ 28
Ratio of expenses to average net assets(%).................. 2.27 2.23 3.02(c)
Ratio of net investment loss to average net assets(%)....... (.39) (.05) (.53)(c)
Portfolio turnover rate(%).................................. 108 36 138
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
CLASS D(d) JANUARY 1, 1997 TO FOR THE YEAR ENDED
AUGUST 16, DECEMBER 31,
------------------- ------------------------------
1997 1996 1995 1994
SELECTED PER SHARE DATA ------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $11.39 $10.98 $ 9.08 $ 9.70
------ ------ ------ ------
Income (loss) from investment operations
Net investment (loss) income.............................. (.01) (.02) .03 .09
Net realized and unrealized gain (loss) on investment
transactions............................................ 1.88 2.14 2.13 (.36)
------ ------ ------ ------
Total from investment operations........................ 1.87 2.12 2.16 (.27)
------ ------ ------ ------
Less distributions
From net investment income................................ .02 -- .01 .09
In excess of net investment income........................ -- .08 -- .01
From net realized gain.................................... .04 1.63 .25 .25
------ ------ ------ ------
Total distributions..................................... .06 1.71 .26 .35
------ ------ ------ ------
Net asset value, end of period.............................. $13.20 $11.39 $10.98 $ 9.08
====== ====== ====== ======
Total return(%)............................................. 16.37(b) 19.41(a) 23.94(a) (2.88)(a)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ -- $ 821 $1,242 $3,004
Ratio of expenses to average net assets(%).................. 2.41(c) 2.63 2.75 2.70
Ratio of net investment (loss) income to average net
assets(%)................................................. (.11)(c) (.14) .27 .97
Portfolio turnover rate(%).................................. 36 138 81 36
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 140
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $13.88
------
Income from investment operations
Net investment income..................................... .05
Net realized and unrealized loss on investment
transactions............................................ (.07)
------
Total from investment operations........................ (.02)
------
Less distributions
From net realized gain.................................... .28
------
Total distributions..................................... .28
------
Net asset value, end of period.............................. $13.58
======
Total return(%)(b).......................................... (.36)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 339
Ratio of expenses to average net assets(%)(c)............... 1.20
Ratio of net investment income to average net
assets(%)(c).............................................. .68
Portfolio turnover rate(%).................................. 108
</TABLE>
<TABLE>
<S> <C>
(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) 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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 141
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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, 1998, there were no Board
valued 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 -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998 the interest rate was 4.00%.
OPTIONS -- The Fund may invest in option contracts for the purpose of
increasing or decreasing its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
the value of the Fund's securities. An option is a right to buy or sell a
particular security at a specified price within a limited period of time. The
buyer of the option, in return for a premium paid to the seller, has the right
to buy, in the case of a call option, or sell, in the case of a put option, the
underlying security of the contract. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
When the Fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds of the sale in determining whether the Fund has realized a gain or
loss on the transaction. For options on indices, cash settlement by the Fund is
required if the option is exercised. The Fund, as writer of an option, has no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the securities underlying the written option. Exchange traded written
options are valued daily at the last sale price or, in the absence of a sale, at
the calculated mean of the bid and asked prices, subject to certain
reasonability criteria on the spread between the bid and asked prices.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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
$2,036,000 as of December 31, 1998, 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, 1995. The carryforward expires in
2002.
Pursuant to Section 852 of the Code, the Fund designates $1,887,029 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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
<PAGE> 142
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
remaining undistributed net investment income and net realized capital gain.
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 distributions received from
pass-through entities (such as REITs), and certain securities sold at a loss. As
a result, Net investment income and Net realized gain on investments 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, 1998, the net amount of underwriting
discount retained by IMDI was $7,545.
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 assets of shares issued after December 31, 1991, excluding Advisor Class.
Class B and Class C shares are also subject to an ongoing distribution fee at an
annual rate of .75% of the average net assets attributable to Class B and Class
C. IMDI may use such distribution fee for purposes of advertising and marketing
shares of the Fund. Such fees of $140,333, $224,258, and $29,800, 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 $184,756, $46,549, $4,260, and $130, for Class A, Class B, Class C
and Advisor Class, 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, Class D and Advisor
Class were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 1,086,458 $ 14,042,632 863,122 $ 11,052,530
Issued on reinvestment of
distributions........... 91,798 1,211,827 433,425 5,287,143
Repurchased.............. (1,567,998) (20,272,232) (1,371,170) (17,581,243)
Issued in connection with
the conversion of Class
D Shares*............... -- -- 57,311 758,796
---------- ------------ ---------- ------------
Net decrease............. (389,742) $ (5,017,773) (17,312) $ (482,774)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 722,497 $ 9,215,272 526,577 $ 6,713,382
Issued on reinvestment of
distributions........... 29,845 389,428 130,880 1,588,622
Repurchased.............. (561,757) (7,279,163) (242,195) (3,021,876)
---------- ------------ ---------- ------------
Net increase............. 190,585 $ 2,325,537 415,262 $ 5,280,128
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 22,867 $ 288,642 323,372 $ 4,278,774
Issued on reinvestment of
distributions........... 1,721 23,013 29,916 359,941
Repurchased.............. (326,251) (4,246,769) (5,696) (72,308)
---------- ------------ ---------- ------------
Net (decrease)/increase.. (301,663) $ (3,935,114) 347,592 $ 4,566,407
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------- -------------------------
CLASS D* SHARES AMOUNT SHARES AMOUNT
- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... -- -- 175 $ 2,101
Exchanged upon conversion
to Class A Shares....... -- -- (57,485) (758,796)
Repurchased.............. -- -- (14,737) (174,870)
---------- ------------ ---------- ------------
Net decrease............. -- -- (72,047) $ (931,565)
========== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
-------------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Sold..................... 29,137 $ 385,406
Issued on reinvestment of
distributions........... 417 5,466
Repurchased.............. (4,619) (59,656)
---------- ------------
Net increase............. 24,935 $ 331,216
========== ============
</TABLE>
* On August 16, 1997 all outstanding Class D shares were converted to Class A
shares.
<PAGE> 143
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Growth with Income Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IGIF123198
<PAGE> 144
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
The focus of the Ivy Canada Fund on the natural resource sectors had negative
consequences on the Fund's performance in 1998. For the twelve months ended
December 31, 1998, the Ivy Canada Fund was down 36.77%. (For the Fund's total
return with sales charge and performance commentary, please refer to the
following page.)
For resource investors, the events of 1998 were disheartening, but we believe
those very same events could provide an opportunity for the coming years. In
our view, indicators show that the declines may have ended, and a gradual
recovery process may have begun. To reduce volatility without losing the
recovery potential in natural resources, we have been actively increasing the
Fund's diversification within resource sectors.
Just a few years ago, many world economists and company executives were
budgeting for the "Asian economic miracle" and the demand strain that it would
put on resources. Only two years ago, energy prices were reaching new near-term
highs. But instead of economic wonder, Asia was shaken by a financial crisis
that quickly spread to other developing areas of the world. Commodity prices
have now fallen for more than two years, and closed out 1998 at multidecade
lows. The magnitude of the decline significantly exceeded many analysts'
expectations, and has caused many investors to conclude that the risks of
investing in resource sectors are too high. This sentiment would lead one to
conclude that a strong resurgence in demand is unlikely in the near term.
History suggests that outperformance is also unlikely without that demand.
However, in light of this overwhelmingly negative sentiment, we believe there
are several reasons that exposure to resource sectors should be increasing, not
reduced.
First, we believe that significant interest rate cuts by central banks around
the world, together with strong money growth, should lead to improved demand
for resources later in the year. Second, according to our research bad news has
caused share prices to decline to valuations that have seldom been better-this
is in stark contrast to the broad stock market, which has rarely been this
expensive. In our view, the large number of takeovers in the resource sectors
confirms that these stocks are now trading below replacement value. These
mergers also strengthen industries by reducing excessive competition. Third,
companies are keeping inventory levels in check by cutting production. In past
cycles, just when less production was needed, companies often produced more to
make up for revenue shortfall. This time, we are seeing swifter production
cuts.
In spite of the difficult economic environment, many companies within the Ivy
Canada Fund continue to increase production. According to our research, balance
sheets are also in reasonable shape for this point in the cycle. Past cycles
indicate that significant gains are possible once commodity prices improve.
(There is, of course, no guarantee that this trend will continue in the
future.)
In the fourth quarter of 1998, there were positive divergences for the first
time in two years: oil prices hit new lows, but oil shares did not; base metal
prices went to new lows, but the shares did not. In short, we believe most of
the risk is past and some stocks have already begun to move higher.
Nonetheless, the uptrend in stocks will not begin in earnest until commodity
prices firm. We remain hopeful that 1999 will be the pivotal year.
IVY MANAGEMENT, INC.
Board of Trustees
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Legal Counsel
Dechert Price & Rhoads
Boston, MA
Officers
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
Custodian
Brown Brothers Harriman & Co.
Boston, MA
Transfer Agent
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
Auditors
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
Investment Manager
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
Distributor
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 145
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (11/87)
OF A $10,000 INVESTMENT
(CHART)
IVY CANADA FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy Canada Fund was down
36.77%. The Toronto Stock Exchange 300 (TSE 300) was down 8.10% for the same
period. The underperformance of the Fund is attributed primarily to its focus on
natural resource sectors. As a result of the slowdown in economic growth in many
of the world's developing nations, in particular Asia and Latin America, demand
for commodities has significantly decreased. The TSE 300 is more heavily
weighted toward the Canadian financial/banking sectors and the overall Canadian
economy, and is therefore less sensitive to slower world economic growth.
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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY CANADA FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a (40.02%) (36.86%)
C: C: C: C:
1 year n/a (40.41%) n/a n/a (37.47%) (36.84%) n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
5 year (12.41%) (12.47%) n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
10 year (4.83%) (4.90%) n/a n/a n/a n/a n/a n/a
B: B: B: B:
(12.28%) (11.90%) (12.35%) (11.97%)
C: C: C: C:
Since Inception(5) (3.69%) (4.02%) n/a n/a n/a (22.19%) n/a (41.32%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations November 18, 1987; Class B commenced operations
April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class
commenced operations April 30, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 146
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOREIGN EQUITY SECURITIES -- 100.72% SHARES VALUE FOREIGN EQUITY SECURITIES SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER PRODUCTS -- .42%
Semi-Tech Corporation(a)... 300,000 $ 21,485
-----------
DIAMONDS -- 4.73%
Aber Resources, Ltd.(a)... 20,000 111,983
De Beers Consolidated Mines Ltd. ... 10,000 127,500
-----------
239,483
-----------
ENERGY SERVICE -- 13.80%
Diamond Offshore Drilling, Inc. ... 5,000 118,437
Ensign Resource Service Group,
Inc. ........... 20,000 175,788
NQL Drilling Tools Inc. -- Class
A(a)............ 25,000 65,107
Noble Drilling Corporation(a)... 15,000 194,062
Weatherford International,
Inc.(a)......... 7,500 145,312
-----------
698,706
-----------
FOOD/AGRICULTURE -- 1.61%
Saskatchewan Wheat Pool... 12,500 81,383
-----------
GAS PRODUCERS -- 16.89%
Elk Point Resources, Inc.(a)... 75,000 195,320
Fletcher Challenge Energy... 56,751 111,388
Merit Energy Ltd.(a)... 50,000 170,905
Niko Resources Ltd.(a)... 45,000 164,069
Noble Affiliates, Inc. ... 3,000 73,875
Penn West Petroleum Ltd.(a)... 10,000 107,426
Remington Energy Ltd.(a)... 10,000 32,228
-----------
855,211
-----------
INDUSTRIAL PRODUCTS -- 10.92%
BASF AG........... 500 19,078
Cameco Corporation... 7,500 134,038
IPSCO, Inc. ...... 1,400 24,838
International Uranium Corp.(a)... 380,000 133,599
Offshore Systems International
Ltd.(a)......... 258,824 60,664
Slater Steel, Inc. ... 37,500 180,671
-----------
552,888
-----------
JUNIOR PRECIOUS METALS -- 9.38%
Golden Knight Resources, Inc.(a)... 300,000 87,894
Meridian Gold, Inc.(a)... 35,000 205,086
Orvana Minerals Corporation(a)... 400,000 182,299
-----------
475,279
-----------
METALS & MINERALS -- 8.77%
Billiton Plc...... 50,000 99,412
Breakwater Resources, Ltd.(a)... 200,000 123,703
Pasminco Limited... 150,000 114,085
Teck Corporation Class B... 5,000 36,460
Tenke Mining Corp.(a)... 75,000 15,626
Western Garnet Company Ltd.(a)... 40,000 54,690
-----------
443,976
-----------
OIL PRODUCERS -- 8.61%
Hurricane Hydrocarbons Ltd. -- Class
A(a)............ 25,000 28,647
Pacalta Resources Ltd.(a)... 40,000 113,286
Talisman Energy INC.(a)... 7,500 131,597
Vermilion Resources Ltd.(a)... 50,000 92,777
YPF S. A. ADR Class D... 2,500 69,844
-----------
436,151
-----------
PAPER & FOREST PRODUCTS -- 7.62%
Alliance Forest Products, Inc.(a)... 12,500 $ 118,820
Sino-Forest Corp. Class A(a)... 250,000 266,937
-----------
385,757
-----------
PLATINUM GROUP METALS -- 7.58%
Anglo American Platinum Corporation
Limited......... 12,500 171,480
Industrias Penoles S.A. ... 50,000 149,650
Lonrho PLC........ 11,500 62,655
-----------
383,785
-----------
SENIOR PRECIOUS METALS -- 10.39%
Acacia Resources Ltd. ... 38,000 56,288
Delta Gold NL..... 37,000 56,282
Freeport-McMoRan Copper & Gold,
Inc. ........... 13,500 140,906
Gold Fields Limited(a)... 30,000 165,742
Vengold Inc.(a)... 175,000 107,100
-----------
526,318
-----------
TOTAL FOREIGN EQUITY
SECURITIES -- 100.72%
(Cost -- $10,903,825)....................... 5,100,422
-----------
FOREIGN BONDS -- .38% PRINCIPAL
-- --------
William Resources, Inc.
8.00%, 01/23/02 (b)
(Cost -- $145,053)... $495,000 19,336
-----------
TOTAL FOREIGN INVESTMENTS -- 101.10%
(Cost -- $11,048,878)(Cost on Federal income
tax basis -- $11,084,800)................. 5,119,758
LIABILITIES IN EXCESS OF OTHER
ASSETS -- (1.10)%........................... (55,494)
-----------
NET ASSETS -- 100%............................ $ 5,064,264
===========
ADR -- American Depository Receipt
(a) Non-income producing security
(b) Issuer is in default on interest payments.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on
cost for financial statement and Federal income tax purposes
is as follows:
Gross unrealized appreciation............. $ 316,610
Gross unrealized depreciation............. (6,245,730)
-----------
Net unrealized depreciation for
financial
statement purposes.................. (5,929,120)
Less: tax basis adjustments............... (35,922)
-----------
Net unrealized depreciation for
Federal
income tax purposes................. $(5,965,042)
===========
Purchases and sales of investments (excluding short-term
obligations) aggregated $6,372,711 and $8,806,740,
respectively, for the period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 147
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $11,048,878)...... $ 5,119,758
Receivables
Investments sold.......................................... 48,830
Fund shares sold.......................................... 552
Dividends and interest.................................... 4,921
Other assets................................................ 10,322
-----------
Total assets............................................ 5,184,383
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 10,700
Management and advisory fees.............................. 3,694
12b-1 service and distribution fees....................... 2,252
Other payables to related parties......................... 7,275
Due to custodian............................................ 78,174
Accrued expenses............................................ 18,024
-----------
Total liabilities......................................... 120,119
-----------
NET ASSETS.................................................. $ 5,064,264
===========
CLASS A
Net asset value and redemption price per share
($4,030,365/1,167,819 shares outstanding)................. $ 3.45
===========
Maximum offering price per share ($3.45 x 100/94.25)*....... $ 3.66
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($803,760/234,995 shares outstanding)............... $ 3.42
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($216,815/62,972 shares outstanding)................ $ 3.44
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($13,324/3,842 shares outstanding).................. $ 3.47
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $14,648,567
Accumulated net realized loss on investments and foreign
currency transactions................................... (3,622,833)
Accumulated net investment loss........................... (32,933)
Net unrealized depreciation on investments and
foreign currency transactions........................... (5,928,537)
-----------
NET ASSETS.................................................. $ 5,064,264
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 148
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $5,590 foreign taxes withheld........... $ 72,309
Interest.................................................. 68,985
-----------
141,294
-----------
EXPENSES
Management fee............................................ $38,316
Advisory fee.............................................. 26,821
Transfer agent............................................ 56,944
Administrative services fee............................... 7,663
Custodian fees............................................ 45,501
Blue Sky fees............................................. 30,979
Auditing and accounting fees.............................. 27,196
Shareholder reports....................................... 5,817
Fund accounting........................................... 26,360
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 39,248
Legal..................................................... 21,417
Other..................................................... 20,112
-----------
Total expenses.............................................. 354,845
-----------
NET INVESTMENT LOSS......................................... (213,551)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (1,621,691)
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (1,424,513)
-----------
Net loss on investment transactions..................... (3,046,204)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(3,259,755)
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 149
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (213,551) $ (329,750)
Net realized (loss) gain on investments and foreign
currency transactions................................... (1,621,691) 599,116
Net change in unrealized depreciation on investments and
foreign currency transactions........................... (1,424,513) (4,015,909)
----------- -----------
Net decrease resulting from operations.................. (3,259,755) (3,746,543)
----------- -----------
Class A distributions
In excess of net investment income........................ -- (156,088)
From net realized gain.................................... (30,944) (529,266)
In excess of net realized gain............................ -- (1,387,244)
----------- -----------
Total distributions to Class A shareholders............. (30,944) (2,072,598)
----------- -----------
Class B distributions
In excess of net investment income........................ -- (27,307)
From net realized gain.................................... (6,237) (92,594)
In excess of net realized gain............................ -- (242,694)
----------- -----------
Total distributions to Class B shareholders............. (6,237) (362,595)
----------- -----------
Class C distributions
In excess of net investment income........................ -- (5,985)
From net realized gain.................................... (1,648) (20,295)
In excess of net realized gain............................ -- (53,194)
----------- -----------
Total distributions to Class C shareholders............. (1,648) (79,474)
----------- -----------
Advisor Class distributions
From net realized gain.................................... (99) --
----------- -----------
Total distributions to Advisor Class shareholders....... (99) --
----------- -----------
Fund share transactions (Note 5)
Class A................................................... (1,854,513) (1,566,391)
Class B................................................... (188,873) 363,532
Class C................................................... (3,292) 390,361
Advisor Class............................................. 21,452 --
----------- -----------
Net decrease resulting from Fund share transactions..... (2,025,226) (812,498)
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (5,323,909) (7,073,708)
NET ASSETS
Beginning of period....................................... 10,388,173 17,461,881
----------- -----------
END OF PERIOD............................................. $ 5,064,264 $10,388,173
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 150
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
CLASS A MONTHS ENDED YEAR ENDED
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
---------------------------------------------- ------------ ----------
1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $ 5.50 $ 9.64 $ 9.21 $ 8.90 $ 9.85 $ 10.04
------- ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment loss.......................... (.15) (.22) (.21) (.19)(a) (.11) (.11)
Net realized and unrealized (loss) gain on
investment transactions.................... (1.87) (2.19) 2.29 .75 (.81) .24
------- ------- ------- ------- ------- -------
Total from investment operations........... (2.02) (2.41) 2.08 .56 (.92) .13
------- ------- ------- ------- ------- -------
Less distributions
In excess of net investment income........... -- .15 -- -- -- --
From net realized gain....................... .03 .44 1.65 .25 -- .31
In excess of net realized gain............... -- 1.14 -- -- -- --
From capital paid-in......................... -- -- -- -- .03 .01
------- ------- ------- ------- ------- -------
Total distributions........................ .03 1.73 1.65 .25 .03 .32
------- ------- ------- ------- ------- -------
Net asset value, end of period................. $ 3.45 $ 5.50 $ 9.64 $ 9.21 $ 8.90 $ 9.85
======= ======= ======= ======= ======= =======
Total return(%)................................ (36.77)(b) (23.75)(b) 23.86(b) 6.37(b) (9.38)(c) 1.05(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)....... $ 4,030 $ 8,538 $15,249 $19,353 $23,296 $34,549
Ratio of expenses to average net assets(%)..... 4.59 2.89 2.79 2.90(e) 2.44(d) 2.05
Ratio of net investment loss to average net
assets(%).................................... (2.75) (2.11) (1.78) (2.13)(a) (1.85)(d) (1.09)
Portfolio turnover rate(%)..................... 84 93 56 21 36 62
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B MONTHS ENDED (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, TO JUNE 30,
---------------------------------------------- ------------ --------------
1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 5.46 $ 9.59 $ 9.21 $ 8.90 $ 9.85 $ 10.16
------- ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment loss...................... (.15) (.24) (.17) (.20)(a) (.09) (.02)
Net realized and unrealized (loss) gain
on investment transactions............. (1.86) (2.18) 2.19 .71 (.86) (.29)
------- ------- ------- ------- ------- -------
Total from investment operations....... (2.01) (2.42) 2.02 .51 (.95) (.31)
------- ------- ------- ------- ------- -------
Less distributions
In excess of net investment income....... -- .13 -- -- -- --
From net realized gain................... .03 .44 1.64 .20 -- --
In excess of net realized gain........... -- 1.14 -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions.................... .03 1.71 1.64 .20 -- --
------- ------- ------- ------- ------- -------
Net asset value, end of period............. $ 3.42 $ 5.46 $ 9.59 $ 9.21 $ 8.90 $ 9.85
======= ======= ======= ======= ======= =======
Total return(%)............................ (36.86)(b) (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)... $ 804 $ 1,501 $ 2,040 $ 1,142 $ 741 $ 227
Ratio of expenses to average net
assets(%)................................ 4.84 3.23 3.30 3.50(e) 3.03(d) 2.68(d)
Ratio of net investment loss to average net
assets(%)................................ (3.00) (2.45) (2.30) (2.73)(a) (2.44)(d) (1.72)(d)
Portfolio turnover rate(%)................. 84 93 56 21 36 62
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 151
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
-------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 5.49 $ 9.62 $ 10.67
------- ------- -------
Income (loss) from investment operations
Net investment loss....................................... (.13) (.24) (.14)
Net realized and unrealized (loss) gain on investment
transactions............................................ (1.89) (2.18) .72
------- ------- -------
Total from investment operations........................ (2.02) (2.42) .58
------- ------- -------
Less distributions
In excess of net investment income........................ -- .13 --
From net realized gain.................................... .03 .44 1.63
In excess of net realized gain............................ -- 114 --
------- ------- -------
Total distributions..................................... .03 1.71 1.63
------- ------- -------
Net asset value, end of period.............................. $ 3.44 $ 5.49 $ 9.62
======= ======= =======
Total return(%)............................................. (36.84)(b) (23.95)(b) 6.51(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 217 $ 349 $ 173
Ratio of expenses to average net assets(%).................. 4.70 3.14 3.15(d)
Ratio of net investment loss to average net assets(%)....... (2.86) (2.37) (2.15)(d)
Portfolio turnover rate(%).................................. 84 93 56
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $ 5.96
-------
Loss from investment operations
Net investment loss....................................... (.06)
Net realized and unrealized loss on investments........... (2.40)
-------
Total from investment operations........................ (2.46)
-------
Less distributions
From net realized gain.................................... .03
-------
Total distributions..................................... .03
-------
Net asset value, end of period.............................. $ 3.47
=======
Total return(%)(c).......................................... (41.32)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 13
Ratio of expenses to average net assets(%)(d)............... 3.92
Ratio of net investment loss to average net assets(%)(d).... (2.08)
Portfolio turnover rate(%).................................. 84
</TABLE>
<TABLE>
<S> <C>
(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) 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.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 152
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $75,794. These dividends were
subject to foreign withholding tax in the amount of $5,590. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$2,675,000 as of December 31, 1998 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 in 2006.
Pursuant to Section 852 of the Code, the Fund designates $38,928 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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 loss on investment transactions.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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 loss and Net realized
<PAGE> 153
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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 period ended December 31, 1998, the net amount of underwriting
discount retained by IMDI was $1,888.
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 Advisor Class. Class A shares are also subject to an ongoing
distribution fee at an annual rate of .15% of the average net assets 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 assets attributable to Class B
and Class C. IMDI may use such distribution fee for purposes of advertising and
marketing shares of the Fund. Such fees of $24,853, $11,532 and $2,863 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 $50,589, $5,356, $943 and $56, for Class A, Class B, Class C and
Advisor Class, 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 RISK
The Fund primarily invest in equity securities of Canadian companies.
Therefore, the Fund is more susceptible to factors adversely affecting Canadian
securities 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, Class C and Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 388,034 $ 1,808,196 298,986 $ 2,635,521
Issued on reinvestment of
distributions................ 8,209 27,183 361,059 1,859,358
Repurchased................... (780,045) (3,689,892) (690,062) (6,061,270)
-------- ----------- -------- -----------
Net decrease.................. (383,802) $(1,854,513) (30,017) $(1,566,391)
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 37,485 $ 173,489 70,576 $ 643,792
Issued on reinvestment of
distributions................ 1,803 6,239 60,223 307,742
Repurchased................... (79,053) (368,601) (68,785) (588,002)
-------- ----------- -------- -----------
Net (decrease)/increase....... (39,765) $ (188,873) 62,014 $ 363,532
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- ----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 7,136 $ 28,708 51,492 $ 488,373
Issued on reinvestment of
distributions................ 344 1,134 11,742 60,359
Repurchased................... (8,062) (33,134) (17,649) (158,371)
-------- ----------- -------- -----------
Net (decrease)/increase....... (582) $ (3,292) 45,585 $ 390,361
======== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- -----------
<S> <C> <C> <C> <C>
Sold.......................... 5,316 $ 27,144
Issued on reinvestment of
distributions................ 30 99
Repurchased................... (1,504) (5,791)
-------- -----------
Net increase.................. 3,842 $ 21,452
======== ===========
</TABLE>
<PAGE> 154
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SUBSEQUENT EVENT
The Fund intends to enter into an Agreement and Plan of Reorganization (the
"Reorganization") on March 11, 1999, providing for the transfer of all or
substantially all of the assets of the Fund to Ivy Global Natural Resources
Fund. Pursuant to the Reorganization each shareholder of the Fund will become a
shareholder of Ivy Global Natural Resources Fund and will hold the number of
full and fractional Class A, Class B, Class C and Advisor Class Shares of Ivy
Global Natural Resources Fund having an aggregate net asset value equal to the
aggregate net asset value of each shareholders' Class A, Class B, Class C and
Advisor Class shares of the Fund held as of the close of business on the
business day preceding the closing day. The closing day is expected to occur on
March 12, 1999. The Reorganization is subject to shareholder approval.
Ivy Global Natural Resources Fund is a separate portfolio of Ivy Fund and
has investment objectives and policies that are similar to the Fund's investment
objectives and policies. The interests of the Fund's shareholders will not be
diluted as a result of the Reorganization.
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Canada Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02ICF123198
<PAGE> 156
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
For the twelve months ended December 31, 1998, the Ivy US Emerging Growth Fund
posted a gain of 18.00%. Compared to its benchmark, the Russell 2000 Growth
Index, which was up only 1.23%, the Fund had an outstanding year. However, 1998
was another year in which small-cap stocks continued to lag the large-cap
sector, as the S&P 500 returned 29.78% for the year. (For the Fund's total
return with sales charge and performance commentary, please refer to the
following page.)
The first half of the year proved to be fairly routine. Although investors kept
a wary eye on the Asian economic crisis, overseas problems appeared to be a net
positive for the US economy and stock market, keeping inflation and interest
rates in check despite the tight labor market.
Then came the twin debacles: the Russian default and the widely publicized
collapse of a well-known hedge fund. With world financial markets strained,
investors sought safety, shunning US emerging growth stocks along with every
other financial instrument perceived to have above-average risk. According to
our research, by early October, the US emerging growth sector had reached its
lowest level of relative valuation in over a decade; and it certainly looked as
if we were going to have a miserable year.
However, that all changed in mid-October when the Federal Reserve Board cut
interest rates for the second time. In our view, this second cut signaled that
the US central bank was not about to stand by and allow overseas problems to
force the US into a severe recession. Suddenly, investor confidence appeared to
be restored. The move by the Federal Reserve, combined with the winding down of
mutual fund tax-loss selling, which put additional pressure on stock prices and
attractive relative valuations for small-cap stocks, caused a rally that carried
through to the end of the year with barely a pause along the way.
During this period, the Fund's technology stocks contributed strongly to the
Fund's performance. As more and more consumers opted to get online rather than
stand in line, and the movie "You've Got Mail" drew record audiences, it became
apparent that the Internet had not only become mainstream, but was also creating
solid opportunities for many young companies. By year-end, technology
represented approximately 40% of the Fund's portfolio, about as high as we want
to go, considering that valuations in tech stocks are now less compelling and
Y2k issues may disrupt normal technology buying patterns.
With all the volatility that we experienced during 1998, it is easy to overlook
one important fact: throughout the year, the majority of the Fund's portfolio
companies produced strong earnings growth. We believe that over the long term,
earnings are the most important determinant of stock prices, even though shifts
in investor psychology can certainly have a profound impact on short-term
performance. Given our belief in the importance of earnings growth, we seek out
well-positioned companies operating in fertile sectors of the economy. Our focus
is on smaller companies for two reasons. First, it's generally easier to grow
from a small base. Second, these smaller companies are often more flexible and
opportunistic, and are thus, we believe, able to take advantage of change.
Our research indicates that relative valuations of emerging growth stocks are
still solidly at the low end of their historic range despite the powerful
year-end rally. Therefore, we are cautiously optimistic that 1999 will be
another rewarding year for US emerging growth investors.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 157
IVY US EMERGING GROWTH FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the Ivy US Emerging Growth Fund
was up 18.00%. This compares favorably to the Russell 2000 Growth Index, which
was up 1.23% for the same period. The primary reason for the Fund's
outperformance was its 40% weighting in technology, a sector of the US market
that was very strong in 1998. At year-end, technology stocks comprised 25% of
the Russell 2000 Growth Index.
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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (4/93)
OF A $10,000 INVESTMENT
(GRAPH)
ONE-, THREE-, FIVE-YEAR AND
SINCE INCEPTION CUMULATIVE PERFORMANCE
(CHART)
The chart above reflects performance without the maximum
sales charge of 5.75%.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY US EMERGING GROWTH FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a 12.13% 17.13%
C: C: C: C:
1 year n/a 11.21% n/a n/a 16.19% 17.19% n/a n/a
B: B: B: B:
n/a n/a 15.35% 15.58%
C: C: C: C:
5 year n/a 15.06% n/a n/a n/a n/a n/a n/a
B: B: B: B:
14.85% 14.94% 14.81% 14.90%
C: C: C: C:
Since Inception(5) 20.88% 20.86% n/a n/a n/a 5.69% n/a 13.78%
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations March 3, 1993 (performance here is calculated
based on the date the Fund first became available for sale to the public,
April 30, 1993); Class B commenced operations October 22, 1993; Class C
commenced operations April 30, 1996; Advisor Class commenced operations
February 18, 1998.
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.
- --------------------------------------------------------------------------------
<PAGE> 158
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS -- 99.10% SHARES VALUE COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSUMER -- 13.00%
- ------------------------------
EDUCATIONAL SERVICES -- 2.05%
Advantage Learning Systems,
Inc.(b)..................... 15,400 $ 1,012,550
Apollo Group, Inc.(b)......... 25,800 873,975
Sylvan Learning Systems,
Inc.(b)..................... 23,000 701,500
------------
2,588,025
------------
ENTERTAINMENT -- 4.91%
Action Performance Companies,
Inc.(b)..................... 32,200 1,139,075
Dave & Buster's, Inc.(b)...... 40,150 925,959
Family Golf Centers,
Inc.(b)..................... 50,300 993,425
International Speedway
Corporation -- Class A...... 18,400 745,200
Premier Parks, Inc.(b)........ 79,200 2,395,800
------------
6,199,459
------------
MISCELLANEOUS CONSUMER --2.49%
Blyth Industries, Inc.(b)..... 29,400 918,750
Carriage Services, Inc.(b).... 18,700 531,781
Cutter & Buck, Inc.(b)........ 38,100 1,419,225
Rock of Ages Corporation(b)... 19,000 270,750
------------
3,140,506
------------
RESTAURANTS -- .05%
P.F. Chang's China Bistro,
Inc.(b)..................... 2,500 56,875
------------
SPECIALTY RETAIL -- 3.50%
Dollar Tree Stores, Inc.(b)... 28,875 1,261,477
Guitar Center, Inc.(b)........ 47,800 1,177,075
Hibbet Sporting Goods,
Inc.(b)..................... 32,600 790,550
Party City Corp.(b)........... 59,200 854,700
Restoration Hardware,
Inc.(b)..................... 12,600 338,625
------------
4,422,427
------------
HEALTHCARE -- 19.81%
- ------------------------------
BIOTECHNOLOGY -- 3.46%
Agouron Pharmaceuticals,
Inc.(b)..................... 20,200 1,186,750
Alkermes, Inc.(b)............. 14,700 326,156
Geltex Pharmaceuticals,
Inc.(b)..................... 21,600 488,700
PathoGenesis Corp.(b)......... 14,500 841,000
Pharmacyclics, Inc.(b)........ 18,300 466,650
US Bioscience, Inc.(b)........ 56,000 402,500
Vertex Pharmaceuticals
Incorporated(b)............. 22,000 654,500
------------
4,366,256
------------
DENTAL CARE -- 1.52%
Monarch Dental
Corporation(b).............. 35,000 141,094
Orthodontic Centers of
America, Inc.(b)............ 91,800 1,784,363
------------
1,925,457
------------
HEALTHCARE INFORMATION
SYSTEMS -- 2.95%
First Consulting Group,
Inc.(b)..................... 72,800 1,492,400
MedQuist Inc.(b).............. 34,300 1,354,850
QuadraMed Corporation(b)...... 42,900 879,450
------------
3,726,700
------------
HEALTHCARE SERVICES -- 5.07%
Curative Health Services,
Inc.(b)..................... 25,300 847,550
Health Management Associates,
Inc.(b)..................... 44,525 962,853
Serologicals Corporation(b)... 84,300 2,529,000
Total Renal Care Holdings,
Inc.(b)..................... 69,674 2,059,738
------------
6,399,141
------------
MEDICAL DEVICES &
INSTRUMENTS -- .39%
Ventana Medical Systems,
Inc.(b)..................... 23,000 497,375
------------
PHARMACEUTICALS -- 3.92%
Anesta Corp.(b)............... 44,800 1,192,800
ChiRex Inc.(b)................ 44,300 946,913
Cima Labs Inc.(b)............. 18,000 47,250
EPIX Medical, Inc.(b)......... 48,000 447,000
Inhale Therapeutic
Systems(b).................. 13,000 429,000
Medicis Pharmaceutical
Corporation -- Class A(b)... 15,500 924,188
Nastech Pharmaceutical
Co.(b)...................... 26,000 100,750
Sepracor, Inc.(b)............. 9,900 866,869
------------
4,954,770
------------
PHARMACY SERVICES -- 1.10%
NCS Healthcare, Inc. Class
A(b)........................ 28,200 $ 669,750
Omnicare, Inc ................ 20,700 719,325
------------
1,389,075
------------
PHYSICIAN PRACTICE
MANAGEMENT -- 1.40%
Pediatrix Medical Group,
Inc.(b)..................... 23,900 1,432,506
Vision Twenty-One, Inc.(b).... 64,600 339,150
------------
1,771,656
------------
SERVICES 26.76%
- ------------------------------
BROADCAST MEDIA -- 1.09%
Metro Networks, Inc.(b)....... 32,400 1,381,050
------------
BUSINESS SERVICES -- 8.32%
Abacus Direct
Corporation(b).............. 18,500 841,750
HA-LO Industries, Inc.(b)..... 45,900 1,726,987
Inspire Insurance Solutions,
Inc.(b)..................... 42,750 785,531
Metzler Group, Inc.(b)........ 32,180 1,566,763
NOVA Corporation(b)........... 35,607 1,235,117
Profit Recovery Group
International,
Inc.(The)(b)................ 46,700 1,748,331
Romac International,
Inc.(b)..................... 44,100 981,225
SM&A Corporation(b)........... 34,000 646,000
Transaction Network Services,
Inc.(b)..................... 48,800 979,050
------------
10,510,754
------------
CONSUMER FINANCE -- .71%
Litchfield Financial Corp. ... 47,327 899,213
------------
DISTRIBUTION -- 2.33%
CHS Electronics, Inc.(b)...... 55,200 934,950
MSC Industrial Direct Co,
Inc.(b)..................... 57,400 1,298,675
U.S.A. Floral Products,
Inc.(b)..................... 61,500 707,250
------------
2,940,875
------------
FINANCIAL SERVICES -- 2.35%
Federal Agricultural Mortgage
Corp. Class C(b)............ 9,350 347,118
Knight/Trimark Group,
Inc.(b)..................... 67,000 1,603,812
Willis Lease Finance
Corporation(b).............. 64,100 1,009,575
------------
2,960,505
------------
INFORMATION SERVICES -- 5.46%
Dendrite International,
Inc.(b)..................... 29,300 731,584
FactSet Research Systems
Inc.(b)..................... 36,100 2,229,175
Forrester Research, Inc.(b)... 13,600.. 595,000
Lason Holdings, Inc.(b)....... 35,900 2,088,931
Meta Group, Inc.(b)........... 41,900 1,246,525
------------
6,891,215
------------
SOCIAL SERVICES -- 3.54%
Children's Comprehensive
Services, Inc.(b)........... 58,200 822,075
Cornell Corrections,
Inc.(b)..................... 46,200 877,800
Maximus, Inc.(b).............. 24,300 899,100
Wackenhut Corrections
Corporation(b).............. 65,600 1,877,800
------------
4,476,775
------------
TELECOMMUNICATION
SERVICES -- 1.84%
Global Crossing Ltd.(a)(b).... 18,000 812,250
Pacific Gateway Exchange,
Inc.(b)..................... 11,900 571,944
WinStar Communications,
Inc.(b)..................... 24,000 936,000
------------
2,320,194
------------
TELESERVICES -- 1.12%
Sykes Enterprises, Inc.(b).... 46,200 1,409,100
------------
TECHNOLOGY -- 39.53%
- ------------------------------
ELECTRONIC COMMERCE -- 3.94%
Pegasus Systems, Inc.(b)...... 42,000 1,512,000
QRS Corporation(b)............ 27,700 1,329,600
Sterling Commerce, Inc.(b).... 15,400 693,000
Transaction Systems
Architects, Inc.(b)......... 28,900 1,445,000
------------
4,979,600
------------
ELECTRONIC DESIGN
AUTOMATION -- .46%
Synopsys, Inc.(b)............. 10,800 585,900
------------
ELECTRONIC MANUFACTURING
SERVICES -- .71%
Sanmina Corporation(b)........ 14,400 900,000
------------
</TABLE>
<PAGE> 159
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCKS SHARES VALUE COMMON STOCKS SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTERNET -- 3.89%
Broadvision, Inc.(b).......... 27,500 $ 880,000
CNET, Inc.(b)................. 16,900 926,331
DoubleClick Inc.(b)........... 7,300 332,606
Exodus Communications,
Inc.(b)..................... 19,000 1,220,750
Inktomi Corporation(b)........ 5,100 659,813
NetGravity, Inc.(b)........... 17,400 291,450
Pilot Network Services,
Inc.(b)..................... 67,700 605,069
------------
4,916,019
------------
MISCELLANEOUS
TECHNOLOGY -- 1.42%
Gemstar International Group
Ltd.(b)..................... 15,400 881,650
Molecular Devices
Corporation(b).............. 41,700 906,975
------------
1,788,625
------------
NETWORK EQUIPMENT &
SOFTWARE -- 5.59%
American Power Conversion
Corp.(b).................... 31,600 1,530,625
Ascend Communications
Inc.(b)..................... 14,100 927,075
Concord Communications,
Inc.(b)..................... 16,000 908,000
Micromuse Inc.(b)............. 23,900 466,050
Network Appliance, Inc.(b).... 45,600 2,052,000
Visual Networks, Inc.(b)...... 31,500 1,181,250
------------
7,065,000
------------
OPERATIONAL SUPPORT
SYSTEMS -- .85%
DSET Corporation(b)........... 43,700 453,388
International
Telecommunication Data
Systems, Inc.(b)............ 42,000 619,500
------------
1,072,888
------------
SEMICONDUCTORS -- 3.77%
Altera Corporation(b)......... 17,000 1,034,875
Artisan Components, Inc.(b)... 11,100 58,969
Genesis Microchip
Inc.(a)(b).................. 33,600 814,800
Maxim Integrated Products,
Inc.(b)..................... 19,800 865,013
Sipex Corporation(b).......... 16,500 579,563
Vitesse Semiconductor
Corporation(b).............. 30,900 1,409,813
------------
4,763,033
------------
SEMICONDUCTOR
EQUIPMENT -- 1.98%
ASM Lithography Holding
NV(a)(b).................... 17,000 518,500
Cerprobe Corporation(b)....... 29,700 399,094
Etec Systems, Inc.(b)......... 14,400 576,000
PRI Automation, Inc.(b)....... 25,600 665,600
Photronics, Inc.(b)........... 14,400 345,150
------------
2,504,344
------------
SOFTWARE -- 10.98%
Actuate Software
Corporation(b).............. 36,400 718,900
Aspect Development, Inc.(b)... 22,700 1,005,893
BMC Software, Inc.(b)......... 17,300 770,931
Citrix Systems, Inc.(b)....... 11,700 1,135,631
Deltek Systems, Inc.(b)....... 60,100 1,014,188
Great Plains Software,
Inc.(b)..................... 14,800 714,100
HNC Software Inc.(b).......... 26,500 1,071,594
H.T.E., Inc.(b)............... 126,200 631,000
IONA Technologies
PLC-ADR(a)(b)............... 28,300 1,075,400
Network Associates, Inc.(b)... 23,550 1,560,188
New Era of Networks,
Inc.(b)..................... 29,500 1,298,000
Peregrine Systems, Inc.(b).... 13,900 644,613
Veritas Software Corp.(b)..... 15,750 944,016
Visio Corporation(b).......... 35,100 1,283,344
------------
13,867,798
------------
SYSTEM INTEGRATORS -- 3.65%
4Front Technologies,
Inc.(b)..................... 15,700 $ 173,681
Condor Technology Solutions,
Inc.(b)..................... 35,000 350,000
Cotelligent Group, Inc.(b).... 25,800 549,862
Intelligroup, Inc.(b)......... 27,300 487,987
International Network
Services(b)................. 15,700 1,044,050
Technisource, Inc.(b)......... 44,200 436,475
Whittman-Hart, Inc.(b)........ 56,800 1,569,100
------------
4,611,155
------------
TELECOMMUNICATIONS
EQUIPMENT -- 2.29%
Comverse Technology Inc.(b)... 12,300 873,300
Tellabs, Inc.(b).............. 13,000 891,313
Uniphase Corporation(b)....... 16,200 1,123,875
------------
2,888,488
------------
TOTAL INVESTMENTS -- 99.10%
(Cost -- $79,793,728)(c)............... 125,170,253
OTHER ASSETS, LESS
LIABILITIES -- .90%.................. 1,134,827
------------
NET ASSETS -- 100%..................... $126,305,080
============
ADR -- American Depository
Receipt
NV -- Non-voting
(a) Foreign security
(b) Non-income producing
security
(c) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation...... $ 48,152,115
Gross unrealized depreciation...... (2,775,590)
------------
Net unrealized appreciation.... $ 45,376,525
============
Purchases and sales of securities other than
short-term obligations aggregated $75,332,037 and
$93,116,290, respectively, for the period ended
December 31, 1998.
Transactions in written put options during the period
ended December 31, 1998 were:
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS PREMIUMS
--------- -----------
<S> <C> <C>
Written.................................... 63,282 $ 2,435,398
Closing purchases.......................... (63,282) (2,435,398)
------- -----------
Outstanding at December 31, 1998........... -- $ --
======= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 160
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $79,793,728)...... $125,170,253
Cash........................................................ 1,510,914
Receivables
Investments sold.......................................... 156,445
Fund shares sold.......................................... 70,097
Other assets................................................ 12,599
------------
Total assets.............................................. 126,920,308
------------
LIABILITIES
Payables
Investments purchased..................................... 151,838
Fund shares repurchased................................... 259,296
Management fee............................................ 84,485
12b-1 service and distribution fees....................... 61,460
Other payables to related parties......................... 46,532
Accrued expenses............................................ 11,617
------------
Total liabilities......................................... 615,228
------------
NET ASSETS.................................................. $126,305,080
============
CLASS A
Net asset value and redemption price per share
($62,961,261/1,928,135 shares outstanding)................ $ 32.65
============
Maximum offering price per share ($32.65 x 100/94.25)*...... $ 34.64
============
CLASS B
Net asset value, offering price and redemption price** per
share ($52,940,372/1,657,773 shares outstanding).......... $ 31.93
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($9,663,624/302,854 shares outstanding)............. $ 31.91
============
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($739,823/22,561 shares outstanding)................ $ 32.79
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 83,475,017
Accumulated net realized loss on investments.............. (2,546,462)
Net unrealized appreciation on investments................ 45,376,525
------------
NET ASSETS.................................................. $126,305,080
============
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 161
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 7,327
Interest.................................................. 245,641
-----------
252,968
-----------
EXPENSES
Management fee............................................ $985,816
Transfer agent............................................ 314,453
Administrative services fee............................... 115,978
Custodian fees............................................ 17,487
Blue Sky fees............................................. 44,148
Auditing and accounting fees.............................. 23,721
Shareholder reports....................................... 26,793
Fund accounting........................................... 98,957
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 710,138
Legal..................................................... 22,570
Other..................................................... 19,131
-----------
Total expenses.......................................... 2,387,663
-----------
NET INVESTMENT LOSS......................................... (2,134,695)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain (loss) on
Investments............................................. 1,164,559
Written options......................................... (986,707)
Net change in unrealized appreciation on investments...... 21,048,849
-----------
Net gain on investment transactions..................... 21,226,701
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $19,092,006
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 162
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (2,134,695) $ (1,956,614)
Net realized gain (loss) on
Investments............................................. 1,164,559 (2,724,314)
Written options......................................... (986,707) --
Net change in unrealized appreciation on investments...... 21,048,849 10,129,785
------------ ------------
Net increase resulting from operations.................. 19,092,006 5,448,857
------------ ------------
Fund share transactions (Note 4)
Class A................................................... (11,973,287) 5,850,880
Class B................................................... (2,537,070) 10,569,687
Class C................................................... (1,154,772) 5,031,194
Advisor Class............................................. 695,130 --
------------ ------------
Net (decrease) increase resulting from
Fund share transactions............................... (14,969,999) 21,451,761
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 4,122,007 26,900,618
NET ASSETS
Beginning of period....................................... 122,183,073 95,282,455
------------ ------------
END OF PERIOD............................................. $126,305,080.. $122,183,073
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 163
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 27.67 $ 26.54 $ 24.12 $ 18.38 $ 17.93
------- ------- ------- ------- -------
Income from investment operations
Net investment loss..................................... (.44)(e) (.41)(e) (.35) (.24) (.24)(a)
Net realized and unrealized gain on investment
transactions.......................................... 5.42(e) 1.54(e) 4.84 7.90 .82
------- ------- ------- ------- -------
Total from investment operations...................... 4.98 1.13 4.49 7.66 .58
------- ------- ------- ------- -------
Less distributions
From net realized gain.................................. -- -- 2.07 1.92 --
From capital paid-in.................................... -- -- -- -- .13
------- ------- ------- ------- -------
Total distributions................................... -- -- 2.07 1.92 .13
------- ------- ------- ------- -------
Net asset value, end of period............................ $ 32.65 $ 27.67 $ 26.54 $ 24.12 $ 18.38
======= ======= ======= ======= =======
Total return(%)(b)........................................ 18.00 4.26 18.52 42.07 3.29
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................. $62,961 $64,910 $55,944 $39,456 $21,493
Ratio of expenses to average net assets
With expense reimbursement(%)........................... -- -- -- -- 2.20
Without expense reimbursement(%)........................ 1.70 1.67 1.76 1.95 2.22
Ratio of net investment loss to average net assets(%)..... (1.48) (1.37) (1.31) (1.39) (1.72)(a)
Portfolio turnover rate(%)................................ 67 65 68 86 67
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................... $ 27.26 $ 26.33 $ 24.12 $ 18.38 $ 17.93
------- ------- ------- ------- -------
Income from investment operations
Net investment loss..................................... (.65)(e) (.33)(e) (.40) (.35) (29)(a)
Net realized and unrealized gain on investment
transactions.......................................... 5.32(e) 1.26(e) 4.68 7.85 .74
------- ------- ------- ------- -------
Total from investment operations...................... 4.67 .93 4.28 7.50 .45
------- ------- ------- ------- -------
Less distributions
From net realized gain.................................. -- -- 2.07 1.76 --
------- ------- ------- ------- -------
Total distributions................................... -- -- 2.07 1.76 --
------- ------- ------- ------- -------
Net asset value, end of period............................ $ 31.93 $ 27.26 $ 26.33 $ 24.12 $ 18.38
======= ======= ======= ======= =======
Total return(%)(b)........................................ 17.13 3.53 17.65 41.03 2.51
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................. $52,940 $47,789 $35,321 $13,965 $ 5,015
Ratio of expenses to average net assets
With expense reimbursement(%)........................... -- -- -- -- 2.95
Without expense reimbursement(%)........................ 2.45 2.43 2.52 2.70 2.97
Ratio of net investment loss to average net assets(%)..... (2.23) (2.13) (2.07) (2.14) (2.47)(a)
Portfolio turnover rate(%)................................ 67 65 66 86 67
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 164
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
-------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------ ------ ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $27.23 $26.29 $29.69
------ ------ ------
Income (loss) from investment operations
Net investment loss....................................... (.63)(e) (.34)(e) (.14)
Net realized and unrealized gain (loss) on investment
transactions............................................ 5.31(e) 1.28(e) (1.19)
------ ------ ------
Total from investment operations........................ 4.68 .94 (1.33)
------ ------ ------
Less distributions
From net realized gain.................................... -- -- 2.07
------ ------ ------
Total distributions..................................... -- -- 2.07
------ ------ ------
Net asset value, end of period.............................. $31.91 $27.23 $26.29
====== ====== ======
Total return(%)............................................. 17.19(b) 3.58(b) (4.48)(d)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $9,664 $9,484 $4,018
Ratio of expenses to average net assets(%).................. 2.40 2.39 2.52(c)
Ratio of net investment loss to average net assets(%)....... (2.18) (2.09) (2.07)(c)
Portfolio turnover rate(%).................................. 67 65 68
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 18 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
----------------
1998
SELECTED PER SHARE DATA ----------------
<S> <C>
Net asset value, beginning of period........................ $28.82
------
Income from investment operations
Net investment loss(e).................................... (.23)
Net realized and unrealized gain on investment
transactions(e)......................................... 4.20
------
Total from investment operations........................ 3.97
------
Net asset value, end of period.............................. $32.79
======
Total return(%)(d).......................................... 13.78
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 740
Ratio of expenses to average net assets(%)(c)............... 1.22
Ratio of net investment loss to average net assets(%)(c).... (1.00)
Portfolio turnover rate(%).................................. 67
</TABLE>
<TABLE>
<S> <C>
(a) Net investment loss is net of expenses reimbursed by
Manager.
(b) Total return does not reflect a sales charge.
(c) Annualized
(d) Total return represents aggregate total return and does not
reflect a sales charge.
(e) Based on average shares outstanding.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 165
NOTES TO FINANCIAL STATEMENTS
Ivy US 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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. Realized gains and losses from security transactions are calculated on
an identified cost basis.
OPTIONS -- The Fund may invest in option contracts for the purpose of
increasing or decreasing its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
the value of the Fund's securities. An option is a right to buy or sell a
particular security at a specified price within a limited period of time. The
buyer of the option, in return for a premium paid to the seller, has the right
to buy, in the case of a call option, or sell, in the case of a put option, the
underlying security of the contract. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
When the Fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds of the sale in determining whether the Fund has realized a gain or
loss on the transaction. For options on indices, cash settlement by the Fund is
required if the option is exercised. The Fund, as writer of an option, has no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the securities underlying the written option. Exchange traded written
options are valued daily at the last sale price or, in the absence of a sale, at
the calculated mean of the bid and asked prices, subject to certain
reasonability criteria on the spread between the bid and asked prices.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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
$2,546,000 as of December 31, 1998, 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
$1,852,000 in 2005 and $694,000 in 2006.
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 and Net realized gain (loss) on
investments 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, 1998, the net amount of underwriting
discount retained by IMDI was $14,318.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $148,645,
$469,204 and $92,289, 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 $164,310, $129,143, $20,825 and $175, for Class A, Class B, Class C
and Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- -------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold...................... 539,705 $ 15,118,932 2,170,667 $ 56,373,000
Repurchased............... (957,217) (27,092,219) (1,933,287) (50,522,120)
-------- ------------ ---------- ------------
Net (decrease)/increase... (417,512) $(11,973,287) 237,380 $ 5,850,880
======== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- -------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold...................... 362,359 $ 10,063,144 864,508 $ 22,228,831
Repurchased............... (457,766) (12,600,214) (452,583) (11,659,144)
-------- ------------ ---------- ------------
Net (decrease)/increase... (95,407) $ (2,537,070) 411,925 $ 10,569,687
======== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- -------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sold...................... 141,705 $ 4,043,709 267,610 $ 6,926,383
Repurchased............... (187,175) (5,198,481) (72,128) (1,895,189)
-------- ------------ ---------- ------------
Net (decrease)/increase... (45,470) $ (1,154,772) 195,482 $ 5,031,194
======== ============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 18, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
-----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- ------------
<S> <C> <C> <C> <C>
Sold...................... 30,299 $ 897,744
Repurchased............... (7,738) (202,614)
-------- ------------
Net increase.............. 22,561 $ 695,130
======== ============
</TABLE>
<PAGE> 167
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy US Emerging Growth Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IEGF123198
<PAGE> 168
DECEMBER 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
THROUGHOUT THE
CENTURIES,
THE CASTLE KEEP HAS
BEEN A SOURCE
OF LONG-RANGE VISION
AND STRATEGIC
ADVANTAGE.
IVY FUNDS(R)
MARKET COMMENTARY
The year 1998 was a challenging one for corporate bonds. The year began with a
positive tone characterized by large cash flows into the market, higher bond
prices, and record levels of new bond issuance coming to market. This was caused
by an expectation that the US economy would continue to grow, the Asian
financial crisis would remain contained as a regional event, and investors would
be willing to take on risk.
What changed to cause corporate bond prices to decline significantly in late
summer? The Asian financial crisis began to spread and turn into a global
phenomenon. The bond market reflected concerns that Latin American countries
would develop problems similar to those in Asia. In addition, Russia announced
that it needed to restructure some of its debt and would devalue its currency.
This sent the fixed income market into a panic. In the United States, the Asian
crisis began to have a negative effect on the manufacturing sector. In a flight
to quality, many investors sold all types of corporate bonds and purchased
government bonds. Bond spreads widened dramatically across all qualities of
corporate bonds, even AAA-rated corporate bonds. As bond spreads widen, bond
prices generally decline. By late summer, prices had been pushed as low as they
were the last time the US was in a recession. Yet, our research shows the
economic climate in the US was quite stable and as fall approached, several
events further stabilized the market. The Federal Reserve Board lowered interest
rates three times, and central banks in Europe lowered interest rates as well.
Russia began to have a smaller impact on other emerging countries, and the
International Monetary Fund developed a package designed to help Brazil avoid
the problems experienced in Asia. This led to the beginning of a recovery in
corporate bond prices in November. Within this environment, for the twelve
months ended December 31, 1998, the net asset value of the Ivy Bond Fund was
unchanged from where it began the year. This compares to Morningstar's Corporate
Bond-General universe of bond funds, which was up 6.87% for the same period.
(For the Fund's total return with sales charge and performance commentary,
please refer to the following page.)
In our view, the US remains in a moderate-growth, low-inflation environment,
and the US economy continues to tell two stories. First, the manufacturing
sector remains weak due to record-low commodity prices and export competition
from Asian and Latin American countries. Second, the consumer sector remains
strong. Low unemployment, rising incomes, and a strong stock market have kept
the consumer buying-the consumer represents about two-thirds of our nation's
GDP. We expect this environment to continue, although growth could slow somewhat
in 1999.
Despite the possibility of slower growth, we believe the environment is a
positive backdrop for investing in corporate bonds. We feel that corporate bond
prices are now at attractive levels. Our research shows that the higher yield
which investors receive for holding corporate bonds adequately compensates them
for the higher level of risk. In our view, this should provide long-term
investors with higher expected returns relative to holding government bonds.
We believe that because the Ivy Bond Fund is diversified across a broad
spectrum of fixed income securities, it provides investors with a
one-stop-shopping bond portfolio. By investing up to 35% of the Fund's assets in
below investment grade bonds, and given our outlook for the future, we believe
the Fund is well positioned. Investing at least 65% of its assets in investment
grade bonds, however, should temper the additional volatility and risk of
investing in below investment grade bonds.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 169
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (9/85)
OF A $10,000 INVESTMENT
(GRAPH)
IVY BOND FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, the net asset value of the Ivy
Bond Fund was unchanged from where it began the year. Its benchmark, the
Morningstar Corporate Bond--General bond fund universe was up 6.87% for the same
period. The primary reason for the Fund's underperformance is the difference in
the composition of the Fund as compared to the benchmark. In addition to meeting
its prospectus requirement of investing at least 65% of the portfolio in bonds
rated Baa/BBB or higher by Moody's or S&P respectively, the Ivy Bond Fund
portfolio provided greater diversification by investing approximately 25% of its
assets in below investment grade bonds and 14% of its assets outside the US. In
contrast, the Morningstar Corporate Bond--General bond fund universe is composed
of corporate bond funds whose underlying assets are all rated BBB or higher, and
which outperformed lower rated corporate bonds.
The Morningstar Corporate Bond--General bond fund benchmark is a compilation of
funds that consists 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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
Advisor Class(4) CLASS I(5)
w/ w/o w/ w/o w/ w/o
IVY BOND FUND Reimb. Reimb. w/ w/o Reimb. Reimb. Reimb. REIMB.
AVERAGE ANNUAL TOTAL Reimb. Reimb.
RETURN FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
n/a n/a (5.77%) (.81%)
C: C: C: C:
1 year n/a (4.75%) n/a n/a (1.81%) (.81%) n/a n/a n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
5 year 5.33% 5.33% n/a n/a n/a n/a n/a n/a n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
10 year 8.32% 8.18% n/a n/a n/a n/a n/a n/a n/a n/a
B: B: B: B:
6.15% 6.48% 6.15% 6.48%
C: C: C: C:
Since Inception(6) 8.28% 2.05% n/a n/a n/a 7.04% n/a (.30%) n/a n/a
</TABLE>
(1)Class A performance figures include the maximum sales charge of 4.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class I shares are not subject to an initial sales charge or a CDSC. There
were no Class I shares outstanding.
(6)Class A commenced operations September 6, 1985; Class B commenced operations
April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class
commenced operations January 20, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 170
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. CORPORATE BONDS -- 76.44% PRINCIPAL VALUE
- --------------------------------------
<S> <C> <C>
Amresco Inc., 9.875%, 03/15/05(b)..... $1,000,000 $ 712,500
BRE Properties, 7.125%, 02/15/13...... 2,000,000 2,000,000
Burlington Industries, 7.25%,
09/15/05............................ 1,000,000 1,056,250
Burlington Industries, 7.25%,
08/01/27............................ 1,000,000 1,076,250
CHS Electronics, 9.875%, 04/15/05(b).. 2,000,000 1,975,000
Circus Circus Enterprises, 7.625%,
07/15/13(b)......................... 1,000,000 868,750
Comcast Corporation, 9.375%,
05/15/05(b)......................... 2,500,000 2,653,125
Crescent Real Estate, 7.125%,
09/15/07............................ 2,000,000 1,900,400
Cyprus Amax Minerals, 8.375%,
02/01/23............................ 1,575,000 1,673,438
Darden Restaurants Inc, 7.125%,
02/01/16............................ 1,250,000 1,256,250
Delphi Financial Group Inc., 8.00%,
10/01/03............................ 2,500,000 2,668,750
Delta Air Lines, 9.30%, 01/02/11...... 1,000,000 1,156,250
Delta Air Lines, 9.59%, 01/12/17...... 1,500,000 1,731,465
Developers Diversified Realty Corp.,
6.96%, 12/17/07..................... 2,000,000 2,102,500
Developers Diversified Realty Corp.,
6.625%, 01/15/08.................... 1,000,000 1,021,250
Farmers Insurance Exchange, 8.625%,
05/01/24............................ 2,000,000 2,382,500
Franchise Finance Corp America, 6.86%,
06/15/07............................ 4,000,000 3,990,000
Freeport-McMoRan Copper & Gold, 7.50%,
11/15/06(b)......................... 2,000,000 1,320,000
Goldman Sachs Group LP, 7.20%,
03/01/07............................ 1,000,000 1,053,750
Goldman Sachs Group LP 144A, 7.20%,
10/24/12............................ 1,000,000 1,075,000
Goss Graphic Systems Inc., 12.00%,
10/15/06(b)......................... 2,500,000 1,375,000
Green Tree Financial, 6.50%,
09/26/02............................ 3,000,000 2,835,000
Indianapolis Life Ins. Co. 144A,
8.66%, 04/01/11..................... 2,000,000 1,903,125
Indiantown Cogeneration, 9.77%,
12/15/20............................ 1,500,000 2,352,500
International Knife & Saw, 11.375%,
11/15/06(b)......................... 1,300,000 1,334,125
JDN Realty Corp., 6.918%, 03/31/13.... 2,000,000 2,022,500
Jackson National Life Ins. Co. 144A,
8.15%, 03/15/27..................... 1,000,000 1,133,750
Jefferies Group Inc., 7.50%,
08/15/07............................ 2,500,000 2,721,875
Leucadia National Corp., 7.75%,
08/15/13............................ 2,415,000 2,451,225
Level 3 Communications 144A, 11.08%,
12/01/08(b)......................... 400,000 233,500
Lumbermens Mutual Casualty 144A,
9.15%, 07/01/26..................... 2,000,000 2,292,500
McCaw International Ltd., 15.67%,
04/15/07(b)......................... 2,000,000 1,130,000
McDermott Inc., 8.75%, 05/19/23(b).... 2,000,000 2,195,000
Medpartners Inc., 7.375%,
10/01/06(b)......................... 2,500,000 2,018,750
News America Holdings, 7.75%,
01/20/24............................ 2,000,000 2,155,000
News America Holdings, 7.70%,
10/30/25............................ 1,000,000 1,080,000
Northrop Grumman Corp., 9.375%,
10/15/24............................ 2,000,000 2,352,500
Overseas Shipholding Group, Inc.,
8.75%, 12/01/13..................... 3,000,000 3,517,500
Pegasus Media & Communications 144A,
12.50%, 07/01/05(b)................. 1,000,000 1,097,500
Pioneer-Standard, 8.50%, 08/01/06..... 3,000,000 3,311,250
Praxair Inc., 8.70%, 07/15/22......... 2,500,000 2,762,500
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------
U.S. CORPORATE BONDS PRINCIPAL VALUE
<S> <C> <C>
Protection One Alarm 144A, 7.375%,
08/15/05............................ $1,000,000 $ 1,032,500
Pulte Corp., 7.625%, 10/15/17......... 1,500,000 1,595,625
Royal Carribean Cruises, 7.50%,
10/15/27............................ 3,300,000 3,184,500
Servicemaster Company, 7.25%,
03/01/38............................ 3,000,000 3,123,750
Silverleaf Resorts Inc., 10.50%,
04/01/08(b)......................... 2,000,000 1,720,000
Sithe/Independence Funding, 9.00%,
12/30/13............................ 2,000,000 2,365,000
Spieker Properties, 7.35%, 12/01/17... 3,000,000 2,823,750
Storage USA Partnership L.P., 7.00%,
12/01/07............................ 1,200,000 1,170,000
Storage USA Partnership L.P., 8.20%,
06/01/17............................ 2,240,000 2,228,800
Storage USA Partnership L.P., 7.45%,
07/01/18............................ 1,000,000 922,500
TCI Communications, Inc., 8.75%,
08/01/15............................ 1,000,000 1,236,250
TCI Communications, Inc., 7.125%,
02/15/28............................ 1,000,000 1,085,000
TE Products Pipeline Co., 7.51%,
01/15/28............................ 2,000,000 2,075,000
Tele Communications Inc., 9.25%,
01/15/23............................ 2,000,000 2,272,500
Terex Corp., 8.875%, 04/01/08(b)...... 2,000,000 1,990,000
Time Warner Inc., 9.125%, 01/15/13.... 1,500,000 1,897,500
Time Warner Inc., 9.15%, 02/01/23..... 2,000,000 2,612,500
Torchmark Corporation, 7.875%,
05/15/23............................ 2,000,000 2,152,500
Trump Atlantic City Associates,
11.25%, 05/01/06(b)................. 2,500,000 2,193,750
Turner Broadcasting System, 8.40%,
02/01/24............................ 1,000,000 1,095,000
United Air Lines, 9.75%, 08/15/21..... 2,500,000 3,125,000
US Surgical Corp., 7.25%, 03/15/08.... 3,000,000 3,281,250
Watson Pharmaceuticals, 7.125%,
05/15/08............................ 3,500,000 3,666,250
------------
TOTAL U.S. CORPORATE BONDS
(Cost -- $121,595,881).............. 124,797,453
------------
U.S. DOLLAR DENOMINATED FOREIGN
CORPORATE BONDS -- 13.85%
- --------------------------------------
APP Fin II Mauritius LTD, 12.00%,
12/29/49(b)......................... 1,250,000 743,750
Abitibi Consolidated Inc., 7.50%,
04/01/28............................ 2,000,000 1,810,400
Acindar Industries, 11.25%,
02/15/04(b)......................... 1,500,000 1,215,000
Buenos Aires Embotelladora, 8.50%,
12/29/00(a)(b)(d)................... 500,000 250,000
Cemex S.A. 144A, 12.75%,
07/15/06(b)......................... 500,000 555,000
Cemex S.A., 12.75%, 07/15/06(b)....... 750,000 832,500
Cia Latino Americana 144A, 11.625%,
06/01/04(b)......................... 1,000,000 725,000
Equimar Shipholdings Ltd., 9.875%,
07/01/07(b)......................... 2,000,000 1,575,000
Espirito Santo-Escelsa, 10.00%,
07/15/07(b)......................... 1,400,000 910,000
GS Superhighway Holdings, 10.25%,
08/15/07(b)......................... 1,000,000 515,000
Greater Beijing 144A, 9.50%,
06/15/07(b)......................... 1,000,000 545,000
Grupo Industrial Durango, 12.625%,
08/01/03(b)......................... 1,500,000 1,323,750
</TABLE>
<PAGE> 171
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
U.S. DOLLAR DENOMINATED FOREIGN
CORPORATE BONDS -- 13.85% PRINCIPAL VALUE
- --------------------------------------
<S> <C> <C>
Grupo Televisa S.A., 13.51%,
05/15/08(b)......................... $1,000,000 $ 737,500
Iochpe-Maxion S.A. 144A, 12.375%,
11/08/02(b)......................... 900,000 585,000
Ionica PLC Units, 15.00%,
05/01/07(b)......................... 2,500,000 43,750
MRS Logistica S.A. 144A, 10.625%,
08/15/05(b)......................... 500,000 257,500
MRS Logistica S.A., 10.625%,
08/15/05(b)......................... 1,000,000 515,000
Mastellone Hermanos, 11.75%,
04/01/08(b)......................... 1,750,000 1,417,500
Mechala Group Jamaica, 12.75%,
12/30/99(b)......................... 1,000,000 680,000
Metalurgica Gerdau S.A. 144A, 11.125%,
05/24/04(b)......................... 500,000 488,750
Navigator Gas Transport 144A, 10.50%,
06/30/07(b)......................... 2,050,000 1,804,000
Ongko International Finance 144A,
10.50%, 03/29/04(a)(b)(c)........... 1,000,000 75,000
Petroleo Ipiranga, 10.635%,
02/25/02(b)......................... 1,000,000 835,000
Polysindo International Finance,
11.375%, 06/15/06(a)(b)(c).......... 1,000,000 230,000
Sideco Americana S.A. 144A, 9.125%,
08/01/02(b)......................... 1,500,000 1,222,500
Telkomunikacja Polska SA Finance BV,
7.75%, 12/10/08..................... 2,000,000 1,975,000
Trikem S.A. 144A, 10.625%,
07/24/07(b)......................... 1,500,000 750,000
------------
TOTAL U.S. DOLLAR DENOMINATED FOREIGN
CORPORATE BONDS
(Cost -- $31,411,860)............... 22,616,900
------------
U.S. GOVERNMENT OBLIGATIONS -- 6.57%
- --------------------------------------
U.S. Treasury Bond, 4.625%,
04/30/03............................ 2,500,000 2,600,775
U.S. Treasury Bond, 5.625%,
05/15/01............................ 5,500,000 5,631,890
U.S. Treasury Bond, 5.75%,
04/30/03............................ 2,500,000 2,501,475
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $10,605,406)............... 10,734,140
------------
</TABLE>
<TABLE>
<CAPTION>
RIGHTS & WARRANTS -- .23% SHARES VALUE
CORPORATE BONDS -- 13.85% PRINCIPAL VALUE
<S> <C> <C>
Gothic Energy Restricted
Warrants(a)......................... 4,766 --
Gothic Energy Warrants(a)............. 6,941 --
Gothic Energy 144A Warrants(a)........ 14,000 14,000
McCaw International Ltd. 144A
Warrants(a)......................... 2,000 1,000
RSL Communications Ltd. 144A
Warrants(a)......................... 1,000 111,300
Terex Corp. -- Appreciation
Rights (a).......................... 4,000 80,000
------------
TOTAL RIGHTS & WARRANTS
(Cost -- $0)........................ 206,300
------------
TOTAL INVESTMENTS -- 96.99%
(Cost -- $163,613,147)(e)........... 158,354,793
OTHER ASSETS, LESS
LIABILITIES -- 3.01%................ 4,918,139
------------
NET ASSETS -- 100%.................... $163,272,932
============
</TABLE>
<TABLE>
<S> <C> <C>
(a) Non-income producing security
(b) Below investment grade security
(c) Issuer is in default on interest payments.
(d) Issuer is in default on interest payments. This security is
considered illiquid and is being fair valued using methods
determined in good faith by the Valuation Committee of the
Board of Trustees.
(e) Cost is approximately the same for Federal income tax
purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized depreciation based on cost
for Financial Statement and Federal income tax purposes is as
follows:
Gross unrealized appreciation.................. $ 8,102,608
Gross unrealized depreciation.................. (13,360,962)
------------
Net unrealized depreciation.............. $ (5,258,354)
============
Purchases and sales of securities other than U.S. Government
securities and short-term obligations aggregated $84,569,847 and
$49,802,597, respectively, for the period ended December 31, 1998.
Purchases and sales of U.S. Government and Government Agency
obligations aggregated $23,924,883 and $16,724,804, respectively,
for the period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 172
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $163,613,147)..... $158,354,793
Cash........................................................ 2,262,161
Receivables
Fund shares sold.......................................... 106,735
Interest.................................................. 3,649,565
Other assets................................................ 17,765
------------
Total assets............................................ 164,391,019
------------
LIABILITIES
Payables
Fund shares repurchased................................... 879,439
Management fee............................................ 90,978
12b-1 service and distribution fees....................... 69,248
Other payables to related parties......................... 54,266
Accrued expenses............................................ 24,156
------------
Total liabilities....................................... 1,118,087
------------
NET ASSETS.................................................. $163,272,932
============
CLASS A
Net asset value and redemption price per share
($109,495,232/11,475,844 shares outstanding).............. $ 9.54
============
Maximum offering price per share
($9.54 x 100/95.25)*...................................... $ 10.02
============
CLASS B
Net asset value, offering price and redemption price** per
share
($42,165,617/4,424,031 shares outstanding)................ $ 9.53
============
CLASS C
Net asset value, offering price and redemption price*** per
share
($11,265,577/1,179,130 shares outstanding)................ $ 9.55
============
ADVISOR CLASS
Net asset value, offering price and redemption price per
share
($346,506/36,324 shares outstanding)...................... $ 9.54
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $172,512,448
Accumulated net realized loss on investments.............. (3,910,404)
Accumulated net investment loss........................... (70,758)
Net unrealized depreciation on investments................ (5,258,354)
------------
NET ASSETS.................................................. $163,272,932
============
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 173
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $ 13,100,809
------------
EXPENSES
Management fee............................................ $ 1,042,273
Transfer agent............................................ 260,700
Administrative services fee............................... 158,455
Custody fees.............................................. 50,518
Blue Sky fees............................................. 37,663
Auditing and accounting fees.............................. 50,750
Shareholder reports....................................... 17,505
Fund accounting........................................... 102,796
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 722,949
Legal..................................................... 23,777
Other..................................................... 45,601
------------
Total expenses.......................................... 2,521,458
------------
NET INVESTMENT INCOME....................................... 10,579,351
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments.......................... (701,990)
Net change in unrealized depreciation on investments...... (10,804,689)
------------
Net loss on investments............................... (11,506,679)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (927,328)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 174
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS
Operations
Net investment income..................................... $ 10,579,351 $ 7,717,084
Net realized (loss) gain on
Investments............................................. (701,990) 972,876
Written options......................................... -- 16,281
Net change in unrealized (depreciation) appreciation on
Investments............................................. (10,804,689) 3,318,851
Written options......................................... -- 23,031
------------ ------------
Net (decrease) increase resulting from operations... (927,328) 12,048,123
------------ ------------
Class A distributions
From net investment income................................ (7,864,249) (6,965,108)
In excess of net investment income........................ -- (2,835)
------------ ------------
Total distributions to Class A shareholders......... (7,864,249) (6,967,943)
------------ ------------
Class B distributions
From net investment income................................ (2,093,426) (599,739)
In excess of net investment income........................ (65,500) (243)
------------ ------------
Total distributions to Class B shareholders......... (2,158,926) (599,982)
------------ ------------
Class C distributions
From net investment income................................ (598,287) (152,237)
In excess of net investment income........................ (12,551) (61)
------------ ------------
Total distributions to Class C shareholders......... (610,838) (152,298)
------------ ------------
Advisor Class distributions
From net investment income................................ (23,389) --
In excess of net investment income........................ (513) --
------------ ------------
Total distributions to Advisor Class shareholders... (23,902) --
------------ ------------
Fund share transactions (Note 4)
Class A................................................... 11,160,978 4,600,092
Class B................................................... 26,333,094 12,937,647
Class C................................................... 5,413,523 5,911,303
Advisor Class............................................. 374,347 --
------------ ------------
Net increase resulting from Fund share
transactions........................................ 43,281,942 23,449,042
------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 31,696,699 27,776,942
NET ASSETS
Beginning of period....................................... 131,576,233 103,799,291
------------ ------------
END OF PERIOD............................................. $163,272,932 $131,576,233
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ -- $ 7,806
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 175
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
-------------------------------------------- ------------ ----------
CLASS A 1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA -------- -------- -------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 10.34
-------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income.............................. .69 .80 .72 .67(a) .33(a) .63
Net realized and unrealized gain (loss) on
investments...................................... (.69) .42 .03 .84 (.29) (.60)
-------- -------- -------- -------- -------- --------
Total from investment operations................. -- 1.22 .75 1.51 .04 .03
-------- -------- -------- -------- -------- --------
Less distributions
From net investment income......................... .68 .80 .72 .63 .32 .61
In excess of net investment income................. -- -- .01 -- -- --
From net realized gain............................. -- -- -- -- -- .38
In excess of net realized gain..................... -- -- -- -- .09 --
From capital paid-in............................... -- -- -- .11 -- --
-------- -------- -------- -------- -------- --------
Total distributions.............................. .68 .80 .73 .74 .41 .99
-------- -------- -------- -------- -------- --------
Net asset value, end of period....................... $ 9.54 $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38
======== ======== ======== ======== ======== ========
Total return(%)...................................... .00(b) 11.87(b) 8.06(b) 17.41(b) .43(c) .00(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)............. $109,495 $106,497 $ 97,881 $108,840 $110,232 $120,073
Ratio of expenses to average net assets
With expense reimbursement(%)...................... -- -- -- 1.54 1.50(d) --
Without expense reimbursement(%)................... 1.39 1.47 1.56 1.54 1.52(d) 1.45
Ratio of net investment income to average net
assets(%).......................................... 6.88 7.08 7.36 7.09(a) 6.92(a)(d) 6.19
Portfolio turnover rate(%)........................... 43 71 90 93 44 78
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
MONTHS ENDED (COMMENCEMENT)
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, TO JUNE 30,
------------------------------------------- ------------ --------------
CLASS B 1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA -------- -------- -------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38 $ 9.82
-------- -------- -------- ------- -------- --------
Income (loss) from investment operations
Net investment income........................... .59 .68 .64 .60(a) .30(a) .10
Net realized and unrealized gain (loss) on
investments................................... (.67) .46 .04 .84 (.29) (.32)
-------- -------- -------- ------- -------- --------
Total from investment operations............ (.08) 1.14 .68 1.44 .01 (.22)
-------- -------- -------- ------- -------- --------
Less distributions
From net investment income...................... .59 .72 .64 .56 .29 .14
In excess of net investment income.............. .02 -- .02 -- -- --
From net realized gain.......................... -- -- -- -- -- .08
In excess of net realized gain.................. -- -- -- -- .09 --
From capital paid-in............................ -- -- -- .11 -- --
-------- -------- -------- ------- -------- --------
Total distributions......................... .61 .72 .66 .67 .38 .22
-------- -------- -------- ------- -------- --------
Net asset value, end of period.................... $ 9.53 $ 10.22 $ 9.80 $ 9.78 $ 9.01 $ 9.38
======== ======== ======== ======= ======== ========
Total return(%)................................... (.81)(b) 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).......... $ 42,166 $ 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(%)................ 2.13 2.21 2.29 2.29 2.27(d) 2.20(d)
Ratio of net investment income to average net
assets(%)....................................... 6.14 6.35 6.62 6.34(a) 6.17(a)(d) 5.44(d)
Portfolio turnover rate (%)....................... 43 71 90 93 44 78
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 176
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
-------------------------- ---------------
CLASS C 1998 1997 1996
SELECTED PER SHARE DATA ----------- ----------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.24 $ 9.82 $ 9.44
------- ------ ------
Income (loss) from investment operations
Net investment income..................................... .60 .64 .39
Net realized and unrealized (loss) gain on investments.... (.68) .48 .43
------- ------ ------
Total from investment operations...................... (.08) 1.12 .82
------- ------ ------
Less distributions
From net investment income................................ .60 .70 .39
In excess of net investment income........................ .01 -- .05
------- ------ ------
Total distributions................................... .61 .70 .44
------- ------ ------
Net asset value, end of period.............................. $ 9.55 $10.24 $ 9.82
======= ====== ======
Total return (%)............................................ (.81)(b) 11.11(b) 8.81(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $11,266 $6,580 $ 618
Ratio of expenses to average net assets(%).................. 2.12 2.20 2.35(d)
Ratio of net investment income to average net assets(%)..... 6.15 6.35 6.56(d)
Portfolio turnover rate(%).................................. 43 71 90
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
(COMMENCEMENT)
TO DECEMBER 31,
----------------
ADVISOR CLASS 1998
SELECTED PER SHARE DATA ----------------
<S> <C>
Net asset value, beginning of period........................ $10.28
------
Loss from investment operations
Net investment income..................................... .69
Net realized and unrealized loss on investments........... (.72)
------
Total from investment operations...................... (.03)
------
Less distributions
From net investment income................................ .69
In excess of net investment income........................ .02
------
Total distributions................................... .71
------
Net asset value, end of period.............................. $ 9.54
======
Total return(%)(c).......................................... (.30)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 347
Ratio of expenses to average net assets(%)(d)............... 1.11
Ratio of net investment income to average net
assets(%)(d).............................................. 7.16
Portfolio turnover rate (%)................................. 43
</TABLE>
(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.
The accompanying notes are an integral part of the financial statements.
<PAGE> 177
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, Advisor Class and Class I Class
are authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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, 1998, securities valued
by the Valuation Committee amounted to $250,000 (.15% of net assets) and have
been noted as such in the Portfolio of Investments.
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 invest in option contracts for the purpose of
increasing or decreasing its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices, or other factors that affect
the value of the Fund's securities. An option is a right to buy or sell a
particular security at a specified price within a limited period of time. The
buyer of the option, in return for a premium paid to the seller, has the right
to buy, in the case of a call option, or sell, in the case of a put option, the
underlying security of the contract. An option on a stock index gives the
purchaser the right to receive from the seller cash equal to the difference
between the closing price of the index and the exercise price of the option.
When the Fund writes or purchases an option, an amount equal to the premium
received or paid by the Fund is recorded as a liability or an asset and is
subsequently adjusted to the current market value of the option written or
purchased. Premiums received or paid from writing or purchasing options which
expire unexercised are treated by the Fund on the expiration date as realized
gains or losses. The difference between the premium and the amount paid or
received on effecting a closing purchase or sale transaction, including
brokerage commissions, is also treated as a realized gain or loss. If an option
is exercised, the premium paid or received is added to the cost of the purchase
or proceeds of the sale in determining whether the Fund has realized a gain or
loss on the transaction. For options on indices, cash settlement by the Fund is
required if the option is exercised. The Fund, as writer of an option, has no
control over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in the
price of the securities underlying the written option. Exchange traded written
options are valued daily at the last sale price or, in the absence of a sale, at
the calculated mean of the bid and asked prices, subject to certain
reasonability criteria on the spread between the bid and asked prices.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998, the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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
$3,564,000 as of December 31, 1998 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 $984,000 in
1999, $2,215,000 in 2003 and $365,000 in 2006.
DISTRIBUTIONS TO SHAREHOLDERS -- Distributions from net investment income
are declared monthly. Distributions from 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
<PAGE> 178
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
investment income and Net realized 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
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 period ended December 31, 1998, the net amount of underwriting
discount retained by IMDI was $23,977.
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 and Advisor Class. Class B and Class C shares are also
subject to an ongoing distribution fee at an annual rate of .75% of the average
net assets attributable to Class B and Class C. IMDI may use such distribution
fee for purposes of advertising and marketing shares of the Fund. Such fees of
$286,115, $339,823, and $97,011, 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 $189,508, $56,262, $14,485 and $445, for Class A, Class B, Class C
and Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold................. 4,228,736 $42,547,340 2,873,269 $29,019,071
Issued on
reinvestment of
distributions...... 492,080 4,877,468 443,606 4,445,919
Repurchased.......... (3,661,831) (36,263,830) (2,888,523) (28,864,898)
---------- ----------- ---------- -----------
Net increase......... 1,058,985 $11,160,978 428,352 $ 4,600,092
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold................. 3,607,412 $36,104,675 1,494,334 $15,193,566
Issued on
reinvestment of
distributions...... 98,591 972,810 37,455 376,600
Repurchased.......... (1,092,874) (10,744,391) (261,864) (2,632,519)
---------- ----------- ---------- -----------
Net increase......... 2,613,129 $26,333,094 1,269,925 $12,937,647
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sold................. 796,777 $ 8,013,954 702,503 $ 7,121,264
Issued on
reinvestment of
distributions...... 13,159 132,586 5,368 54,367
Repurchased.......... (273,586) (2,733,017) (128,052) (1,264,328)
---------- ----------- ---------- -----------
Net increase......... 536,350 $ 5,413,523 579,819 $ 5,911,303
========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
------------------------
ADVISOR CLASS SHARES AMOUNT
------------- ---------- -----------
<S> <C> <C> <C> <C>
Sold................. 59,160 $ 601,995
Issued on
reinvestment of
distributions...... 1,241 12,160
Repurchased.......... (24,077) (239,808)
---------- -----------
Net increase......... 36,324 $ 374,347
========== ===========
</TABLE>
<PAGE> 179
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Bond Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IBFX123198
<PAGE> 180
December 31, 1998
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
While looking for investment opportunities around the world, the management team
of the Ivy Global Fund uses a disciplined value approach. In our view, overseas
markets currently offer better value relative to the US market and, accordingly,
only about 7% of the Ivy Global Fund is invested in the US. This contrasts with
many other global funds. We believe that lofty valuations of many US companies
may lead to investor disappointments.
In contrast to the US, we believe European markets offer compelling value,
trading at approximately 20 times estimated 1999 earnings. As we expect many
European companies to experience above-average growth rates over the next few
years, our research suggests that on a price/earnings to growth measure, the
valuation gap between Europe and the US is even higher. Consolidation and
restructuring are likely to be as important in Europe as they have been in the
US over the last five years. A US-style focus on improving economies of scale,
disposing of noncore assets, and eliminating excess fat from cost structures is
coming into vogue. At more than $630 billion, merger and acquisition activity
reached an all-time high in 1998. We expect this trend to continue as Economic
and Monetary Union (EMU) forces companies to focus on improved competitiveness.
This process should result in increased profitability for European corporations
over the next three to five years. Fifty-four percent of the Ivy Global Fund was
invested in Europe at year-end 1998.
We believe that emerging markets currently offer exceptional value. Excessive
pessimism toward emerging markets and exuberance in developed markets have
contributed to a widening discrepancy in valuations. The Ivy Global Fund has
maintained approximately a 25% exposure to emerging markets, which we believe
should provide added diversification and the potential for higher investment
returns as turmoil in global markets subsides.
Our research suggests that most of the Asian economies have bottomed out, and we
expect a return to positive growth in the region in 1999. Currency stabilization
and revaluation, sparked by appreciation of the Japanese yen last summer, set
the stage for considerable interest rate declines across the region. Equity
markets in non-Japan Asia staged a strong recovery in the second half of
1998--apparently in anticipation of an economic turnaround in 1999. Despite this
strong performance, we believe that these markets continue to offer substantial
upside from these levels.
International equities go through multiyear cycles of outperformance and
underperformance relative to the US market. Foreign markets substantially
outperformed the US market from 1992 to 1994 and for most of the 1980s. Over the
last couple of years, however, the US market has outperformed the foreign
markets, which has hurt relative performance of the Ivy Global Fund. Within this
environment, the Ivy Global Fund was up 8.59% for the twelve months ended
December 31, 1998. At this juncture, we believe that both valuations and growth
prospects indicate that international markets could be due for another period of
outperformance. While there are no guarantees, we strongly believe that the Ivy
Global Fund, with its high level of exposure to Europe and the Pacific Rim, is
well positioned to benefit from the anticipated swing away from US market
outperformance to outperformance from overseas markets. (For the Fund's total
return with sales charge and performance commentary, please refer to the
following page.)
IVY MANAGEMENT, INC.
Board of Trustees
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris, Secretary/Treasurer
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 181
<PAGE> 182
PERFORMANCE COMPARISONS OF THE
FUND SINCE INCEPTION (4/91)
OF A $10,000 INVESTMENT
(CHART)
IVY GLOBAL FUND
PERFORMANCE COMMENTARY
For the twelve months ended December 31, 1998, Ivy Global Fund returned 8.59%.
The Morgan Stanley Capital International (MSCI) World Index returned 24.34% for
the same period. The Fund's underperformance is largely attributed to its
underweight allocation to the US market (7% of total assets), which reflected
our outlook for the US. Thirty-eight percent of the MSCI World Index was
allocated to the US.
The Morgan Stanley Capital International (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 all other share classes will vary relative to that of Class A
shares based on differences in their respective sales loads and fees.
<TABLE>
<CAPTION>
Class A(1) Class B(2) & C(3)
ADVISOR CLASS(4)
w/ w/o w/ w/o
IVY GLOBAL FUND Reimb. Reimb. w/ w/o Reimb. REIMB.
AVERAGE ANNUAL TOTAL RETURN Reimb. Reimb.
FOR PERIODS ENDING w/ w/o w/ w/o
DECEMBER 31, 1998 CDSC CDSC CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B: B: B: B:
2.69% 7.69% 2.31% 7.29%
C: C: C: C:
1 year 2.35% 1.90% 6.30% 7.30% 5.74% 6.74% n/a n/a
B: B: B: B:
n/a n/a n/a n/a
C: C: C: C:
5 year 3.03% 2.87% n/a n/a n/a n/a n/a n/a
B: B: B: B:
4.11% 4.46% 3.96% 4.32%
C: C: C: C:
Since Inception(5) 6.78% 6.10% n/a (.06%) n/a (.25%) (10.19%) (10.41%)
</TABLE>
(1)Class A performance figures include the maximum sales charge of 5.75%.
(2)Class B performance figures are calculated with and without the applicable
Contingent Deferred Sales Charge (CDSC), up to a maximum of 5.00%.
(3)Class C performance figures are calculated with and without the applicable
CDSC, up to a maximum of 1.00%.
(4)Advisor Class shares are not subject to an initial sales charge or a CDSC.
(5)Class A commenced operations April 18, 1991; Class B commenced operations
April 1, 1994; Class C commenced operations April 30, 1996; Advisor Class
commenced operations April 30, 1998.
Total returns in some periods were higher due to reimbursement of certain Fund
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.
- --------------------------------------------------------------------------------
<PAGE> 183
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.95% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AFRICA -- 3.32%
- ----------------------------
SOUTH AFRICA -- 3.32%
Anglo American Corporation
of South Africa Ltd. ..... 8,000 $ 225,478
Rembrandt Group Ltd. ....... 54,000 330,465
South African Breweries
Ltd. ..................... 12,072 203,368
-----------
759,311
-----------
ASIA/PACIFIC -- 29.20%
- ----------------------------
CHINA -- .57%
Shenzhen Konka Electronics
Group Ltd. Class B........ 260,000 131,225
-----------
HONG KONG -- 7.00%
Cheung Kong Holdings
Ltd. ..................... 17,000 122,337
Citic Pacific Ltd. ......... 70,000 150,897
Esprit Asia Holdings
Ltd. ..................... 474,000 204,969
HSBC Holdings............... 6,839 170,379
Hong Kong Telecommunications
Ltd. -- Sponsored ADR..... 3,700 64,981
Li & Fung................... 186,000 385,348
National Mutual Asia
Ltd. ..................... 360,000 269,523
New World Development
Company Ltd. ............. 45,401 114,279
Union Bank of Hong Kong
Ltd. ..................... 85,333 68,293
Wharf Holdings Ltd. (with
1,800 warrants(a))........ 36,000 52,659
-----------
1,603,665
-----------
MALAYSIA(B) -- 2.63%
KFC Holdings (Malaysia)
Berhad.................... 58,000 41,067
London & Pacific Insurance
Company Berhad............ 181,200 155,790
Perusahaan Otomobil Nasional
Berhad.................... 125,000 165,230
Public Bank Berhad.......... 166,800 70,938
RHB Capital Berhad.......... 151,000 73,591
RHB Sakura Merchant
Bankers................... 3,000 1,228
Sime Darby Berhad........... 43,000 43,099
Sime UEP Properties
Berhad.................... 62,000 51,310
-----------
602,253
-----------
NEW ZEALAND -- 2.79%
Brierley Investments
Limited................... 241,800 54,925
Fletcher Challenge
Building.................. 21,500 33,278
Fletcher Challenge
Forestry.................. 2,580 859
Fletcher Challenge Paper.... 43,000 28,848
Tourism Holdings
Limited(a)................ 637,242 521,774
-----------
639,684
-----------
PHILIPPINES -- 2.01%
Alaska Milk
Corporation(a)............ 2,000,000 117,227
Asian Terminals, Inc.(a).... 150,000 4,242
Bacnotan Cement
Corporation............... 145,000 25,348
Belle Corporation(a)........ 631,000 34,714
Belle Corporation
Warrants(a)............... 46,200 101
Benpres Holdings Corporation
GDR(a).................... 24,100 72,300
Philippine Long Distance
Telephone Co. ............ 3,800 97,689
SM Prime Holdings, Inc. .... 251,000 47,749
Universal Robina
Corporation............... 535,000 59,828
-----------
459,198
-----------
SINGAPORE -- 5.89%
Clipsal Industries Ltd. .... 118,000 118,000
DBS Land Ltd. .............. 115,000 169,368
Development Bank of
Singapore Ltd. ........... 15,600 140,876
Elec & Eltek International
Co. Ltd. ................. 34,100 184,140
Fraser & Neave Ltd. ........ 99,200 289,792
Jardine Matheson Holdings
Ltd....................... 15,600 40,248
Jardine Strategic Holdings
Ltd....................... 76,187 110,471
Singapore Airlines Ltd...... 23,000 168,671
United Overseas Bank Ltd.... 20,000 128,488
-----------
1,350,054
-----------
SOUTH KOREA -- 4.64%
Hyundai Motor Company
Ltd....................... 1,824 $ 32,461
Korea Electric Power
Corporation............... 8,400 208,172
Pohang Iron & Steel Company
Ltd....................... 2,400 154,483
Samsung Electronics......... 5,959 399,921
Samsung Electronics
Sponsored GDR............. 623 24,608
Samsung Electronics
Sponsored GDR NV.......... 4,338 65,883
Samsung Fire & Marine
Insurance (with 124
rights(a))................ 407 176,154
-----------
1,061,682
-----------
TAIWAN -- 1.62%
Compeq Manufacturing
Co.(a).................... 11,760 77,021
Systex Corporation(a)....... 39,512 104,248
Yung Shin Pharmaceuticals
Industries Co. ........... 77,880 189,765
-----------
371,034
-----------
THAILAND -- 2.05%
Bangkok Bank Public Company
Limited(a)................ 7,900 11,306
Bank of Ayudhya Public
Company Limited Foreign
Registered(a)............. 183,750 56,894
Robinson Department Store
Public Company
Limited -- Foreign
Registered(a)............. 377,000 24,902
SG Asia Credit Company
Limited -- Foreign
Registered(a)............. 336,000 110,971
Siam Cement Public Co.
Limited (The) Foreign
Registered(a)............. 7,600 172,357
Siam Makro Public Company
Limited -- Foreign
Registered................ 47,800 93,406
-----------
469,836
-----------
EUROPE -- 53.61%
- ----------------------------
AUSTRIA -- .97%
Bank Austria AG............. 3,466 176,346
Julius Meinl International
AG........................ 2,000 45,059
-----------
221,405
-----------
FINLAND -- 2.46%
Stora Enso OYJ -- R
Shares.................... 30,000 270,180
UPM -- Kymmene Corp......... 10,420 292,229
-----------
562,409
-----------
FRANCE -- 13.35%
Alcatel SA.................. 7,000 171,062
Banque Nationale De Paris... 8,275 681,731
Compagnie Financiere de
Paribas................... 3,689 320,756
Galeries Lafayette.......... 100 107,411
Groupe Danone............... 1,400 401,002
Scor........................ 5,300 350,581
Societe Generale............ 3,219 521,516
Suez Lyonnaise des Eaux..... 2,454 504,330
-----------
3,058,389
-----------
GERMANY -- 1.52%
Volkswagen AG............... 4,300 348,022
-----------
IRELAND -- 1.15%
Bank of Ireland............. 12,000 263,745
-----------
ITALY -- 3.98%
Banca Commerciale
Italiana.................. 42,800 295,908
Banca Popolare di Brescia... 13,250 323,839
Banca Popolare di Milano.... 32,000 291,104
-----------
910,851
-----------
LUXEMBOURG -- .82%
SBS Broadcasting SA(a)...... 7,000 189,000
-----------
NETHERLANDS -- 6.07%
Akzo Nobel NV............... 4,400 200,462
Fortis Amev NV.............. 4,300 356,525
Hunter Douglas NV........... 3,800 125,947
ING Groep NV................ 4,022 245,392
Nedlloyd Groep NV........... 14,300 194,307
Koninklijke Philips
Electronics NV............ 4,000 268,561
-----------
1,391,194
-----------
NORWAY -- 1.04%
Storebrand ASA(a)........... 31,700 239,245
-----------
</TABLE>
<PAGE> 184
PORTFOLIO OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 99.95% SHARES VALUE EQUITY SECURITIES SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PORTUGAL -- 1.63%
Lusomundo -- SGPS S.A.
Preferred
Shares.................... 5,900 $ 68,425
Portugal Telecom S.A. ADR... 2,977 132,849
Sonae Industria E
Investimentos............. 3,550 172,586
-----------
373,860
-----------
SWEDEN -- 4.85%
AssiDoman AB................ 3,600 56,850
Astra AB "B" Shares......... 17,066 347,403
Electrolux AB............... 14,000 240,946
Investor AB................. 2,000 90,309
S.K.F. AB Series "B"........ 6,400 74,616
Sandvik AB -- "B" Shares.... 9,500 164,085
Trelleborg AB "B" Free
Shares.................... 16,700 135,981
-----------
1,110,190
-----------
SWITZERLAND -- 4.26%
Georg Fischer AG Bearer..... 250 84,548
Holderbank Financiere Glaris
AG........................ 290 343,317
Nestle AG Registered........ 138 300,419
SMH AG...................... 400 247,546
-----------
975,830
-----------
UNITED KINGDOM -- 11.51%
Billiton plc................ 85,600 170,193
Boots Company plc........... 18,000 305,923
Cadbury Schweppes plc....... 25,000 425,933
Corporate Services Group
plc....................... 125,000 315,082
Gallaher Group plc.......... 45,000 304,912
Imperial Chemical Industries
plc....................... 22,500 194,290
National Westminster Bank
plc ADR................... 2,400 284,400
Rio Tinto plc............... 3,000 34,640
Rio Tinto plc Sponsored
ADR....................... 3,089 139,970
Standard Chartered plc...... 18,700 215,925
Tate & Lyle plc............. 44,000 245,244
-----------
2,636,512
-----------
NORTH AMERICA -- 9.44%
- ----------------------------
CANADA -- 2.13%
Alcan Aluminium Ltd......... 5,472 148,086
Edperbrascan
Corporation -- Class A.... 12,400 171,960
Power Financial Corp. ...... 7,600 168,236
-----------
488,282
-----------
UNITED STATES -- 7.31%
ALLTEL Corporation.......... 1,000 59,813
Abbott Laboratories......... 1,000 49,000
Air Express International
Corp. .................... 8,200 178,350
Aluminum Company of
America................... 2,200 164,038
Ameron International
Corp. .................... 2,900 107,300
Anheuser-Busch Companies,
Inc. ..................... 800 52,500
Bristol-Myers Squibb
Company................... 400 53,525
Chevron Corporation......... 500 41,469
Comerica Incorporated....... 700 47,731
Duke Energy Corporation..... 700 44,844
Exxon Corporation........... 600 43,875
Fannie Mae.................. 700 51,800
Ford Motor Company.......... 2,500 146,719
Intel Corporation........... 500 59,281
International Business
Machines Corporation...... 300 55,425
Mellon Bank Corporation..... 800 55,000
Merck & Co., Inc ........... 300 44,306
Mobil Corporation........... 500 43,562
Morgan Stanley Dean Witter &
Co. ...................... 500 35,500
Paine Webber Group Inc. .... 1,000 38,625
Phelps Dodge Corp. ......... 2,700 137,362
SBC Communications Inc. .... 1,000 53,625
Sun Microsystems, Inc.(a)... 1,000 85,625
Tommy Hilfiger
Corporation(a)............ 400 24,000
-----------
1,673,275
-----------
SOUTH AMERICA -- 4.38%
- ----------------------------
BRAZIL -- 3.14%
Petroleo Brasileiro S.A.
Preferred (Petrobras)..... 1,700,000 $ 192,766
Telecomunicacoes Brasileiras
S.A. Sponsored ADR
Preferred Block(a)........ 6,000 436,125
Uniao de Bancos Brasileiros
Preferred S.A. ........... 4,400,000 89,224
-----------
718,115
-----------
CHILE -- 1.24%
A.F.P. Provida S.A. ADR..... 9,100 122,281
Cristalerias de
Chile -- Sponsored ADR.... 12,400 162,750
-----------
285,031
-----------
TOTAL INVESTMENTS -- 99.95%
(Cost -- $21,708,441)(c).............. 22,893,297
OTHER ASSETS, LESS
LIABILITIES -- .05%................... 10,698
-----------
NET ASSETS -- 100%...................... $22,903,995
===========
ADR -- American Depository
Receipt
GDR -- Global Depository
Receipt
NV -- Non-voting
(a) Non-income producing security
(b) As of September 1, 1998, the repatriation of
proceeds received from the sale of these
securities has been blocked until at least
September 1, 1999. These securities are considered
illiquid and are being fair valued using methods
determined in good faith by the Valuation
Committee of the Board of Trustees.
(c) Cost is approximately the same for Federal income
tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation
based on cost for financial statement and Federal
income tax purposes is as follows:
Gross unrealized appreciation....... $ 6,148,782
Gross unrealized depreciation....... (4,963,926)
-----------
Net unrealized appreciation..... $ 1,184,856
===========
Purchases and sales of securities other than
short-term obligations aggregated $4,806,786 and
$14,430,877, respectively, for the period ended
December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 185
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $21,708,441)...... $22,893,297
Cash........................................................ 25,145
Receivables
Investments sold.......................................... 11,366
Fund shares sold.......................................... 15,453
Dividends and interest.................................... 56,543
Manager for expense reimbursement......................... 15,711
Other assets................................................ 11,794
-----------
Total assets............................................ 23,029,309
-----------
LIABILITIES
Payables
Fund shares repurchased................................... 52,035
Management fee............................................ 19,335
12b-1 service and distribution fees....................... 9,824
Other payables to related parties......................... 12,136
Accrued expenses............................................ 31,984
-----------
Total liabilities....................................... 125,314
-----------
NET ASSETS.................................................. $22,903,995
===========
CLASS A
Net asset value and redemption price per share
($14,660,311/1,295,221 shares outstanding)................ $ 11.32
===========
Maximum offering price per share ($11.32 X 100/94.25)*...... $ 12.01
===========
CLASS B
Net asset value, offering price and redemption price** per
share ($7,494,547/669,818 shares outstanding)............. $ 11.19
===========
CLASS C
Net asset value, offering price and redemption price*** per
share ($428,386/39,293 shares outstanding)................ $ 10.90
===========
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($320,751/28,237 shares outstanding)................ $ 11.36
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $22,960,893
Accumulated net realized loss on investments and foreign
currency transactions................................... (1,243,973)
Net unrealized appreciation on investments and foreign
currency transactions................................... 1,187,075
-----------
NET ASSETS.................................................. $22,903,995
===========
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 186
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends, net of $33,559 foreign taxes withheld.......... $ 618,286
Interest.................................................. 27,876
-----------
646,162
-----------
EXPENSES
Management fee............................................ $275,958
Transfer agent............................................ 74,574
Administrative services fee............................... 27,596
Custodian fees............................................ 106,342
Blue Sky fees............................................. 31,555
Auditing and accounting fees.............................. 25,588
Shareholder reports....................................... 8,962
Fund accounting........................................... 37,768
Trustees' fees............................................ 8,471
12b-1 service and distribution fees....................... 140,843
Legal..................................................... 21,822
Other..................................................... 17,662
-----------
777,141
Expenses reimbursed by Manager............................ (98,102)
-----------
Net expenses............................................ 679,039
-----------
NET INVESTMENT LOSS......................................... (32,877)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments and foreign currency
transactions............................................ (1,235,420)
Net change in unrealized appreciation on investments and
foreign currency transactions........................... 3,370,566
-----------
Net gain on investment transactions..................... 2,135,146
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 2,102,269
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 187
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
DECREASE IN NET ASSETS
Operations
Net investment (loss) income.............................. $ (32,877) $ 128,231
Net realized (loss) gain on investments and foreign
currency transactions................................... (1,235,420) 3,695,413
Net change in unrealized appreciation (depreciation) on
Investments and foreign currency transactions........... 3,370,566 (6,927,266)
Forward foreign currency contracts...................... -- 24,267
----------- -----------
Net increase (decrease) resulting from operations....... 2,102,269.. (3,079,355)
----------- -----------
Class A distributions
From net investment income................................ -- (82,131)
In excess of net investment income........................ (622) (96,135)
From net realized gain.................................... (677,923) (1,668,684)
----------- -----------
Total distributions to Class A shareholders......... (678,545) (1,846,950)
----------- -----------
Class B distributions
From net investment income................................ -- (42,863)
In excess of net investment income........................ (328) (50,172)
From net realized gain.................................... (356,809) (782,853)
----------- -----------
Total distributions to Class B shareholders......... (357,137) (875,888)
----------- -----------
Class C distributions
From net investment income................................ -- (3,237)
In excess of net investment income........................ (19) (3,788)
From net realized gain.................................... (20,452) (60,208)
----------- -----------
Total distributions to Class C shareholders......... (20,471) (67,233)
----------- -----------
Advisor Class distributions
In excess of net investment income........................ (13) --
From net realized gain.................................... (14,685) --
----------- -----------
Total distributions to Advisor Class shareholders... (14,698) --
----------- -----------
Fund share transactions (Note 4)
Class A................................................... (5,705,136) (858,287)
Class B................................................... (2,919,278) 3,188,082
Class C................................................... (351,723) 823,223
Advisor Class............................................. 373,565 --
----------- -----------
Net (decrease) increase resulting from Fund share
transactions........................................ (8,602,572) 3,153,018
----------- -----------
TOTAL DECREASE IN NET ASSETS................................ (7,571,154) (2,716,408)
NET ASSETS
Beginning of period....................................... 30,475,149.. 33,191,557
----------- -----------
END OF PERIOD............................................. $22,903,995.. $30,475,149
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 188
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE
FOR THE SIX YEAR
CLASS A MONTHS ENDED ENDED
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, JUNE 30,
---------------------------------------------- ------------ ---------
1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 10.93 $ 13.17 $ 11.97 $ 11.23 $ 11.52 $ 10.62
------- ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment income (loss).................. .02(a) .08 .08 .09(a) --(a) --(a)
Net realized and unrealized gain (loss) on
investment transactions..................... .91 (1.23) 1.86 1.25 (.10) 1.79
------- ------- ------- ------- ------- -------
Total from investment operations............ .93 (1.15) 1.94 1.34 (.10) 1.79
------- ------- ------- ------- ------- -------
Less distributions
From net investment income.................... -- .05 .08 .04 -- .01
In excess of net investment income............ -- .05 .18 -- -- --
From net realized gain........................ .54 .99 .48 .49 .09 .88
In excess of net realized gain................ -- -- -- .07 -- --
From capital paid-in.......................... -- -- -- -- .10 --
------- ------- ------- ------- ------- -------
Total distributions......................... .54 1.09 .74 .60 .19 .89
------- ------- ------- ------- ------- -------
Net asset value, end of period.................. $ 11.32 $ 10.93 $ 13.17 $ 11.97 $ 11.23 $ 11.52
======= ======= ======= ======= ======= =======
Total return(%)................................. 8.59(b) (8.72)(b) 16.21(b) 12.08(b) (1.00)(c) 16.71(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands)........ $14,660 $19,692 $24,152 $21,264 $19,327 $17,393
Ratio of expenses to average net assets
With expense reimbursement(%)................. 2.18 -- -- 2.20 2.20(d) 2.20
Without expense reimbursement(%).............. 2.54 2.07 2.18 2.46 2.34(d) 2.42
Ratio of net investment income (loss) to average
net assets(%)................................. .16(a) .58 .58 .71(a) (.06)(a)(d) .01(e)
Portfolio turnover rate(%)...................... 17 45 43 53 23 85
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX APRIL 1, 1994
CLASS B MONTHS ENDED (COMMENCING)
FOR THE YEAR ENDED DECEMBER 31, DECEMBER 31, TO JUNE 30,
---------------------------------------------- ------------ --------------
1998 1997 1996 1995 1994 1994
SELECTED PER SHARE DATA ------- ------- ------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 10.90 $ 13.12 $ 11.97 $ 11.23 $ 11.52 $ 12.12
------- ------- ------- ------- ------- -------
Income (loss) from investment operations
Net investment (loss).................... (.09)(a) (.02) (.02) --(a) (.03)(a) (.01)(a)
Net realized and unrealized gain
(loss) on investment transactions...... .92 (1.20) 1.85 1.25 (.12) (.04)
------- ------- ------- ------- ------- -------
Total from investment operations....... .83 (1.22) 1.83 1.25 (.15) (.05)
------- ------- ------- ------- ------- -------
Less distributions
From net investment income............... -- .05 -- -- -- --
In excess of net investment income....... -- .05 .20 -- -- --
From net realized gain................... .54 .90 .48 .45 .08 .55
In excess of net realized gain........... -- -- -- .06 -- --
From capital paid-in..................... -- -- -- -- .06 --
------- ------- ------- ------- ------- -------
Total distributions.................... .54 1.00 .68 .51 .14 .55
------- ------- ------- ------- ------- -------
Net asset value, end of period............. $ 11.19 $ 10.90 $ 13.12 $ 11.97 $ 11.23 $ 11.52
======= ======= ======= ======= ======= =======
Total return(%)............................ 7.69(b) (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)... $ 7,495 $10,056 $ 8,968 $ 4,811 $ 2,956 $ 376
Ratio of expenses to average net assets
With expense reimbursement(%)............ 2.97 -- -- 2.95 2.95(d) 2.95(d)
Without expense reimbursement(%)......... 3.33 2.82 2.94 3.21 3.09(d) 3.17(d)
Ratio of net investment income (loss) to
average net assets(%).................... (.63)(a) (.18) (.17) (.04)(a) (.81)(a)(d) (.74)(a)(d)
Portfolio turnover rate(%)................. 17 45 43 53 23 85
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 189
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
-------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.67 $ 12.94 $ 13.31
------- ------- -------
Income (loss) from investment operations
Net investment loss....................................... (.16)(a) (.02) (.01)
Net realized and unrealized gain (loss) on investment
transactions............................................ .93 (1.24) .42
------- ------- -------
Total from investment operations........................ .77 (1.26) .41
------- ------- -------
Less distributions
From net investment income................................ -- .05 --
In excess of net investment income........................ -- .05 .30
From net realized gain.................................... .54 .91 .48
------- ------- -------
Total distributions..................................... .54 1.01 .78
------- ------- -------
Net asset value, end of period.............................. $ 10.90 $ 10.67 $ 12.94
======= ======= =======
Total return(%)............................................. 7.30(b) (9.72)(b) 3.07(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 428 $ 727 $ 71
Ratio of expenses to average net assets
With expense reimbursement(%)............................. 3.30 -- --
Without expense reimbursement(%).......................... 3.66 2.82 3.77(d)
Ratio of net investment loss to average net assets(%)....... (.96)(a) (.18) (1.01)(d)
Portfolio turnover rate(%).................................. 17 45 43
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
ADVISOR CLASS (COMMENCEMENT)
TO DECEMBER 31,
---------------
1998
SELECTED PER SHARE DATA ---------------
<S> <C>
Net asset value, beginning of period........................ $ 13.26
-------
Loss from investment operations
Net investment income(a).................................. .05
Net realized and unrealized loss on investment
transactions............................................ (1.41)
-------
Total from investment operations........................ (1.36)
-------
Less distributions
From net realized gain.................................... .54
-------
Total distributions..................................... .54
-------
Net asset value, end of period.............................. $ 11.36
=======
Total return(%)(c).......................................... (10.19)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 321
Ratio of expenses to average net assets
With expense reimbursement(%)(d).......................... 1.75
Without expense reimbursement(%)(d)....................... 2.11
Ratio of net investment income to average net
assets(%)(a)(d)........................................... .59
Portfolio turnover rate(%).................................. 17
</TABLE>
<TABLE>
<S> <C>
(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
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 190
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, Class C and Advisor Class are
authorized. Ivy Fund was organized as a Massachusetts business trust under a
Declaration of Trust dated December 21, 1983 and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
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 Nasdaq Stock Market Inc. ("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 price 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, 1998, securities valued by
the Valuation Committee amounted to $602,253 (2.63% of net assets) and have been
noted as such in the Portfolio of Investments.
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. Corporate actions,
including dividends, on foreign securities are recorded on the ex-dividend date.
If such information is not available on the ex-dividend date, corporate actions
are recorded as soon as reliable information is available from the Fund's
sources. 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 of
1986 (the "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 $650,994. These dividends were
subject to foreign withholding tax in the amount of $33,559. 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.
The Fund has a net tax-basis capital loss carryforward of approximately
$780,000 as of December 31, 1998 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 in 2006.
Pursuant to Section 852 of the Code, the Fund designates $1,021,802 as
long-term capital gain dividends for its taxable year ended December 31, 1998.
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.
For foreign securities, the Fund does not isolate that portion of gains and
losses on investment securities that is due to changes in the foreign exchange
rates from that which is due to changes in market prices of such securities.
For tax reporting purposes, Section 988 of the 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.
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 investment
loss and Net realized 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.
Certain amounts in prior year's Statement of Changes in Net Assets and
related Financial Highlights have been reclassified to conform to the current
year's presentation.
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, 1998, the net amount of underwriting
discount retained by IMDI was $2,536.
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 Advisor Class. Class B and Class C shares are also subject to
an ongoing distribution fee at an annual rate of .75% of the average net assets
attributable to Class B and Class C. IMDI may use such distribution fee for
purposes of advertising and marketing shares of the Fund. Such fees of $44,345,
$90,354 and $6,144, 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 $44,532, $26,091, $3,802 and $149, for Class A, Class B, Class C and
Advisor Class, 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 Advisor Class
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -----------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Sold......................... 146,315 $ 1,787,073 716,642 $ 9,986,512
Issued on reinvestment of
distributions............... 55,920 628,542 157,077 1,735,809
Repurchased.................. (708,378) (8,120,751) (906,904) (12,580,608)
-------- ----------- -------- ------------
Net decrease................. (506,143) $(5,705,136) (33,185) $ (858,287)
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -----------------------
CLASS B SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Sold......................... 81,549 $ 964,574 366,100 $ 3,039,662
Issued on reinvestment of
distributions............... 26,955 299,738 65,780 724,938
Repurchased.................. (361,380) (4,183,590) (192,584) (576,518)
-------- ----------- -------- ------------
Net (decrease)/increase...... (252,876) $(2,919,278) 239,296 $ 3,188,082
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------- -----------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
- ------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Sold......................... 15,683 $ 182,504 71,556 $ 948,831
Issued on reinvestment of
distributions............... 1,448 15,682 5,049 54,480
Repurchased.................. (45,990) (549,909) (13,938) (180,088)
-------- ----------- -------- ------------
Net (decrease)/increase...... (28,859) $ (351,723) 62,667 $ 823,223
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 30, 1998
(COMMENCEMENT)
TO DECEMBER 31, 1998
----------------------
ADVISOR CLASS SHARES AMOUNT
- ------------- -------- -----------
<S> <C> <C> <C> <C>
Sold......................... 30,998 $ 403,896
Issued on reinvestment of
distributions............... 1,303 14,699
Repurchased.................. (4,064) (45,030)
-------- -----------
Net increase................. 28,237 $ 373,565
======== ===========
</TABLE>
<PAGE> 192
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Global Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IGLF123198
<PAGE> 193
December 31, 1998
IVY
US BLUE
CHIP
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
Throughout the
centuries,
the castle keep has
been a source
of long-range vision
and strategic
advantage.
IVY FUNDS(R)
MARKET COMMENTARY
We would like to take this opportunity to welcome you as a shareholder of the
Ivy US Blue Chip Fund. The Fund's investments in domestic blue chip
stocks--stocks of companies we consider to be leaders in their respective
industries--offer potential benefits such as outpacing inflation and
participation in the growth of some of America's most elite companies.
After undergoing a relatively brief but significant bear market in the spring
and summer of 1998, the US market hit its lowest point in early October. In our
view, it then staged a comeback. Initially, small-cap stocks led the market
higher; but in early November, large-cap stocks took the lead. This resulted in
new all-time highs for many indices, including the S&P 500 and the Dow Jones
Industrial Average.
As we enter 1999, it appears that there are a number of issues causing concern
for investors. For example, many statistical measures of value, such as price
to earnings and price to book value, are at historically high levels. At the
same time, earnings growth appears to be slowing, and foreign economies
continue to present a major challenge for the market. In addition, the
political situation in Washington D.C. continues to cast a cloud of uncertainty
over the market. Although a change in investor sentiment regarding any one of
these concerns can, in our view, easily cause another market correction,
experience suggests that it is best to stay focused on the long-term trend of
the market, and to view corrections as buying opportunities. We believe that
long-term investors have many reasons to remain optimistic.
First, according to our research, the disinflationary environment that started
in the early 1980s still exists. We believe, however, that there is no threat
of rising inflation in the foreseeable future. In fact, deflation could be a
greater threat today than inflation.
Second, stable to falling interest rates are likely to remain an important
support for the stock market. The Federal Reserve Board has cut rates three
times since August signaling that it will take action to prevent the foreign
economic turmoil from forcing the US into a recession. With nominal GDP
expanding at approximately 4%, we believe the US central bank may have room to
lower interest rates further.
Third, the economic environment remains favorable. The US is in the eighth year
of its economic expansion; and although economic growth is likely to slow in
1999, in our view, the threat of a recession is quite low. Consumer spending
represents two-thirds of all economic activity and therefore, as long as
consumer spending remains strong, the economy should continue to expand. Of
course, a growing economy does not necessarily translate into growing corporate
earnings; however, we believe that investors are already expecting profits to
be weak. Consequently, unless earnings collapse, there will probably be more
room for upside surprises than for downside disappointments as we move through
1999.
Finally, the increasing need for baby boomers to invest for retirement remains,
in our view, a positive influence on stock prices. Historically, each year
between January 1 and April 15 billions of dollars flow into the market by way
of IRAs and pension plans. With current low interest rates, more of this money
will likely find its way into stocks. We believe the Ivy US Blue Chip Fund is
positioned to take advantage of the fiscal and monetary conditions described
above and should benefit from the long-term trends of the stock market.
IVY MANAGEMENT, INC.
Board of Trustees
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
Legal Counsel
Dechert Price & Rhoads
Boston, MA
Officers
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
Custodian
Brown Brothers Harriman & Co.
Boston, MA
Transfer Agent
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
Auditors
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
Investment Manager
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
Distributor
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 194
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
EQUITY SECURITIES -- 98.40% SHARES VALUE
- ---------------------------------------------
<S> <C> <C>
BASIC INDUSTRIES -- 4.25%
International Paper Company.................. 200 $ 8,962
PPG Industries, Inc.......................... 600 34,950
Praxair, Inc................................. 800 28,200
Southwest Airlines Co........................ 800 17,950
Union Carbide Corporation.................... 300 12,750
----------
102,812
----------
CAPITAL GOODS -- 8.00%
Allied Signal Inc............................ 900 39,881
Caterpillar Inc.............................. 800 36,800
General Electric Company..................... 100 10,206
Honeywell Inc................................ 500 37,656
Lockheed Martin Corporation.................. 300 25,425
United Technologies Corporation.............. 400 43,500
----------
193,468
----------
CONSUMER CYCLICAL -- 6.60%
General Motors Corporation................... 800 57,250
Goodyear Tire & Rubber Company, (The)........ 600 30,263
May Department Stores Company, (The)......... 600 36,225
Tommy Hilfiger Corporation(a)................ 600 36,000
----------
159,738
----------
CONSUMER STAPLES -- 15.70%
Anheuser-Busch Companies, Inc................ 500 32,812
Avon Products, Inc........................... 800 35,400
Campbell Soup Company........................ 600 33,000
Colgate-Palmolive Company.................... 400 37,150
General Mills, Inc........................... 600 46,650
H.J. Heinz Company........................... 600 33,975
PepsiCo, Inc................................. 700 28,656
Philip Morris Companies Inc.................. 1,000 53,500
Proctor & Gamble Company, (The).............. 400 36,525
Ralston-Ralston Purina Group................. 1,300 42,088
----------
379,756
----------
ENERGY -- 6.58%
Atlantic Richfield Company (ARCO)............ 500 32,625
Chevron Corporation.......................... 500 41,469
Exxon Corporation............................ 300 21,938
Mobil Corporation............................ 300 26,138
Texaco Inc................................... 700 37,013
----------
159,183
----------
FINANCIAL SERVICES -- 16.32%
BB&T Corporation............................. 500 20,156
BankAmerica Corporation...................... 600 36,075
Bank of New York Company, Inc., (The)........ 1,000 40,250
Chase Manhattan Corporation, (The)........... 700 47,644
Comerica Incorporated........................ 400 27,275
Fannie Mae................................... 500 37,000
First Union Corporation...................... 500 30,406
Mellon Bank Corporation...................... 400 27,500
Merrill Lynch & Co., Inc..................... 700 46,725
Morgan Stanley Dean Witter & Co.............. 700 49,700
</TABLE>
<TABLE>
<CAPTION>
EQUITY SECURITIES SHARES VALUE
<S> <C> <C>
Wells Fargo Company.......................... 800 $ 31,950
----------
394,681
----------
HEALTHCARE -- 12.43%
Abbott Laboratories.......................... 1,000 49,000
American Home Products Corporation........... 1,000 56,312
Bristol-Myers Squibb Company................. 500 66,906
Johnson & Johnson............................ 300 25,163
Merck & Co. Inc.............................. 400 59,075
Schering-Plough Corporation.................. 800 44,200
----------
300,656
----------
TECHNOLOGY -- 17.46%
Applied Materials, Inc.(a)................... 500 21,344
Compaq Computer Corporation.................. 900 37,744
Equifax Inc.................................. 1,200 41,025
Intel Corporation............................ 600 71,137
International Business Machines Corporation.. 400 73,900
Novellus Systems, Inc.(a).................... 700 34,650
Oracle Corporation........................... 800 34,500
Raytheon Company -- Class B.................. 400 21,300
Sun Microsystems, Inc.(a).................... 600 51,375
Xerox Corporation............................ 300 35,400
----------
422,375
----------
UTILITIES -- 11.06%
ALLTEL Corporation........................... 900 53,831
AT&T Corporation............................. 800 60,200
BellSouth Corporation........................ 800 39,900
Duke Energy Corporation...................... 400 25,625
FPL Group, Inc............................... 400 24,650
SBC Communications Inc....................... 800 42,900
Southern Company, (The)...................... 700 20,344
----------
267,450
----------
TOTAL INVESTMENTS -- 98.40%
(Cost -- $2,282,914)(b).................... 2,380,119
OTHER ASSETS, LESS LIABILITIES -- 1.60%...... 38,743
----------
NET ASSETS -- 100%........................... $2,418,862
==========
</TABLE>
<TABLE>
<S> <C> <C>
(a) Non-income producing security
(b) Cost is the same for Federal income tax purposes.
OTHER INFORMATION:
At December 31, 1998, net unrealized appreciation based on cost
for financial statement and Federal income tax purposes is as
follows:
Gross unrealized appreciation.................. $ 129,735
Gross unrealized depreciation.................. (32,530)
------------
Net unrealized appreciation................ $ 97,205
============
Purchases and sales of securities (other than short-term
obligations) aggregated $2,326,533 and $33,705, respectively, for
the period ended December 31, 1998.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 195
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $2,282,914)....... $ 2,380,119
Cash........................................................ 136,664
Receivables
Investments sold.......................................... 10,684
Fund shares sold.......................................... 8,072
Dividends and interest.................................... 1,376
Manager for expense reimbursement......................... 11,052
Deferred offering costs and prepaid Blue Sky fees........... 88,584
------------
Total assets............................................ 2,636,551
------------
LIABILITIES
Payables
Investments purchased..................................... 114,713
Fund shares repurchased................................... 691
Management fee............................................ 1,168
12b-1 service and distribution fees....................... 741
Other payables to related parties......................... 94,610
Accrued expenses............................................ 5,766
------------
Total liabilities....................................... 217,689
------------
NET ASSETS.................................................. $ 2,418,862
============
CLASS A
Net asset value and redemption price per share
($725,515/67,581 shares outstanding)...................... $ 10.74
============
Maximum offering price per share ($10.74 X 100/94.25)*...... $ 11.40
============
CLASS B
Net asset value, offering price and redemption price** per
share ($1,046,732/97,635 shares outstanding).............. $ 10.72
============
CLASS C
Net asset value, offering price and redemption price*** per
share ($109,590/10,222 shares outstanding)................ $ 10.72
============
ADVISOR CLASS
Net asset value, offering price and redemption price per
share ($537,025/50,001 shares outstanding)................ $ 10.74
============
NET ASSETS CONSIST OF
Capital paid-in........................................... $ 2,327,686
Accumulated net realized loss on investments.............. (9,914)
Undistributed net investment income....................... 3,885
Net unrealized appreciation on investments................ 97,205
------------
NET ASSETS.................................................. $ 2,418,862
============
</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%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 196
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM NOVEMBER 2, 1998 (COMMENCEMENT) TO DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 3,260
---------
EXPENSES
Management fee............................................ $ 1,687
Transfer agent............................................ 184
Administrative services fee............................... 225
Custodian fees............................................ 1,000
Auditing and accounting fees.............................. 1,000
Amortization of offering costs and Blue Sky fees.......... 4,080
Fund accounting........................................... 1,654
12b-1 service and distribution fees....................... 911
Legal..................................................... 3,766
---------
14,507
Expenses reimbursed by Manager............................ (11,052)
---------
Net expenses............................................ 3,455
---------
NET INVESTMENT LOSS......................................... (195)
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized loss on investments.......................... (9,914)
Net unrealized appreciation on investments................ 97,205
---------
Net gain on investment transactions..................... 87,291
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 87,096
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 197
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM NOVEMBER 2, 1998 (COMMENCEMENT) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INCREASE IN NET ASSETS
Operations
Net investment loss....................................... $ (195)
Net realized loss on investments.......................... (9,914)
Net unrealized appreciation on investments................ 97,205
----------
Net increase resulting from operations.................. 87,096
----------
Fund share transactions (Note 3)
Class A................................................... 702,150
Class B................................................... 1,021,585
Class C................................................... 108,021
Advisor Class............................................. 500,010
----------
Net increase resulting from Fund share transactions..... 2,331,766
----------
NET ASSETS AT END OF PERIOD................................. $2,418,862
==========
UNDISTRIBUTED NET INVESTMENT INCOME......................... $ 3,885
==========
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
NOVEMBER 2, 1998 NOVEMBER 6, 1998 NOVEMBER 2, 1998
(COMMENCEMENT) (COMMENCEMENT) (COMMENCEMENT)
TO DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1998 1998 1998
---------------- ------------------ ----------------
CLASS A CLASS B CLASS C ADVISOR CLASS
SELECTED PER SHARE DATA(A) ---------------- ------- ------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.00 $10.30 $10.30 $ 10.00
------- ------- ------- -------
Income from investment operations
Net investment income(loss)(b)............................ -- (.01) (.01) .01
Net realized and unrealized gain on investment
transactions............................................ .74 .43 .43 .73
------- ------- ------- -------
Total from investment operations........................ .74 .42 .42 .74
------- ------- ------- -------
Net asset value, end of period.............................. $ 10.74 $10.72 $10.72 $ 10.74
======= ======= ======= =======
Total return(%)(c).......................................... 7.40 4.08 4.08 7.40
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 726 $1,047 $ 110 $ 537
Ratio of expenses to average net assets (%)
With expense reimbursement (%)(d)......................... 1.43 2.13 2.22 1.08
Without expense reimbursement (%)(d)...................... 6.34 7.04 7.13 5.99
Ratio of net investment income (loss) to average net assets
(%)(b)(d)................................................. .02 (.68) (.77) .37
Portfolio turnover rate (%)................................. 3 3 3 3
</TABLE>
<TABLE>
<S> <C>
(a) Based on average shares outstanding.
(b) Net investment loss is net of expenses reimbursed by
Manager.
(c) Total return represents aggregate total return and does not
reflect a sales charge.
(d) Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 198
NOTES TO FINANCIAL STATEMENTS
Ivy US Blue Chip 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, Advisor Class 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 Nasdaq Stock Market Inc. ("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 price 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, 1998, there were no Board
valued 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 of
1986 (the "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 from net investment income
and net realized capital gains, if any, are declared in December.
DEFERRED OFFERING COSTS AND PREPAID BLUE SKY FEES -- Offering costs and
blue sky fees are being amortized over a one year period beginning November 6,
1998, the date the Fund commenced operations. Offering costs and blue sky fees
have been paid by Mackenzie Investment Management Inc. (MIMI) and will be
reimbursed by the Fund.
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 loss
and Net realized loss on investments 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. 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 1.15% of its average net assets. The voluntary
expense limitation may be terminated or revised at any time.
Mackenzie Investment Management Inc., 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. At December 31, 1998 MIMI
owned 22.18% of the Fund's outstanding shares.
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, 1998, the net amount of underwriting
discount retained by IMDI was $1,940.
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 Advisor Class. Class B and Class C shares are
<PAGE> 199
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
also subject to an ongoing distribution fee at an annual rate of .75% of the
average net assets attributable to Class B and Class C. IMDI may use such
distribution fee for purposes of advertising and marketing shares of the Fund.
Such fees of $169, $654 and $88, 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 $85, $55, $15 and $29, for Class A, Class B, Class C and Advisor
Class, respectively, are reflected as Transfer agent in the Statement of
Operations.
3. FUND SHARE TRANSACTIONS
Fund share transactions from November 2, 1998 (commencement) to December
31, 1998, for Class A, Class B, Class C and Advisor Class were as follows:
<TABLE>
<CAPTION>
CLASS A SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 67,905 $ 705,555
Repurchased............................................ (324) (3,405)
------- ----------
Net increase........................................... 67,581 $ 702,150
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 97,672 $1,021,966
Repurchased............................................ (37) (381)
------- ----------
Net increase........................................... 97,635 $1,021,585
======= ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS C SHARES AMOUNT
- ------- ------- ----------
<S> <C> <C>
Sold................................................... 10,223 $ 108,031
Repurchased............................................ (1) (10)
------- ----------
Net increase........................................... 10,222 $ 108,021
======= ==========
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES AMOUNT
- ------------- ------- ----------
<S> <C> <C>
Sold................................................... 50,001 $ 500,010
------- ----------
Increase............................................... 50,001 $ 500,010
======= ==========
</TABLE>
<PAGE> 200
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy US Blue Chip Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, and
the results of its operations and the changes in its net assets for the period
November 2, 1998 (commencement of operations) through December 31, 1998, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IBCF123198
<PAGE> 201
December 31, 1998
IVY
MONEY
MARKET
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
800.456.5111
www.ivymackenzie.com
E-mail:
[email protected]
IVY FUNDS(R)
MARKET COMMENTARY
Throughout 1998, inflation in the US remained at historically low levels. We
believe this was due to several factors. First, commodity prices have been
declining to historically low levels. Second, low-cost Asian imports have kept
consumer prices in check; and third, until recently, monetary policy had been
neutral to slightly restrictive. We believe that the fundamentals for continued
moderate economic growth are now in place.
According to our research, the economy has been able to maintain its current
path due to the two main sectors, manufacturing and consumer, counteracting one
another. Our research indicates that the manufacturing sector has been weak for
some time now, since it is largely export oriented. There has been a great deal
of competition from Asian companies as their goods are now more competitively
priced due to the currency devaluation in the region. The consumer sector,
however, has remained quite strong. High levels of employment, rising wages, and
a strong stock market have helped push consumer confidence to historically high
levels. Consumer spending represents about two-thirds of US GDP. With
[GRAPHIC OMITTED]
these factors offsetting one another, the US economy should continue along its
path of moderate growth and low inflation.
During the fall of 1998, the global environment became destabilized and, as a
result, the Federal Reserve Board lowered interest rates three times signaling
that it will take action to prevent foreign economic turmoil from forcing the US
into a recession. We believe that the Federal Reserve Board has done its job for
now and that interest rates should remain stable going into 1999. Presumably,
only a continued deterioration in the global economic environment would prompt
the Fed to begin lowering rates again.
Increasing levels of productivity have offset increased wages and the concern
over wage inflation. The cost of benefits, which had been declining due to the
significant amount of people switching from traditional to HMO-style plans, has
also helped to offset wage inflation. More recently, however, benefit costs have
increased slightly; therefore, we will remain watchful of this development. Even
so, with the difficult pricing environment faced by most companies, if a
significant increase were to occur, it most likely would have a greater effect
on profitability than inflation.
We remain committed in our efforts to provide investors in the Ivy Money Market
Fund with yields that are competitive within the universe of money market funds,
as well as the current monetary and fiscal environment.
IVY MANAGEMENT, INC.
BOARD OF TRUSTEES
John S. Anderegg, Jr.
Paul H. Broyhill
Keith J. Carlson
Stanley Channick
Frank W. DeFriece, Jr.
Roy J. Glauber
Michael G. Landry
Joseph G. Rosenthal
Richard Silverman
J. Brendan Swan
OFFICERS
Michael G. Landry, Chairman
Keith J. Carlson, President
James W. Broadfoot, Vice President
C. William Ferris,
Secretary/Treasurer
LEGAL COUNSEL
Dechert Price & Rhoads
Boston, MA
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, MA
TRANSFER AGENT
Ivy Mackenzie
Services Corp.
P.O. Box 3022
Boca Raton, FL 33431-0922
800.777.6472
AUDITORS
PricewaterhouseCoopers LLP
Fort Lauderdale, FL
INVESTMENT MANAGER
Ivy Management, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
DISTRIBUTOR
Ivy Mackenzie
Distributors, Inc.
700 South Federal Highway
Boca Raton, FL 33432
800.456.5111
<PAGE> 202
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMERCIAL PAPER -- 18.69% PRINCIPAL VALUE U.S. GOVERNMENT AGENCY OBLIGATIONS PRINCIPAL VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Chevron, 5.10%, 01/29/99.... $1,200,000 $ 1,195,240
Colonial Pipeline Co.,
5.05%,
01/13/99.................. 1,200,000 1,197,980
General Motors Acceptance
Corp., 01/08/99........... 1,300,000 1,298,655
Paccar Financial Corp.,
5.05%,
01/20/99.................. 1,200,000 1,196,802
-----------
TOTAL COMMERCIAL PAPER
(Cost -- $4,888,677)...... 4,888,677
-----------
U.S. GOVERNMENT
AGENCY OBLIGATIONS -- 73.86%
- ----------------------------
Federal Home Loan Bank,
4.75%, 01/15/99........... 4,700,000 4,691,318
Federal Home Loan Mortgage
Corp.,
5.00%, 01/14/99........... 1,200,000 1,197,833
Federal Home Loan Mortgage
Corp.,
5.00%, 01/15/99........... 1,700,000 1,696,694
Federal Home Loan Mortgage
Corp.,
5.00%, 01/27/99........... 3,200,000 3,188,445
Federal Home Loan Mortgage
Corp.,
4.95%, 02/10/99........... $4,100,000 $ 4,077,450
Federal Home Loan Mortgage
Corp.,
4.90%, 03/17/99........... 3,500,000 3,464,271
Student Loan Marketing
Association,
4.858%, 08/02/99(a)....... 1,000,000 1,007,578
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS
(Cost -- $19,323,589)..... 19,323,589
-----------
TOTAL INVESTMENTS -- 92.55%
(Cost -- $24,212,266)(b)... 24,212,266
OTHER ASSETS, LESS
LIABILITIES -- 7.45%...... 1,949,502
-----------
NET ASSETS -- 100%.......... $26,161,768
===========
(a) Floating rate note; reflects variable rate as of
the latest reset date, December 31, 1998.
(b) Cost is the same for Federal income tax purposes.
</TABLE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (identified cost -- $24,212,266)...... $24,212,266
Cash........................................................ 2,182,011
Receivable from Manager for expense reimbursement........... 18,104
Other assets................................................ 8,960
-----------
Total assets.............................................. 26,421,341
-----------
LIABILITIES
Payables
Distributions to shareholders............................. 4,773
Fund shares repurchased................................... 222,771
Management fee............................................ 9,049
Other payables to related parties......................... 13,845
Accrued expenses............................................ 9,135
-----------
Total liabilities......................................... 259,573
-----------
NET ASSETS.................................................. $26,161,768
===========
CLASS A
Net asset value, offering price and redemption price per
share ($19,103,228/19,103,228 shares outstanding)......... $ 1.00
===========
CLASS B
Net asset value, offering price and redemption price* per
share ($6,635,540/6,635,540 shares outstanding)........... $ 1.00
===========
CLASS C
Net asset value, offering price and redemption price* per
share ($423,000/423,000 shares outstanding)............... $ 1.00
===========
NET ASSETS CONSIST OF
Capital paid-in........................................... $26,161,768
-----------
NET ASSETS.................................................. $26,161,768
===========
</TABLE>
*Subject to any applicable contingent deferred sales charge.
The accompanying notes are an integral part of the financial statements.
<PAGE> 203
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest.................................................. $1,380,850
----------
EXPENSES
Management fee............................................ $102,727
Transfer agent............................................ 93,104
Administrative services fee............................... 25,682
Custodian fees............................................ 13,135
Blue Sky fees............................................. 29,630
Auditing and accounting fees.............................. 12,879
Shareholder reports....................................... 3,720
Fund accounting........................................... 32,570
Trustees' fees............................................ 8,471
Legal..................................................... 26,628
Other..................................................... 9,489
----------
358,035
Expenses reimbursed by Manager............................ (140,140)
----------
Net expenses............................................ 217,895
----------
NET INVESTMENT INCOME AND NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................. $1,162,955
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income..................................... $ 1,162,955 $ 968,293
----------- -----------
Net increase resulting from operations.............. 1,162,955 968,293
----------- -----------
Distributions to shareholders from net investment income
Class A................................................... (910,735) (805,708)
Class B................................................... (233,841) (148,800)
Class C................................................... (18,379) (13,785)
----------- -----------
Total distributions to shareholders................. (1,162,955) (968,293)
----------- -----------
Fund share transactions (Note 4)
Class A................................................... 3,718,599 (5,974,438)
Class B................................................... 2,823,837 337,330
Class C................................................... 18,004 331,385
----------- -----------
Net increase (decrease) resulting from Fund share
transactions........................................... 6,560,440 (5,305,723)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 6,560,440 (5,305,723)
NET ASSETS
Beginning of period....................................... 19,601,328 24,907,051
----------- -----------
END OF PERIOD............................................. $26,161,768 $19,601,328
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 204
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
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 .05 .04 .05 .04
Less distributions
From net investment income................................ (.05) (.05) (.04) (.05) (.04)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return(%)............................................. 4.51 4.60 4.47 4.80 4.21
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $19,103 $15,385 $21,359 $24,609 $26,827
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .87 .88 .86 .85 .85
Without expense reimbursement(%).......................... 1.42 1.57 1.86 1.39 1.24
Ratio of net investment income to average net
assets(%)(a).............................................. 4.50 4.60 4.47 4.91 3.29
</TABLE>
<TABLE>
<CAPTION>
CLASS B
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income(a).................................. .05 .05 .05
Less distributions
From net investment income................................ (.05) (.05) (.05)
------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total return(%)............................................. 4.59 4.77 4.57
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 6,636 $ 3,812 $ 3,474
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .76 .70 .77
Without expense reimbursement(%).......................... 1.31 1.39 1.77
Ratio of net investment income to average net
assets(%)(a).............................................. 4.61 4.77 4.57
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 205
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FROM
APRIL 30, 1996
CLASS C FOR THE YEAR ENDED (COMMENCEMENT)
DECEMBER 31, TO DECEMBER 31,
---------------------- ---------------
1998 1997 1996
SELECTED PER SHARE DATA ------- ------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations
Net investment income(a).................................. .05 .05 .03
Less distributions
From net investment income................................ (.05) (.05) (.03)
------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return(%)............................................. 4.55 4.78 4.78(b)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (in thousands).................... $ 423 $ 405 $ 74
Ratio of expenses to average net assets
With expense reimbursement(%)............................. .81 .70 .56(c)
Without expense reimbursement(%).......................... 1.36 1.39 1.56(c)
Ratio of net investment income to average net
assets(%)(a).............................................. 4.56 4.78 4.78(c)
</TABLE>
<TABLE>
<S> <C>
Net investment income is net of expenses reimbursed by
(a) Manager.
(b) Total return represents aggregate total return.
(c) Annualized
</TABLE>
Note: The seven day yield as of December 31, 1998 was 4.11%. The thirty day
yield as of December 31, 1998 was 4.09%.
The accompanying notes are an integral part of the financial statements.
<PAGE> 206
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.
CASH -- The Fund classifies as cash amounts on deposit with the Fund's
custodian. These amounts earn interest at variable interest rates. At December
31, 1998 the interest rate was 4.00%.
FEDERAL INCOME TAXES -- The Fund intends to qualify for tax treatment
applicable to regulated investment companies under the Internal Revenue Code of
1986 (the "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 from net investment income
are declared daily and 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 $77,767, $14,028 and $1,309, 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, 1998 DECEMBER 31, 1997
- ------- ----------------- -----------------
<S> <C> <C>
Sold.............................. 71,915,171 110,167,300
Issued on reinvestment of
Distributions.................... 820,735 687,560
Repurchased....................... (69,017,307) (116,829,298)
----------- ------------
Net increase / (decrease)......... 3,718,599 (5,974,438)
=========== ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
CLASS B DECEMBER 31, 1998 DECEMBER 31, 1997
- ------- ----------------- -----------------
<S> <C> <C>
Sold.............................. 15,159,484 17,941,947
Issued on reinvestment of
Distributions.................... 183,070 113,848
Repurchased....................... (12,518,717) (17,718,465)
------------ ------------
Net increase...................... 2,823,837 337,330
============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
CLASS C DECEMBER 31, 1998 DECEMBER 31, 1997
- ------- ----------------- -----------------
<S> <C> <C>
Sold.............................. 3,746,980 4,042,327
Issued on reinvestment of
Distributions.................... 13,517 10,606
Repurchased....................... (3,742,493) (3,721,548)
------------ ------------
Net increase...................... 18,004 331,385
============ ============
</TABLE>
<PAGE> 207
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Ivy Money Market Fund (the "Fund"):
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Fund at December 31, 1998, 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 presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 12, 1999
02IMMF123198
